Commercialization decisions and the economics of introduction

Summary

A commercial horticultural industry that establishes plant-breeding nurseries for an exotic species throughout a regional economy will expand until the marginal profit of the last nursery established is zero. However, a regional government concerned with social welfare will take into account not only the profits of the horticultural industry but also any expected costs of an accidental invasion. The latter costs will consist of the discounted expected social damages due to an increase in the rate of invasion over time and the increase in expected damage cost per hectare caused by an additional nursery. A government can employ an “introducers' pay” tax equal to the latter social costs to ensure that the plant breeding industry establishes the optimal number of nurseries. We illustrate this outcome with the example of purple loosestrife (Lythrum salicaria) in North America. In the absence of any tax, the horticultural industry will establish n = 3528 nursery operations, and the expected damages from invasion are US$ 28.2 million per year. With the tax, only n = 300 nurseries are established but the expected damages from invasion are reduced to US$ 1.3 million per year. Although profits for the horticultural industry are lower from the tax, the net gains in overall social welfare more than offset the losses. Although these results are illustrative only, they show that the problem of plant invasives initiated by commercial operations is amenable to standard economic analysis and solutions, such as implementation of an “introducers' pay tax”.