The biodiversity-ecosystem functioning (BEF) literature provides strong evidence of the biophysical basis for the potential profitability of greater diversity but does not address questions of optimal management. BEF studies typically focus on the ecosystem outputs produced by randomly assembled communities that only differ in their biodiversity levels, measured by indices such as species richness. Landholders, however, do not randomly select species to plant; they choose particular species that collectively maximize profits. As such, their interest is not in comparing the average performance of randomly assembled communities at each level of biodiversity but rather comparing the best-performing communities at each diversity level. Assessing the best-performing mixture requires detailed accounting of species' identities and relative abundances. It also requires accounting for the financial cost of individual species' seeds, and the economic value of changes in the quality, quantity, and variability of the species' collective output-something that existing multifunctionality indices fail to do. This study presents an assessment approach that integrates the relevant factors into a single, coherent framework. It uses ecological production functions to inform an economic model consistent with the utility-maximizing decisions of a potentially risk-averse private landowner. We demonstrate the salience and applicability of the framework using data from an experimental grassland to estimate production relationships for hay and carbon storage. For that case, our results suggest that even a risk-neutral, profit-maximizing landowner would favor a highly diverse mix of species, with optimal species richness falling between the low levels currently found in commercial grasslands and the high levels found in natural grasslands.
Keywords: agriculture; biodiversity; ecological production function; multifunctionality; optimal management.