Reframing Biodiversity and Social Capital through Incomplete Contracts
DOI:
https://doi.org/10.55845/jos-2025-1113Keywords:
Natural Capital, Nature Crisis, Social Capital, Contract Theory, Developed CountriesAbstract
Terrestrial biodiversity conservation is severely limited due to a lack of knowledge about impending biodiversity losses. We introduce the application of incomplete continuous contracting theory to less or more biodiverse land trading in developed countries, where ownership levels between trading parties differ significantly, thereby diminishing social capital. We find that biodiversity can be preserved (1) when there is one price reflecting the equal cost and value of the land, and (2) when price differentials are large and the value is no less than the cost of the land. Biodiversity is harmed when the initial value of biodiversity is higher than the cost of acquiring it. With repeated contracting, aggrievement (a party's perception of being treated unfairly based on a deviation from a reference point) and shading (a deliberate reduction in performance or cooperation by one party in response to feeling aggrieved) occur. These preliminary results indicate that different outcomes can be achieved with varying information about the value of biodiversity, providing strong support for the monetary valuation of biodiversity.
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