Biodiversity loss--the extinction of species and loss of genetic variation within species--has important implications for agriculture and medicine. Genetic improvements have accounted for half of the yield gains in major cereal crops since the 1930s (U.S., OTA, 1987). Vice President Gore (1992) argues that "the single most serious strategic threat to the global food system is the threat of genetic erosion: the loss of germplasm and the increased vulnerability of food crops to their natural enemies." About half of the world's drugs are derived from plant and animal materials (Brown and Swierzbinski, 1985) and about 70 percent of the 3,000 species known to have anticancer properties are found in tropical forests (National Academy of Sciences, 1982).
Genetic resources found in tropical rainforests are disappearing at dramatic rates, however. Approximately 42 million acres of tropical forest land are cleared each year, primarily for subsistence agriculture and cattle ranching (Forster, 1993). Habitat loss from tropical deforestation is a major cause of extinction as biologists estimate that tropical forests are home to 50 to 70 percent of the species on the planet (Wilson, 1988; Raven, 1980).
If genetic resources are so valuable, why are humans depleting them so rapidly? Economists have examined two sets of factors contributing to genetic resource depletion. The first are market failures that suppress the demand for conservation of genetic resources (Brown, 1987; Sedjo, 1992; Simpson and Sedjo, 1992; Sandler, 1993). The second are competing demands for alternative uses of lands that serve as wildlife habitats. Returns to these other uses form the opportunity costs of habitat preservation (Dasgupta, 1987; Noll, 1987; Forster, 1992; Thiesenhusen, 1991; Binswanger, 1991).
Market failures arise from poorly defined property rights over genetic resources. Developing countries are unable to capture much of the social gains from their genetic materials that others use to produce new seed varieties or medicines. This is because naturally occurring plants or animals are not considered patentable inventions. Genetic resources are easy to transport and replicate, making it difficult for a country to exclude others from their use. Thus, countries preserve too little habitat because they are not fully compensated for their resources.
One response to this market failure has been the formulation of biotechnology development agreements (BDAs). BDAs are agreements between private firms and developing countries to share genetic resources and the gains from new product development. These agreements involve payments to developing countries for their genetic materials, technology sharing arrangements, and patent protection for private firms. They represent institutional innovations that allow countries to capture a greater share of the external benefits of their resources. BDAs have been touted as a potentially important means to increase the marginal benefits of biodiversity preservation (Simpson and Sedjo, 1992; Eisner, 1989-1990; Blum, 1993; Sandler, 1993; Reid et al., 1993; Aldous, 1991; Roberts, 1992).
Much attention has been given to BDAs as a way to correct market failures and increase the benefits of biodiversity conservation. However, the immediate cause of biodiversity loss is the conversion of tropical forests to crop and pasture land. For this reason, a number of studies have focused on the role of agricultural markets, population pressure, and government policies on the returns to competing uses of forest land (Forster, 1992; Thiesenhusen, 1991; Binswanger, 1991). From this perspective, increased demand for agricultural land leads to biodiversity loss independent of the existence of market failures.
This paper assesses the role BDAs play in creating incentives to conserve biodiversity, keeping in mind the importance of both market failures and opportunity costs. BDAs thus are only one of many factors affecting biodiversity conservation. …