Conservation Banking Reference point is critical when you calculate willingness to pay Different ways to solve this puzzle We were not careful enough with our language so different solutions could be defended One viable solution Ask a land owner If the price of a credit is p how much surplus would you get from development and thus having to purchase a credit above and beyond what you could get from banking If the answer is positive then development is preferred to banking If the answer is negative then banking is preferred to development Amount of wedge is the surplus relative to the opportunity cost Surplus for a landowner Parameters Development value D 1 credit price p 3 components Benefit from development D Financial cost from development p Opportunity cost from development p Net surplus of permit to develop above and beyond banking D 2p What is p For any given p this value is either positive or negative for every landowner Need to find the p for which the market clears If p too low too many want to develop not enough want to bank If p too high too many want to bank The basic result Surplus to Developers Surplus to Bankers Mitigation ratio Now suppose you need a permits to offset development of 1 permit 3 components Benefit from development D Financial cost from development ap Opportunity cost from development p Net surplus of permit to develop above and beyond banking D p 1 a Again need to find market clearing price Compare with C C Everyone develops half 656 Remember this is relative to nothing Conservation banking above and beyond next best alternative either banking or developing 663 Next best alternative 325 Total 988 Strategic development 988
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