Municipal Finance and Biodiversity Conservation

Luoye Chen, Tao Li and Yi Zhang

No 360756, 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO from Agricultural and Applied Economics Association

Abstract: We investigate the relationship between biodiversity and municipal finance. At the county level, municipalities experience higher borrowing costs due to increased biodiversity exposure, significantly affecting both intensive and extensive margins. A one-standard-deviation increase in biodiversity exposure raises municipal bond yields by 42.4 (63.3) basis points (bps) dependent on the ecological and economic controls, while the extensive margin of bond issuance decreases by 0.61%. Our analysis highlights pricing heterogeneity based on regional species protection awareness finding that species awareness facilitates to mitigate the financial cost. This economic mechanism is driven by the effect of biodiversity conservation over real estate market, reflected in enriched biodiversity and lower credit ratings. Utilizing the federal Endangered Species Act (ESA) as an exogenous shock, we causally identify that the observed pricing pattern results from stringent species protection policies.

Keywords: Community/Rural/Urban; Development (search for similar items in EconPapers)
Pages: 38
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea25:360756

DOI: 10.22004/ag.econ.360756

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