Regulation versus Subsidies in Conservation with a Self-Interested Policy Maker

This article examines the following case. A set of countries produce goods from labor, government input and natural resources. Because the conservation of natural resources in any country yields utility (e.g. through biodiversity) in every country, and because there is no benevolent international government, a resident of the countries is chosen as the regulator to whom conservation policy is delegated. The countries influence the regulator by their political contributions. In this common agency setup, the following result is proven: as long as the minimum conservation standards are implemented, conservation subsidies are welfare decreasing, involving excessive conservation. This suggests that there should be no “co-financing” for designated conservation sites in the EU NATURA 2000 project. Journal of Economic Literature: H23, F15, Q24