Opportunity Cost of Environmental Conservation in the Presence of Externalities: Application to the Farmed and Wild Salmon Trade-Off in Norway

Abstract

Estimation of the opportunity cost is necessary for the economic assessment of environmental conservation policies. This paper considers the case where an environmental good is negatively affected in the process of the production of marketable goods. In the presence of externalities, conservation implies the undertaking of abatement measures by polluters. A relevant measure of opportunity cost in these settings is the abatement cost required to preserve or restore a unit of the environmental good in question. Current economic literature lacks an established methodology for deriving such measures, as it commonly focuses on pricing pollutants rather than the natural stocks affected by them. This paper uses a non-optimal valuation approach suggested by Fenichel and Abbott (JAERE 1(1/2):1–27, 2014) as a point of departure and develops a framework for deriving the opportunity cost of conservation as the cost of externality abatement per unit of environmental good. An empirical illustration is provided for the case of the farmed and wild salmon trade-off in Norway in light of the current pollution control regulations.