Risk management instruments for debt driven conservation efforts: The case of India's Project Tiger

Bioprospecting activities form good revenue sources for tiger reserves to pay off their debts. However bioprospecting activities do not provide assured returns to tiger reserves. Pharmaceutical companies that prospect for genetic resources and practice 'real options' approach to R&D investment planning, adopt multi-phased investment systems and sequential searches that gives them the flexibility to abandon R&D projects. From the point of view of genetic resource providing entities like Project Tiger Reserves, the 'postponement value' generated by real options, enables a drug company to tap substitutes for the genetic resources that form the subject matter of bioprospecting contracts. To obviate possible repayment risks by tiger reserves, the paper advocates the institution of 'put bonds' as a risk management tool for Project Tiger Reserves in order to hedge themselves against loan defaults arising from possible loss in bioprospecting income. The paper also brings out the mechanics of the issue of tiger bonds in the Indian context. It is argued that a put bond not only hedges default risks but would also aid 'value discovery' and payment for ecosystem services as far as the Project Tiger Reserves of India are concerned.