Biodiversity Prospecting Over Time and Under Uncertainty: A Theory of Sorts

Handbook on the Economics of Ecosystem Services and Biodiversity, edited by P.A.L.D. Nunes, P. Kumar, and T. Dedeurwaerdere. Edward Elgar, 2014

Posted: 8 Aug 2014

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: August 6, 2014

Abstract

Biodiversity prospecting refers to the exploration of the commercial value of genetic and biochemical resources. In this chapter, we study a drug producing pharmaceutical firm (PF) that searches for potentially useful chemicals made by wild organisms in a conservation area. This PF is able to assign quality levels to the wild organisms in the conservation area. Organism quality is a proxy for the potential usefulness of the chemicals in an organism. At each date, our PF must decide whether to search for a new wild organism with a certain quality or to produce the drug in question with an extant wild organism with its own quality. Our theoretical analysis leads to four results. First, we show that if our PF discards a wild organism with a certain quality at a point in time then it will never use this same organism at a subsequent point in time. Second, we show that if our PF uses a particular organism with its quality at a point in time then it will continue to produce the drug with the chemicals from this organism at all later points in time. Third, we show that there is a threshold level of organism quality and that our PF’s optimal policy involves using (discarding) all organisms with quality above (below) this threshold. Finally, we study the impacts of increases in an exogenous income source and the discount factor on our PF’s threshold quality.

Keywords: Biodiversity Prospecting, Pharmaceutical Firm, Search, Time, Uncertainty

JEL Classification: D81, D83, I12

Suggested Citation

Batabyal, Amitrajeet A. and Nijkamp, Peter, Biodiversity Prospecting Over Time and Under Uncertainty: A Theory of Sorts (August 6, 2014). Handbook on the Economics of Ecosystem Services and Biodiversity, edited by P.A.L.D. Nunes, P. Kumar, and T. Dedeurwaerdere. Edward Elgar, 2014, Available at SSRN: https://ssrn.com/abstract=2477100

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology ( email )

Department of Economics, RIT
92 Lomb Memorial Drive
Rochester, NY NEW YORK 14623-5604
United States
5853134063 (Phone)
5854755777 (Fax)

HOME PAGE: http://people.rit.edu/aabgsh

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446091 (Phone)
+31 20 4445611 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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