Protecting Eden: markets or government?

The majority of species classified as “threatened”, “endangered” or “vulnerable” by the IUCN are to be found in government-controlled parks and legally protected areas in developing countries. Dissatisfaction with the public sector's record in protecting endangered species has prompted calls for the use of market-based instruments and other economic incentives to promote more effective environmental outcomes. In this paper, we examine whether greater reliance on market-based incentives would result in improved environmental outcomes in national parks. We address this issue by extending the literature on optimal contracts to the case of a renewable resource. We identify conditions under which private ownership or control of a national park induces more (less) efficient management of protected areas. The paper concludes with a discussion of the limitations of the analysis and the implications of these results for the conservation of biodiversity.