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Issues related to the cost-effectiveness of biodiversity conservation policies have not yet been prominent in European conservation research and policy-making. Nevertheless, there is a small but growing literature which analyses such cost-effectiveness issues on both a conceptual and an applied level. The article reviews this literature, and focuses on reserves and compensation payments for conservation measures as the two most relevant conservation policy instruments in Europe. Progress has been achieved in understanding the cost-effective allocation of conservation measures and reserve sites, and further advances can be expected by integrating knowledge from ecology and the neoclassical analysis of policy instruments. Research on cost-effective monitoring, enforcement and decision-making has addressed selected issues such as designing incentives for farmers to reveal their conservation costs to the regulator. However, issues with high relevance for European conservation policy such as the cost-effectiveness of compensation payments for results and implementation problems related to the network NATURA 2000 have been neglected.

Given that both the costs and the benefits of biodiversity-enhancing land-use measures are subject to spatial variation, considerations of allocational efficiency call for spatially differentiated compensation payments for such measures. However, when deciding whether to implement uniform or spatially differentiated compensation payments, the regulator has to balance the allocational efficiency losses of uniform payments with the disadvantages of spatially differentiated payments. To help resolve this issue, this paper provides a conceptual framework that allows the extent of allocational efficiency losses associated with uniform payments for biodiversity-enhancing land-use measures to be assessed. A simple ecologicaleconomic model is presented which calculates the efficiency losses associated with uniform payments for different types of benefit and cost functions.

What factors shape environmental policies across Europe? In order to answer this question most economists would probably adopt a Public Choice approach. This approach has explained some aspects of environmental policies that exist in a similar fashion across Europe convincingly. But why do many environmental policies differ across European countries? This article argues that in order to understand differences in environmental policies in Europe North's analysis on institutions and institutional change is useful. It demonstrates the relevance of North's approach with a case study: the implementation of the EU's Eco- Management and Audit Scheme in Germany, the Netherlands and the UK. The starting point of the analysis is the observation that participation of companies in the scheme markedly differs between countries. It is shown that in order to understand these differences it is necessary to take into account some key concepts of North's institutional analysis, namely, differences in informal institutions, incomplete information of relevant actors, and path dependence. Recommendations for further research and for environmental policy are derived.

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