Self-enforcing Biodiversity Agreements with Financial Support from North to South

The present paper analyzes self-enforcing biodiversity agreements (or coalitions) in a multi-country general equilibrium model. Governments split up all land in unprotected and protected land, and there are internationally traded consumption goods that use either protected or unprotected land as an input in production. Global biodiversity is increasing in aggregate protected land. The willingness-to-pay for biodiversity (conservation) is larger in the 'rich' North than in the 'poor' South. There is an international market on which governments and possibly a coalition of northern countries may demand and/or offer unprotected land for conversion into protected land. If a coalition exists, it turns out to be the only demander on that market, and its demand is increasing in coalition size. We investigate the formation of self-enforcing coalitions when governments and the coalition either take prices as given or exert market power. We find that there are no such coalitions, when external biodiversity benefits are large, but there may be self-enforcing coalitions, even large ones, if these benefits are sufficiently small. Furthermore, it is possible that the South suffers a welfare loss when a self-enforcing coalition of northern countries pays for biodiversity conservation in the South.