The issue of biodiversity prospecting - the use of biodiversity as a source of genetic materials or biochemical compounds by pharmaceutical and biotechnology industries - has received a great deal of attention. In this context, the question of optimal contract design between resource owners and prospecting firms has been a subject of recent discussion. Yet, little theoretical work has been done in this area. This dissertation focuses on the design of payment structure of contracts under different institutional arrangements. Two main issues are the number of contracts and the structure of contracts. Starting with the adverse selection model with the resource owner as a principal and the prospecting firm as an agent we show that a pure fixed payment contract, which is efficient, is offered to the efficient firm while a royalty contract or a mixed-payment contract is for the inefficient type. The two-contract scheme is optimal when the difference between the two types (in terms of technological competence) is sufficiently large, and vice versa.

When there are many potential buyers, the problem of contract choice is investigated using the contract-bidding model. The mixed-payment contract is optimal due to the trade-off between the risk sharing and the selection-efficiency effects. The role of transaction costs is also discussed in this context. The multiple contract scheme is an alternative if biological samples can be supplied to an additional buyer with little cost. An example is a supply of biological information (as opposed to physical samples). In the multiple contract-bidding model, the number of winners is chosen optimally. We show that an increase in the number of winners reduces the firm's bidding incentive and worsens the selection performance while it helps lower the risk sharing burden to the resource owner.

In the last model, the bargaining contract is investigated. The rule of "fair and equitable" sharing of benefit (i.e., the prospecting revenue) is established. Insights derived from these models are used to provide policy implications to the resource owner. In addition to this, we investigate the issues of the owner's long-run investment choice, the impediments to the effective use of the biodiversity prospecting contracts, and the role of the clearinghouse in facilitating transactions between interested parties.