ABSTRACT
Natural organisms' genetic codes contain the "recipes" for chemical compounds of potential value in pharmaceutical products. Organizations in many countries are now entering into commercial agreements with foreign pharmaceutical researchers. The most noted of these agreements is probably the one signed between Merck and Company, a large US pharmaceutical firm, and Costa Rica's Instituto Nacional de Biodiver-sidad. This chapter derives a simple demand function for biodiversity in pharmaceutical research, determines the willingness to pay for the "marginal species," and considers the sensitivity of the value of the marginal species to the probability of discovery and assumptions concerning overall profitability. The intuition behind our results is easily grasped by considering extreme cases. If all species are promising sources of leads, most would be redundant and the marginal species close to valueless. By identifying the probability of success at which these effects are balanced, we can derive an upper bound on the value of the marginal species.
