These include marked reductions in species diversity or increases in the risk that species will go extinct. We should expect that ecosystems generally will become less resilient as humans place more demands on them. Insofar as all economic activity depends upon a finite environmental resource base, unwise or careless use of the resource base reduces its ability to generate goods and services in the future. From an economic perspective, a necessary step for avoiding big mistakes is to determine the extent to which there are substitutes for the consumption of individual assets. All else equal, the likelihood of making a big mistake diminishes where there are abundant substitutes, but increases where substitutes are scarce.
Price can play a powerful role in the development of substitutes.
When high prices reflect the scarcity of an environmental resource, potential consumers have incentives to ration their use of the resources, to find replacement goods or services, or to effect a change in tastes to reduce the demand. If too few people, or, at worst nobody, knows that species diversity is diminishing in an ecosystem, it is unreasonable to expect they will act to prevent further decline. Similarly, if prices fail to signal the scarcity of an environmental resource, we should expect it will be consumed beyond the level that would be obtained with true pricing. This is an important point. The prices of natural resources often do not reflect their scarcity, especially when they have attributes that can be shared by many people.