This is the first of five chapters about economic modelling. The first section recaps basic environmental economics which typically starts with the identification of biodiversity loss and biodiversity conservation as a social dilemma. In the context of policy, such a dilemma leads to market failure, implying an underprovision of biodiversity. Standard policy instruments that can help fix market failure are introduced subsequently, including regulation (land-use planning), conservation payments (also known as agri-environmental schemes or payments for environmental services) and tradable permits or conservation offsets (analogous, e.g., to emission trading schemes). Conservation payments and conservation offsets belong to the class of market-based instruments, providing financial incentives for the conservation of biodiversity. Pros and cons of the different instruments are discussed.