Academic journal article Economic Inquiry

Growth with Endogenous Risk of Biological Invasion

Academic journal article Economic Inquiry

Growth with Endogenous Risk of Biological Invasion

Article excerpt

We model biological invasions as an unintended by-product of capital accumulation. We distinguish three spillover effects: (1) a negative production externality, (2) a negative or positive consumption externality and (3) an increase in the risk of future welfare loss. We also consider the implications when households self-protect by allocating income to reduce the potential damages from a biological invasion. An optimal output tax for production externalities is straightforward and can be augmented in the case of negative or positive spillover effects on consumer welfare. Policies to correct the effect of invasions on endogenous risk are more difficult to design. (JEL O13, O41, Q2)


Biological invasions--the introduction of living organisms beyond their original range--are an old story newly appreciated. For centuries, species have traveled abroad with humans, either as domesticated companions or as unintended stowaways. What is realized today is that the international movement of people, goods, and raw materials has amplified the rate at which species move beyond their natural environs "by a hundred-fold to a million-fold" (Lodge 2002). More and faster trade and tourism has increased the odds of more accidental and intentional introductions of invasive species likely to harm environmental and human health. These biological invaders move to new locals through the trade to satisfy human consumption, including ballast tank discharges from ships, escapes or releases from private owners through the biological supply trade, and the live food trade (National Invasive Species Council [NISC] 2000, 2001). Although most invading species do not survive in their new habitats, those that do can generate considerable financial damages, both at the national level or at specific locales (see, for instance, Government Accounting Office [GAO] 2000; National Research Council [NRC] 2002; Perrings et al. 2000; Pimental et al. 2000; Office of Technology Assessment [OTA] 1993). (1)

Herein we examine the link between the risk of biological invasions and the expansion of economic activity. (2) In a global market in which all economies are essentially "open," the risk of a successful biological invasion occurring in any particular region or locality is endogenous. Economic growth and capital accumulation in any region of the world necessarily involves the importation of commodities and people from elsewhere and, as a consequence, increases the likelihood of a successful biological invasion in the local environment. Our work focuses on the possible linkage between growth and the endogenous risk of biological invasion by considering a regional or local economy that is closed except for the importation of some capital goods. We designate all capital in the economy as K, a proxy for a composite of capital goods that includes physical and human components (i.e., physical capital, human capital, knowledge public infrastructure, etc.). This composite capital stock may also include natural resources that are not fixed in supply and are a function of investment in exploration, research, and development (raw materials, minerals, and energy resources). (3)

Because some capital accumulation may occur in the local or regional economy through the importation of various capital goods including natural resources, any increase in the composite stock, K, of the economy carries the risk of a successful biological invasion. The accumulation of capital in the local economy could lead to the introduction, either by accident or through deliberate design, of a noncaptive (i.e., casual or feral) species that establishes itself permanently or temporarily in the host environment of the economy.

Linking biological invasions to capital accumulation as we broadly define it seems to accord with most of the evidence on the introduction of nonindigenous species into new environments. Most plant and vertebrate animal introductions, for instance, are largely intentional, usually deliberately imported as plant or breeding stock for agricultural activities, including pest control (Pimental et al. …

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