Biodiversity

What is the contribution of nature to the economy? Students of economics are well acquainted with production functions, which work out how inputs like capital and labour combine to yield output. These functions make all sorts of assumptions, many of which economists know well (that the contributions of capital and labour are subject to diminishing returns, say). Others rarely get a thought: that a mix of inputs that generates output on Earth will not on Venus, for example. The breathable air, drinkable water and tolerable temperatures that allow humans to do everything they do, and the complex ecosystems that maintain them, tend to be taken for granted. This is more than a mere analytical oversight, reckons a new report on the economics of biodiversity commissioned by the British government, and produced by Partha Dasgupta of the University of Cambridge. By overlooking the role nature plays in economic activity, economists underestimate the risks from environmental damage to growth and human welfare.