Read Exhibit 10.6 carefully and answer the following question: Can a free-market system be trusted to effectively address the global concern in biodiversity loss? Why or why not?

Exhibit 10.6

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EXHIBIT 10.6 CAN MARKETS BE TRUSTED TO ADDRESS BIODIVERSITY LOSS EFFECTIVELY? While not disputing the growing human-induced pres- est ecosystem services for carbon sequestration through sures on biodiversity, some economists (Lomborg 1998; Simon and Kahn 1984) have argued against prema- ture public interventions to move society from a situa- tion resembling S, towards S' in Figure 10.3 Their argument is based on the notion that S, actually rep- resents a 'transitional equilibrium market outcome. This is because of the belief by pro-market economists that D, will start to shift upward as ecosystem services become increasingly valuable in the future, mainly due the expected increases in global population and eco- nomic growth. market mechanisms-the price for carbon. In the European Union (EU) there are emerging markets in which carbon is traded like any other commodity with delineated ownership rights. What prompted this devel- opment has been the growing scientific evidence for the human-induced causes of climate change-the emis- sion of greenhouse gases. Another example is a case already discussed in Chapter 1-the scarcity of potable water in the New York City area. The water that quenches the thirst of millions of New Yorkers comes entirely from an ecosys- tem that is still functional: the forested Catskill Mountains north of the city. However, in recent years, pollution (i.e., sewage and pesticides) has degraded the water quality to the point where New York's water no longer met EPA standards. This problem could be remedied in two ways: by investing in capital equipment (such as water treatment More specifically, according to Simon and Lomborg, in the future an upward shift in D, will automatically occur as some ecosystem services that are now treated as 'free goods' become scarce and start to be appro- priated and assigned well-defined ownership rights. A good example of this kind of transformation would be the recent effort to capture the 'scarcity' value of for-