Hugh Bollinger / Monday, May 2, 2011

Palau shows externalities matter

Traditional economics has always had problems dealing with externalities -- costs or benefits that are not included in the price for a good or service. A tree has "no value" economically unless it is turned into board feet and a tuna has none either unless it is turned into sushi. The price for the wood or the fish fillet does not include the services the two biological resources provide: hydrological and erosion control in the case of forests and ecosystem stability in the case of large predators like tuna. Externalities have been ignored because it was thought they were too hard to measure but this may change if a brilliant piece of economic analysis done by the Australian Institute of Marine Sciences (AIMS) can be applied broadly. The AIMS study-- supported by funding from the Pew Environmental Group -- could apply elsewhere if measurements of externalities were incorporated into the benefits realized but not previously calculated. In the case of the AIMS study, the island nation of Palau served as the case study. Palau is a remote nation of over 300 islands and coral atolls spread across a wide swath of the western Pacific. Tourism is their chief economic driver and reef diving in particular makes Palau a prime destination. Tourists stay in the island's hotels, rent boats, hire dive masters to show key dive spots, and take lots of photos in the coral gardens. [caption id="attachment_3890" align="aligncenter" width="470" caption="Palau islands and reefs. Source: file photo"]

[/caption] The health of the reefs surrounding Palau's islands is largely maintained by grey reef and white-tip sharks. These animals are the "top predators" on the reefs and perform this key ecosystem service at no cost to the islands. [caption id="attachment_3869" align="aligncenter" width="600" caption="Grey reef shark. Source: file photo"]

[/caption] Sharks are under intense pressure for their fins which are used in a popular Asian soup that Riled Up previously profiled here. Palau's sharks could also be threatened by such consumption. In the case of Palau, diving enthusiasts contribute nearly 40% of the gross domestic product of $218 million to the nation. Many divers come specifically to the islands to swim among the reef sharks. AIMS calculated that for each shark that inhabits the prime dive sites, that animal contributed nearly $180,000 to the island's tourism industry and a life-time value of $1.9 million. This compares to barely $11,000 each if the same sharks were killed for their fins to make soup. No matter by what measure you use to determine value, keeping the sharks in the water made both good economic and ecological sense for Palau. The Islands have now created one of the world's first shark sanctuaries to prevent fin hunting. Island nations where diving is a major source of income and pride could soon follow Palau's direction. The Australian researches who ran the economic analysis have really "added value" to expanding the role of incorporating externalities into conservation analyses everywhere. - WHB

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Tags: Australian Institute of Marine Sciences coral reefs economic externalities ecosystems services marine conservation Palau sharks

Palau shows externalities matter

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