Some of our planet’s greatest wealth is contained in natural forests, mountains, wetlands, marine habitats and other ecosystems. But instead of conserving the environment, current processes of development often deplete many biological resources at such a rate that they will be rendered essentially non-renewable. Too little biological diversity will be conserved by market forces alone. This is because most environmental goods have the characteristics of public goods and suffer from complete or partial market failure. This means that, because all or some of their benefits and costs don’t enter the market, they are either not produced or are produced in insufficient quantities.

A key problem is that some people earn short-term benefits from exploiting biological resources without paying the full social and economic costs of resource depletion; instead, these costs (to be paid either now or in the future) are transferred to society as a whole. Further, the nations with the greatest biological diversity are frequently those with the fewest economic means to implement conservation programmes.

Economic valuation is the first step towards solving this problem. Economic valuation, as opposed to mere financial valuation, measures both the market and non-market values of a resource. In other words, it measures the total economic value of a resource, including direct use value (like food, fodder, and timber), indirect use value (like watershed protection and soil fertility), and non-use value (like existence value of biodiversity). Thus economic valuation can assess the true flow of benefits from a forest or wetland, as well as how these benefits are being distributed among the stakeholders.

However, valuation by itself does not change anything on the ground. The challenge is to ensure that those who bear the cost of conserving an environmental resource also benefit from such conservation. The right incentive mechanisms must be in place so that the perceived benefits outweigh the perceived costs of conservation and / or sustainable use.

An incentive for conservation is any inducement which is specifically intended to motivate governments, local people, and international organizations to conserve biological diversity. A perverse incentive is one which induces behavior that depletes biological diversity.