







































Ecology, Economy and Society–the INSEE Journal 1 (2): 3–10, July 2018 

 
COMMENTARY 
 

Biological Conservation and Economic Theory 
 

Charles Perrings  and Ann Kinzig  
 

1. INTRODUCTION  

The field of conservation biology was originally developed as the science 
required to preserve endangered wild species in protected areas. The field 
has broadened its remit since then, but remains focused on wild living 
species. Yet, preservation of wild living species is just the tip of the 
conservation iceberg. The problem of conservation is much more generic 
than this. It is the problem of what to keep and how long to keep it, what 
to maintain in some state and what to allow to change, what to use and 
what to throw away. The protection of natural habitats or watersheds, the 
maintenance of the population of an exploited species, the preservation of 
ex situ collections of germplasm, the curation of art or natural history 
museum exhibits, and the listing of nationally important buildings or 
monuments are all examples of conservation problems. It is reasonable to 
ask what principles are at work in deciding what to conserve, and what to 
convert, independent of the particular conservation problem at hand. It is 
also reasonable to ask how these principles relate to the biology of 
threatened species. 

In this note we draw on a forthcoming book (Perrings 2019) to consider 
how the problem posed by conservation biology appears through the lens 
of economic theory. In particular, we ask how the theory of conservation 
embedded in the work of Harold Hotelling helps both to deepen 
understanding of the aims and objectives of conservation biology and to 
implement the system of triage that must guide conservation efforts in a 

 
 School of Life Sciences, Arizona State University, Tempe, AZ85287, 

Charles.Perrings@asu.edu.  

 School of Life Sciences, Arizona State University, Tempe, AZ85287, 
Ann.Kinzig@asu.edu. 

Copyright © Perrings and Kinzig 2018. Released under Creative Commons Attribution-
NonCommercial 4.0 International licence (CC BY-NC 4.0) by the author.  

Published by Indian Society for Ecological Economics (INSEE), c/o Institute of Economic 
Growth, University Enclave, North Campus, Delhi 110007.  

ISSN: 2581-6152 (print); 2581-6101 (web). 

DOI: https://doi.org/10.37773/ees.v1i2.31  

https://doi.org/10.37773/ees.v1i2.31


Ecology, Economy and Society–the INSEE Journal [4] 

world of limited resources. The evolution of ecological economics as a field 
has been dominated by debates over what information to privilege in the 
management of human–environment interactions. Conservation biology 
has a similar history. We show how Hotelling’s work helps anchor the 
claims made in both fields. 

 

2. HOTELLING’S THEORY OF CONSERVATION 

Our starting point is the general theory of conservation contained in 
Hotelling’s paper on optimal extraction of non-renewable resources 
(Hotelling 1931). In that paper Hotelling provided a simple and intuitive 
test of when it is optimal to maintain an object, resource, or system in some 
state and when it is optimal to convert it to an alternative state. Hotelling 
showed that if the value of a resource when conserved in some state was 
expected to rise more rapidly than its value when converted to an 
alternative state, it would be optimal to conserve the resource. By focusing 
on the expected change in the value of resources in different states, the test 
allows us to see conservation as one among many alternative future uses. 
Conservation decisions accordingly reflect all of the factors that influence 
the value of resources. This includes the factors typically considered by 
economists such as individual preferences, social norms and mores, 
property rights and the legal system, technology, and the substitutability or 
complementarity of goods and services. But it also includes factors that 
weigh more heavily with others, such as the ecological functions performed 
by species or their place in the food web, their phylogenetic distinctiveness, 
and the degree to which they are endangered. 

Hotelling saw the emergence of the conservation movement as a response 
to the perception that natural resources were being undervalued and hence 
overused. In the light of this he asked what the value of natural resources 
should be if they were being used in the best interests of society. Hotelling 
asked, more particularly, under what conditions the owner of some mineral 
right would choose to extract the ore assuming that the objective of the 
resource owner was to maximize the present value of the future stream of 
net benefits to be had from exploitation of the resource. If the value of the 
resource at time t —what Hotelling called the ‘net price’ of the resource—is 

)(tp , and if the rate of return on alternative assets is  , it is intuitive that 

the answer to this question should involve balancing the rate of growth in 

)(tp and  . The Hotelling arbitrage condition does exactly that. In the case 

of exhaustible resources it holds that the resource owner will be indifferent 
between holding and extracting the resource if the proportional growth in 



[5] Charles Perrings and Ann Kinzig 

the value of the resource when conserved is equal to the proportional 
growth in its value when converted. 

=
)(tp

p   (1.1) 

That is, a resource owner will conserve the resource if the expected capital 
gain of holding on to it is equal to the return that could be had if it were 
converted. 

The Hotelling approach turns out to be broad enough to deal with a wide 
range of conservation decisions—the decision to hold or sell stocks and 
bonds is just as much a conservation decision as the decision to hold or sell 
natural resources. It also makes the decision to harvest or protect wild or 
domestic populations of fish, mammals, birds, and plants as consistent with 
the decision to extract non-renewables such as minerals, oil, gas, and fossil 
water. The difference between renewable and non-renewable resources is 
that the value of renewables can change for different reasons. As with non-
renewables, the value of the resource can change for any of the usual 
demand-side reasons. Unlike non-renewables, however, the value of 
renewables can also change because of changes in the size of the resource 
itself. 

Suppose that a renewable natural resource, the population of a particular 

species ,N  grows according to the general relation )).(),(( thtNfN =  That is, 

growth is density-dependent—it depends positively or negatively on the 
size of the resource stock and along with some control, ).(th  If the value of 

the resource is denoted )()( tNtp it can be shown that the Hotelling 

arbitrage condition takes the form 

=+
)()( tN

N

tp

p    (1.2) 

That is, the decision to conserve or convert depends both on the expected 

capital gain, 
)(tp

p , and the expected growth rate in the size of the stock, 

)(tN
N . An immediate implication is that the capital gain which warrants 

conservation in situ is smaller, the higher the growth rate of the population 
of  N . Conversely, for slow-growing or declining species, conservation will 
only be warranted if the expected capital gain is high enough. 

The consequences of the trade-off between biological growth, value 
growth, and conservation have been thoroughly explored in the case of 
fisheries. Clark’s conclusion that it could be optimal to drive blue whales to 



Ecology, Economy and Society–the INSEE Journal [6] 

economic extinction depended on the observation that the natural rate of 
regeneration of the species was low relative to the rate of return on 
alternative assets (Clark 1973; Clark 1976); however, it also assumed that 
the low biological growth rate of the species was not compensated by the 
growth in its value, and that the only thing that prevented the extinction of 
the species was the increasing cost of accessing whales as their numbers fell 
(Clark 2006). The example nicely illustrates both the main elements in the 
decision to conserve living resources, and the points at which different 
disciplines have traction on the problem. 

To see how the relationship between the Hotelling arbitrage condition and 

the optimal conservation of some natural capital stock, 
 
N t( ), consider the 

following simple problem: 

dtthtpeMax t

th )()(
0

)( 


−   (1.3) 

subject to 

)())(( thtNfN −=   (1.4) 

A manager chooses the level of harvest of species N so as to maximize the 
value of harvest. Benefits are discounted at the rate ,  which we take to be 

equal to the rate of interest on alternative investments. The manager’s 

actions are constrained by the growth rate of the species, .N  

First, note that the Hotelling arbitrage condition for this problem, equation 
1.2, implies that 









−=

)(
)())(),((

tp

p
tNthtNf


  

from which it follows that at the point where the resource owner is 
indifferent between holding and conserving the resource, the slope of the 

density-dependent biological growth function, 
)(

))(),((

tdN

thtNdf , will be equal 

to the difference between the opportunity cost of capital and the expected 

capital gain on the stock, 
)(tp

p
− . 

Now, consider the first order necessary conditions for harvest to be optimal 
in the problem described in equation 1.3. These include the requirements 
that 

)()( ttp =   (1.5) 



[7] Charles Perrings and Ann Kinzig 

and 

)(

))((
)()(

tdN

tNdf
tt  −=−   (1.6) 

where )(t  is the shadow value of natural capital (a co-state variable, the 

multiplier in the current value Hamiltonian for the problem). These 
conditions together imply that along an optimal harvest trajectory 

)(

))((

)()(

))((

)( tdN

tNdf

tp

p

tdN

tNdf

t
+=+=






   (1.7) 

But if the resource owner is indifferent between conserving and converting 
the resource, this is just a restatement of the requirement that the slope of 
the density-dependent biological growth function will be equal to the 
difference between the opportunity cost of capital and the expected capital 
gain on the stock. This does however depend on the equivalence between 
the price and the shadow value—the true social opportunity cost—of 
natural capital. 

 

3. HOTELLING THEORY OF CONSERVATION AND 
CONSERVATION BIOLOGY 

How does the Hotelling approach connect to the propositions inherent in 
conservation biology? As we have already noted, Hotelling himself saw the 
origins of the conservation movement in the perception that the natural 
environment was both undervalued and overexploited. Hotelling sought to 
understand the basis of the value of natural resources, why that value might 
change over time, and how change in the value of natural resources might 
influence their conservation. The arbitrage condition applied to living 
resources or resource systems tells us that conservation depends both on 
the expected growth in the value of assets if conserved relative to the 
expected growth in their value if converted, and on the expected physical 
change in the stocks themselves. 

The central tenet of conservation biology as it originally developed was that 
the value attached by the majority of landowners and landholders to wild 
species is strictly less than its true value to society—that there is a wedge 
between the value attached by individuals to wild species and the value of 
those species to society (Soule 1985). Several reasons were advanced to 
explain why this has occurred. The most important of these was ignorance 
about the role played by particular species, and communities of species, and 
the relation between ecological functioning and the ecosystem services that 
benefit humans. Ignorance about the effects of reduced diversity of food 



Ecology, Economy and Society–the INSEE Journal [8] 

webs on decomposition, nutrient retention, plant productivity, and water 
retention, for example, was argued to threaten a number of ecological 
functions of direct or indirect benefit to humans (Naeem et al. 1996). 
Ignorance about source and sink dynamics was cited as a major reason for 
the extirpation of many protected sink populations. Failure to protect 
disproportionately valuable source populations necessarily put associated 
sink populations at risk, even if those populations were otherwise protected 
(Mangel et al. 1996). More generally, by focusing on single species, 
populations, or biotopes in isolation from the system that supports them, 
resource owners paid insufficient attention to critical elements of the wider 
system (Myers 1996). 

A related concern was that decisions that reduced biodiversity tended to be 
focused on short-term gain, and also that these tended to pay insufficient 
attention to the longer-term costs in terms of reduced capacity to protect 
future options against fundamental change. Since the neglect of longer-term 
costs stems either from ignorance or from the application of high discount 
rates, and since there is an ethical component to discounting, the 
undervaluation of species and whole ecosystems was taken to reflect—at 
least in part—an ethic of myopic greed. By contrast, conservation biology 
was argued to be concerned about the maintenance of whole ecosystems 
over the long term. It was claimed that the difference in the values attached 
by conservation biologists to species reflected a fundamental difference in 
ethics (Mangel et al. 1996). 

At the core of the conservation ethic was the proposition that biodiversity 
has intrinsic value, irrespective of its instrumental or utilitarian value, and 
that value is ‘neither conferred nor revocable’ but springs from the fact of 
the species’ existence (Soulé 1985). There are obvious practical difficulties 
with a concept of value that is independent of human preferences and yet is 
expected to guide human action. Indeed, many of these difficulties are 
recognized by conservation biologists themselves (Justus et al. 2009). But if 
we think of the argument as a statement that there is value to species that 
stems from their place in the natural system, rather than from their 
incorporation in a managed production process, then it is quite consistent 
with the general proposition that nature is undervalued when measured by 
the market price of harvested species. It is also consistent with the key 
proposition implicit in the Hotelling arbitrage condition for renewable 
natural resources: the expected growth in value of natural resources 
comprises the sum of the expected capital gain in holding those resources in 
situ and of the value added through their role in the functioning of the 
natural system. 



[9] Charles Perrings and Ann Kinzig 

Many of the original propositions of conservation biology have evolved 
with efforts to uncover the value attached to the many and varied roles 
played by genes, species, landscapes, and ecosystems. There is now a more 
systematic attempt to ask what benefits are lost when there is a change in 
either species richness or abundance. The notion of intrinsic value still has a 
place in the language of conservation biologists, but it is increasingly linked 
to the value deriving from the place of species in the ecosystem rather than 
their mere existence (Doak et al. 2015). The decision to conserve some 
aspect of the natural system in some state depends on the expected growth 
in the value of the system in that state, taking account of the role it has in 
the wider functioning of the system. 

While the simple example used to illustrate the Hotelling approach to 
conservation focuses on a single species, both conservation biology and 
ecology reinforce the idea that the value of any one species to human 
society depends as much on its contribution to the functioning of the wider 
ecosystem as on the specific traits that make it useful in one application or 
another. Although the wider value of species is sometimes clouded by 
conservation biologists’ insistence on the relevance of intrinsic value, it 
helps to remind us that for many people a sense of stewardship and moral 
obligation is a major determinant of the value they assign to the 
conservation of populations, species, and ecosystems. 

 

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Clark, C. W. 1973. “The economics of overexploitation.” Science 181 (4100): 630–
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Clark, C. W. 1976. Mathematical bioeconomics: the optimal management of renewable resource. 
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Clark, C. W. 2006. The worldwide crisis in fisheries: economic models and human behavior. 
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Doak, D. F., V. J. Bakker, B. E. Goldstein, and B. Hale. 2015. “What is the future 
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Justus, J., M. Colyvan, H. Regan, and L. Maguire. 2009. “Buying into conservation: 
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