Behavioural and Welfare Analysis of an Intermediary in Biodiversity Offset Markets

Abstract

This paper provides a behavioural and welfare analysis of an intermediary in biodiversity offset markets. These markets are characterised by high information requirements and transaction costs, threatening economic efficiency and even biodiversity outcomes. Specialised intermediaries facilitate trading by providing information and brokering services. By buying, holding and selling offset credits from storage, the intermediary can decrease both financial and ecological risks in the market. As a drawback, the intermediary may exploit market power upstream or downstream due to ecological features of the offset market. Intermediaries decrease the trading parties’ transaction costs by offering specialised information, reduce uncertainty, and decrease the costs of offsetting by increasing liquidity in the market and offering certain offset credits.