Conservation Banking

1
Conservation Banking

• Reference point is critical when you calculate
  willingness to pay.
• Different ways to solve this puzzle.
• We were not careful enough with our language, so
  different solutions could be defended.

2
One viable solution

• Ask a land-owner If the price of a credit is p,
  how much surplus would you get from development
  (and thus having to purchase a credit), above and
  beyond what you could get from banking?
• If the answer is positive, then development is
  preferred to banking
• If the answer is negative, then banking is
  preferred to development
• Amount of wedge is the surplus, relative to the
  opportunity cost

3
Surplus for a landowner

• Parameters
• Development value D, 1 credit, price p
• 3 components
• Benefit from development D
• Financial cost from development p
• Opportunity cost from development p
• Net surplus of permit to develop (above and
  beyond banking) D-2p

4
What is p?

• For any given p, this value is either positive or
  negative for every landowner
• Need to find the p for which the market clears
• If p too low, too many want to develop, not
  enough want to bank
• If p too high, too many want to bank

5
The basic result
Surplus to Developers
Surplus to Bankers
6
Mitigation ratio

• Now suppose you need a permits to offset
  development of 1 permit.
• 3 components
• Benefit from development D
• Financial cost from development ap
• Opportunity cost from development p
• Net surplus of permit to develop (above and
  beyond banking) D-p(1a)
• Again, need to find market clearing price

7
Compare with CC

• Everyone develops half 656
• Remember, this is relative to nothing!
• Conservation banking, above and beyond next best
  alternative (either banking or developing) 663
• Next best alternative 325
• Total 988
• Strategic development 988