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• ancillary provisions e.g. possible common use of<br />
the resource and/or whether exploitation rights are<br />
exclusive or not.<br />
EXTENDING THE LENGTH OF<br />
CONTRACTS<br />
Bioprospecting activities, especially in the pharmaceutical<br />
industry, are characterised by high:<br />
REWARDING BENEFITS THROUGH PAYMENTS AND MARKETS<br />
• asset specificity, in particular site-specificity (particular<br />
genetic materials are sited in particular locations)<br />
and dedicated assets (companies invest in<br />
bioprospecting to exploit the possibility of patenting<br />
new discoveries) (Williamson 1979) 21 ;<br />
• uncertainty: firms investing in R&D are unsure about<br />
the probability of new discoveries (Williamson<br />
1979); and<br />
• complexity: the activity generates several (positive<br />
and negative) impacts on biodiversity exploitation,<br />
research, innovation, corporate competitiveness<br />
and wealth redistribution.<br />
Long-term contracts represent a way to minimise<br />
transaction costs 22 linked to the above factors or to<br />
Source: Getty Images.<br />
bureaucratic and administrative constraints (e.g. generated<br />
by procedures such as public tenders or authorisations<br />
in countries exercising sovereign rights over<br />
biodiversity within their jurisdiction). Minimising such<br />
costs is important to provide incentives for companies<br />
to invest in R&D and to share benefits in accordance<br />
with CBD provisions.<br />
Specific areas where there may be scope for improvement<br />
include:<br />
• building a high level of trust between the parties,<br />
given the complexity of the issue and the impossibility<br />
of monitoring all aspects related to agreements<br />
(as in Section 5.2 above); and<br />
• instituting facilities for tracking benefits and resolving<br />
disputes across jurisdictions to make royalty<br />
sharing agreements enforceable. As with traditional<br />
knowledge, this will need inter-governmental<br />
cooperation.<br />
5.3.3 EQUITABLE SHARING OF<br />
BENEFITS DERIVED FROM<br />
GENETIC RESOURCES<br />
Equitable sharing of benefits is desirable not only<br />
on equity grounds, but also because it ensures<br />
more effective management of genetic resources.<br />
Traditional economics states that market institutions<br />
determine the efficient allocation of resources and the<br />
issue of equity can be left to policy makers. If applied<br />
to the context of genetic resources, this would mean<br />
that it did not matter who received what proportion of<br />
the rent from their exploitation: the market structure<br />
would ensure that materials were exploited and conserved<br />
optimally.<br />
However, recent literature shows that the traditional divide<br />
between equity and efficiency does not hold in this<br />
field (Gatti et al. 2004; van Soest and Lesink 2000) 23 .<br />
Genetic resource contracts negotiated between corporations<br />
and institutions in provider countries are very different<br />
from atomistic market transactions. A better way<br />
to analyse their outcomes is to use empirical results<br />
from game theory experiments which strongly suggest<br />
that the final outcome depends on the perception of<br />
<strong>TEEB</strong> FOR NATIONAL AND INTERNATIONAL POLICY MAKERS - CHAPTER 5: PAGE 38