Understanding the Performance of Biodiversity Offset Markets: Evidence from An Integrated Ecological - Economic Model

Biodiversity offset markets can incentivize private landowners to take actions that benefit biodiversity. A spatially explicit integrated ecological-economic model is developed and employed for a UK region where offset buyers (house developers) and sellers (farmers) interact through trading offset credits. We simulate how changes in the ecological metric and geographic scale affects the performance of the offset market. Results show that the choice of the metric has a significant effect on market liquidity and the spatial distribution of gains and losses in the “target” species. The results also consistently reveal relatively higher potential welfare gains for developers than for farmers.