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Preserving ecologically sensitive hotspots under endogenous regulation and valuation constraints
Published in Rocky Mountain Mathematics Consortium
Volume: 30
Issue: 4
Abstract: We model tradeoffs arising between protecting biodiversity hotspots and promoting economic growth in developing economies. Environmental valuation and economic growth are assumed to be inherently linked, whereas, the ability to enforce stricter environmental regulations is constrained by the presence of regulator-commercial nexus. A dynamic optimization framework is adopted to derive optimal time path of forest acreage preservation efforts from the perspective of a regulator, whose utility function may not be fully aligned with that of the society. Results indicate that due to the presence of a regulator-commercial nexus, the regulator's optimal plan leads to a discounting of biodiversity preservation goals in favor of short-term economic growth. Further, when the degradation of the environment provides negative feedback to local economic growth, the regulator's optimal plan deviates significantly from the socially optimal plan, resulting in losses to both economic growth and the biodiversity. Recommendations for Resource Managers: Regulator-commercial nexus can undermine the goal of preserving biodiversity hotspots. A regulator having significant nexus with the commercial exploiters of biodiversity would underinvest toward biodiversity preservation efforts. The resulting lax environmental regulations, even though they may appear to be providing beneficial results to the economy in the short term, could harm the environment as well as the economy in the long term. Short-term economic gains that materialize through the overexploitation of the biodiversity also help disguise and sustain the regulator-commercial nexus. When environmental degradation could provide negative feedback to economic growth, the differences in biodiversity preservation efforts under a socially optimal plan and that under a regulator-commercial nexus stand in sharp contrast. A socially optimal plan leads to lower rate of economic growth in the short term; however, the long-term outcomes for the environment as well as the economy are significantly higher as compared to what is possible under a regulator-commercial nexus. Copyright © 2017 Wiley Periodicals, Inc.
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Published in Rocky Mountain Mathematics Consortium
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