Theoretical Issues in Using Offsets for Managing Biodiversity

Analysis of environmental problems involves addressing some of the complexities of economics that arise when departures are contemplated from the theory of perfectly competitive markets and its assumptions of allocated, appropriable property rights. It is currently fashionable to advocate the use of market based instruments, including offsets, to solve environmental problems. In this paper, the theoretical issues involved in using offsets are examined and illustrated in relation to biodiversity management. It is argued that, although offsets schemes have been successfully developed for pollution markets, there are considerably greater challenges in designing them for efficient and widely applicable biodiversity management.