Economics of Wildlife Protection Research Paper

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Economics arrived late to wildlife protection. Although optimal timber harvest rates were first ‘ described by Martin Faustmann in 1849, and although Harold Hotelling had defined the parameters for profit-maximizing extraction of exhaustible resources like coal and petroleum by 1931, the problem of wildlife protection was ignored by the discipline until 1951. That year, Charles Stoddard (1951), a consulting forester working out of Minong, Wisconsin, urged fellow attendees at the North American Wildlife Conference to address the nation’s “steady deterioration of wildlife habitat ” with “an intensive development of a branch of knowledge devoted to the economics of wildlife management” (p. 248). The problem, according to Stoddard, was that wildlife production on private lands competed with more remunerative sources of income to landowners. For wildlife to recover, private landowners needed to be “provided with incentives, economic and otherwise, for producing wildlife crops” (p. 248).

But the discipline was slow to pick up on Stoddard’s call. Although others joined in calling for public assistance to private landowners to promote increased investment in wildlife habitat on private lands, the economic problem of the optimal provision of wildlife remained largely ignored. The basic structure of the problem was obvious: Wildlife production on private lands competed with other uses, such as crop and timber production, for which the landowner received compensation. Therefore, although wildlife was certainly valued by society, the fact that private landowners were not reimbursed for their contributions to wildlife production meant that the supply of wildlife would be less than optimal. Following the economic logic first described by Arthur Pigou, wildlife production represented another case in which the marginal social value of a good exceeded its marginal private value; the value of wildlife to society was greater than its value to the private landowner. Pigou (1932) notes that in response to these situations, “it is theoretically possible to put matters right by the imposition of a tax or the grant of a subsidy” (p. 381) that would, in effect, equate private returns with social returns. Stoddard’s (1951) call for public subsidies to private landowners to increase wildlife production was a request for a Pigouvian subsidy for wildlife.

Although Pigou’s work was widely accepted as having laid the theoretical foundation for government intervention in private markets, it took another 30 years for economists to overcome their reticence to use these theoretical insights to argue for public policies that, while benefiting some, would impose costs on others. Seminal contributions by Harold Hotelling, J. R. Hicks, and Nicholas Kaldor allowed the discipline to arrive at a basic consensus that economists could recommend policies that would change the distribution of income in society so long as the gains experienced by some members of society as a result of the policy were greater than the losses experienced by others. This allowed economists to return to Pigou’s work, using it to ground an argument for the use of subsidies and taxes to promote social welfare. Practitioners of the new welfare economics set about describing the conditions that would determine when such intervention was warranted.

Social and private benefits differ when the production or consumption of a good creates externalities. An externality exists when an economic decision generates tangible benefits or costs that are not received or incurred by the economic decision maker but rather by some third party. In the case of wildlife, private landowners bear many of the costs associated with wildlife production. These costs may be deliberately incurred, as when a private landowner forgoes financially remunerative uses of the land to provide more suitable wildlife habitat, or they may be the unintended result of wildlife-related crop damage. Although private landowners bear the costs of wildlife production, they are seldom able to capture all of the benefits generated by wildlife. These benefits are instead enjoyed by hunters, hikers, bird-watchers, and other wildlife enthusiasts, as well as those who provide products like binoculars, camping gear, rifles, and vacation cabins to the wildlife enthusiasts. These benefits exist as externalities, and as such, they do not inform the landowner’s land use decision.

When externalities exist, the resulting supply of the externality-producing good will differ from that associated with the maximization of net social benefits; the invisible hand of the free market will not lead all to the socially optimal result. In one of the earliest economic studies describing the value of wildlife, Hays Gamble and Ronald Bartoo (1963) estimated that the deer herd existing in Sullivan County, Pennsylvania, cost each farm in the county an average of $200 per year in crop damages, while simultaneously generating gross revenues to the county of about $546 per farm as a result of expenditures made in the county by hunters visiting the area. Although the county clearly had an interest in promoting the deer supply to attract more hunters to the area, the farmers, on whose land the herd depended, had an interest in reducing the herd’s size. The presence of externalities caused the socially desirable outcome to deviate from that which occurred absent market intervention.

Despite the attractiveness of the Pigouvian argument, not all economists agree that externalities provide a sufficient rationale for government intervention in the market. These economists reject the Pigouvian solution of government taxes and subsidies in favor of a laissez-faire response best articulated by Ronald Coase. According to Coase and his followers, not only is the government’s response likely to cause inefficiencies, but furthermore, government intervention is itself unnecessary. Absent government interference, the private parties affected by externalities and those creating the externalities will come to their own efficient solutions if the economic impact of the externality is sufficiently large. In the words of Harold Demsetz (1967), “Property rights develop to internalize externalities when the gains of internalization become larger than the cost of internalization” (p. 350). If the benefits of wildlife are significant enough, those who value the wildlife will do what it takes to see to it that wildlife is supplied. They can buy up land and convert it to wildlife reserves, or they can pay landowners to switch from crop production to wildlife production in exchange for the rights to enjoy the wildlife produced. According to the Coasians, if the benefits generated by the externality are not significant enough to warrant the internalization of these externalities, it follows that they are not significant enough to warrant government attention.

Although a discussion of the relative merits of the two positions is beyond the scope of this research paper, it is nonetheless a critical debate to those interested in the economics of wildlife protection because it informs how one both frames and addresses the question of wildlife supply. According to the Pigouvians, government response to the chronic under-supply of wildlife requires subsidization to private landowners for those actions that contribute to the supply of wildlife and taxation of private landowners for those actions that diminish wildlife supply. This policy recommendation stands in sharp contrast to that resulting from a Coasian approach to wildlife protection. In this case, government should see to it that the property right—to the unrestricted use and enjoyment of private land or to a population or species of wildlife—is clearly established among private parties, and then the parties should be encouraged to negotiate private solutions.

The debate between the Pigouvians and the Coasians remains unresolved and has resulted in a lack of coherency in the policy recommendation offered by economics for wildlife and other goods (or bads) created as externalities. Given the lack of consensus among economists, the government met no concentrated opposition to its own particular approach to wildlife protection, which was to acquire even more land for wildlife habitat and refuge and to use legislation to prohibit activities on public or private lands that threatened to depress wildlife populations to the level of possible extinction. Between 1964 and 1994, land holdings of the U.S. Fish and Wildlife Service increased nearly fourfold, growing from 22.7 million acres to 87.5 million (Federal Lands, 1996). In 1973, Congress passed amendments to the Endangered Species Act of 1973, making it illegal, on public or private land, “to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect” (Section 3) any species found to be in danger of extinction. Rather than solving the externality problem by creating habitat conservation incentives, via taxes and subsidies to private landowners, or staying out of the wildlife problem altogether, the government approached the problem of declining wildlife populations by making wildlife protection and production one of its responsibilities. By the end of the 1960s, the role of economics in wildlife protection had changed from debating the proper management tool to measuring and describing the extent to which the government’s own policies had the potential to improve overall social welfare. With few exceptions, the economics of wildlife protection moved from policy prescription to the careful description, characterization, and quantification of benefits of government-provided wildlife conservation efforts.

Theoretical Foundations of Wildlife Protection: Wildlife and the Problem of Market Failure

Wildlife presents the economist with a near-perfect storm of exceptions to Adam Smith’s argument that the invisible hand of individual self-interest will guide society to welfare-maximizing allocations of goods and services. Indeed, at least three characteristics of wildlife interfere with its optimal allocation. Economic theory predicts that because of (1) the particular characteristics of the production of wildlife benefits, (2) the particular characteristics defining access to these benefits, and (3) the particular characteristics of the benefits themselves, the market-generated supply of wildlife will fall short of the optimum. This makes wildlife supply and wildlife protection an interesting and perplexing problem for economists.

Market Failure in the Production of Wildlife Benefits

Wildlife is an ephemeral resource. Its nature is such that the very act of ownership transforms it to some other species of good. Thus, a wild deer becomes, on the act of extraction that is a precondition to ownership, someone’s source of meat or potential trophy, pet, or unit of livestock. To be wildlife, or ferae naturae, is to be unowned and unownable. Once an animal is owned, it is no longer termed wild.

This concept, this metaphysical truth about wildlife, goes back at least as far as Roman law, which recognized wildlife as res nullius, literally, nobody’s property. Wildlife differed in the Roman tradition from other natural resources, like water, which the Romans categorized as res communis, or common property, the property of everyone. The Roman government could claim for its people a property right to the waters within the empire’s boundary, and it could protect that claim with force as necessary. It could not similarly claim for its people a property right to the wildlife that crossed international borders of its own will and according to its own tastes. Individuals could extract wildlife from the natural population to eat or domesticate, but that act of extraction changed the very nature of the extracted animal from res nullius to the property of the captor. Ownership removes the wild from wildlife.

The profound difference that exists between wildlife and owned animals constrains wildness and wildlife to exist as an externality. An animal cannot remain wildlife if it is produced as part of a deliberate breeding and management program. If a herd of buffalo exists as part of nature’s endowment, it is wildlife, but if the herd exists as part of a rancher’s assets, it is simply livestock. The valu-able but ephemeral asset of wildness is diminished by the act of husbandry. Aldo Leopold (1986) noted, “The recreational value of a head of game is inverse to the artificiality of its origin, and hence in a broad way to the intensiveness of the system of game management which produced it” (p. 395). Perversely, attempts to address the externality of the wildlife benefit through the private management of the wildlife supply diminish the magnitude of the benefit itself.

Although the value attributable to the wildness of wildlife seems destined to exist as a nonexcludable externality generated by wildlife production, certain wildlife-associated benefits, such as those generated through the acts of hunting or viewing wildlife, are potentially excludable, because private landowners can limit entry to their private property. But even these excludable benefits are not likely to generate market compensation commensurate with the benefits generated. As a fugitive resource, wildlife does not necessarily reward those who practice good habitat management on their privately held land. Several characteristics of the wildlife production function, such as the magnitude of the land area typically involved in wildlife production, the fact that breeding habitat is often quite distinct and distant from grazing habitat, and the existence of chronobiologic phenomena like migration, mean that investments in wildlife-augmenting activities are unlikely to be able to capture the appropriate monetary recompense. If the wildlife population breeds and feeds on one parcel of land yet spends the hunting season on some other parcel, the owners of the breeding grounds cannot capture in hunting receipts the value of their contributions to wildlife production. Meanwhile, the owner of the prime hunting land potentially reaps an unearned profit. The inability to capture the benefits associated with the supply of wildlife means that wildlife will be undersupplied.

Market Failure and the Property Regime Controlling Access to Wildlife

Many wildlife populations exist under conditions of open access, which is to say their range is so broad or unpoliced that anyone wishing to exploit them for personal gain can do so. Open access resources are susceptible to overexploitation because those who employ the resource have no incentive to exercise restraint in doing so; like children grabbing up candy after the pinata has disgorged its contents to the floor, those who depend on an open access resource know that moderation receives no reward. Although the rational individual owner under a system of private property will extract only to the point where profits are maximized (i.e., to the point at which the marginal revenue generated by the extracted resource is equal to the marginal cost of extraction from the resource) and although the tribe or community extracting from a commonly held resource may develop means of regulating its use to preserve its benefit stream, exploitation under conditions of open access will continue so long as any positive profits remain to be earned from the resource. This is because profits, or net benefits, generated by extraction from the wildlife population will continue to lure others into the same enterprise so long as those profits exist. Thus, there is a greater rate of exploitation for a given population of wildlife under conditions of open access than would exist if access to the wildlife resource could be controlled as private property or as a regulated commons.

  1. Scott Gordon (1954) first described this phenomenon with respect to the ocean fishery. Noting that “fishermen are not wealthy, despite the fact that the fishery resources of the sea are the richest and most indestructible available to man” (p.132), Gordon went on to explain the low returns to fishermen by considering how a profitable fishing grounds will continue to attract new entrants until

such time as the potential entrants see no profit in exploiting the fishery. That is, entry continues into the fishery until all economic profits are exhausted. This is because those exploiting an open access resource have no reason to limit their extraction to promote the continued health of the fishery, because the benefits of any restraint will just go to some other fisherman. According to Gordon, “He who is foolhardy enough to wait for its proper time of use will only find that it has been taken by another” (p. 135). Open access explains the destruction of the North American buffalo herds, the near extinction of certain species of whales, and the precarious status of many species of African wildlife. The supply of a good existing under conditions of open access will be less than is economically efficient.

But even if access is limited to a tribe, licensed harvesters, or some other identifiable and closed group, collective ownership of a resource can lead to overexploitation, as Garrett Hardin (1968) describes in his paradigm-shifting article, “The Tragedy of the Commons.” Overexploitation of the commons is the potential result of an asymmetry in the distribution of benefits and costs among those using a common property resource. Specifically, those who use the commons for their own purposes are able to capture for themselves the entire benefit associated with the use of the commons, while the costs that use imposes are shared by all who hold title to the commons. In the case of depredations on wildlife, although the hunter or trapper is able to gain the full benefit associated with capturing his or her prey (presumably by either selling the hide, consuming the carcass, or mounting its head on the library wall), insofar as extraction reduces the size of the wild population and requires, in turn, increased effort to extract the next animal from the population, this cost is divided among all who prey on the wild population. As such, the cost an individual bears when extracting a unit of resource from a commonly held population is less than he or she would bear as a result of extracting the same unit from a privately held population. The lowered perceived costs incurred by the individual extracting from a commonly held resource therefore results in more extraction for the same benefit function than would occur with a privately held property.

This is not to say that private ownership or management of wildlife would solve the problem of extinction. Indeed, as originally pointed out by Colin Clark (1973), extinction can be the efficient outcome for a renewable resource held by a profit-maximizing private owner. If revenues from exploiting a wild population (via hunting, fishing, or other extractive activity) exceed the costs associated with this effort and if the rate of growth of the species is less than the rate of return the owner could earn in some other investment, the owner has the economic incentive to convert the resource into cash to invest in the higher yielding asset. In other words, if the price a hunter can get for the last elephant tusk taken from the last elephant is greater than the costs the hunter incurs finding and killing this last elephant and if the rate of interest the hunter could earn on the net revenues from the sale of that tusk is greater than the rate of growth of the elephant population, the profit-maximizing hunter would find it in his or her interest to kill that last elephant. Private ownership might result in efficient management of the wildlife resource, but it offers no guarantee of the resource’s preservation.

Market Failure and the Benefits of Wildlife

The final factor contributing to the undersupply of wildlife concerns the public-good nature of many of the benefits wildlife generates. Public goods have two distinguishing characteristics. First, they are nonrival in consumption, meaning that more than one consumer may enjoy the same public good simultaneously. This differs from the rival nature of private good benefits, which can be enjoyed only by the single consumer possessing the good itself. The nonrival nature of the benefits generated by public goods means that a single unit of a public good bestows benefits simultaneously on all the consumers who are simultaneously consuming it. As a result, even if the benefits each individual derives from the provision of a unit of public good are very small, that unit can nonetheless contribute a very large amount to social welfare when its benefits are summed up over millions of individual consumers.

The other distinguishing characteristic of public goods is that their benefits are nonexcludable. Once a public good has been produced, it is impossible to restrict its consumption to a select group of individuals. This means that a public good cannot be rationed to those who pay for it. The inability to charge individuals for the use of public goods means that private producers will have no incentive to supply public goods to the market, because potential consumers will simply free ride and enjoy the goods’ benefits without paying for them. Because those who do not pay for a public good enjoy the same level of benefit from the public good as those who do pay, public goods are unlikely to be produced and exchanged in a market economy. Government is necessary to ensure the production of public goods.

The public-good nature of the wildlife benefit entered the economic spotlight when John Krutilla (1967) published “Conservation Reconsidered.” This seminal article changed forever the way economists, policy makers, and the general public characterized the services provided by environmental resources. Although economists since John Stuart Mill have used the existence of public goods to justify government provision of everything from lighthouses to national defense, Krutilla’s essay expanded the list of public goods to include “some unique attribute of nature … a threatened species, or an entire ecosystem or biotic community essential to the survival of the threatened species” (p. 777). Krutilla based his argument on the assertion that the knowledge of the mere existence of these wild resources constitutes “a significant part of the real income of many individuals” (p. 778). By including the existence of a threatened species within the genre of public goods, Krutilla made the strongest economic case yet for the preservation of species and the conservation of wildlife habitat. If indeed the actuality of a species provided millions of people with some form of income, then that species’ existence had a tangible economic value that would be irretrievably lost should society choose to allow development to proceed to the point that it resulted in the species’ extinction.

Krutilla (1967) describes the basic contours of the benefits emanating from preservation of unique environmental assets as equal to the “minimum which would be required to compensate such individuals were they to be deprived in perpetuity of the opportunity to continue enjoying the natural phenomenon in question” (pp. 779-780). In the case of extinction, this compensation would need to reflect the amount individuals would have been willing to pay to retain an option to use or interact with the species, the expected value of what might have been learned or extracted from the species had it not gone extinct, the value individuals had placed on the species’ contribution to “the mere existence of biological… variety” (p. 782), and the value of the benefit individuals would have derived from leaving the species as a bequest to their heirs. Because all of these benefits are nonrival and nonexcludable, the preservation of any particular species of wildlife represents a public good of potentially enormous economic value that nonetheless is not and cannot be reflected in market exchanges.

Krutilla’s (1967) expansive view of wildlife benefits changed wildlife from prey to be managed for hunters to a resource capable of providing enjoyment to an entire nation, even the entire world. The recognition of the public-good benefits resulting from the mere existence of a species of wildlife provided needed justification for efforts to preserve endangered species and populations of wildlife across the globe. Wildlife protection after “Conservation Reconsidered” enlarged to include endangered species preservation as one of its key concerns.

Applications and Empirical Evidence

Economic solutions to the problems facing the supply of wildlife are largely limited to proposals of remedies for those attributes of the wildlife benefit and production functions that cause the market to fail to arrive at an efficient allocation of the wildlife good. That is, economists start by characterizing wildlife protection as an economic problem and then proceed to offer an economic solution to the problem. Although this seems to confirm Abraham Maslow’s maxim that if one has only a hammer, one sees every problem as a nail, it also reflects the discipline’s insistence on staying within its own area of expertise and imposing on itself its own standards for what constitutes advances in knowledge.

Some problems posed by wildlife are more amenable to economic solutions than others. For example, if wildlife is undersupplied because the market does not provide adequate compensation to those who incur the costs of wildlife production, a solution becomes both obvious and easy to implement, particularly for those benefits, like hunting and fishing, from which it is at least possible to exclude those who fail to pay.

But for other problems, the role of the economist in resolving issues pertaining to wildlife protection is less certain. It is one thing to point out the public-good nature of many of the benefits of wildlife protection; it is another thing entirely to arrive at estimates of preservation benefits and costs that allow the economist to describe for a given biome, ecosystem, or planet the optimal amount of preservation and extinction.

This section considers how economics has been used as a tool for informing optimal levels of wildlife protection. It begins with a review of economic solutions to the wildlife externality problem and continues to consider economic contributions to the understanding of how property regimes influence wildlife supply. This is followed by a description of how economics has contributed to both the understanding and the measurement of benefits flowing from wildlife. The section concludes with an examination of how economics has informed the question of endangered species preservation.

Addressing Market Failure in the Production of Wildlife: A Look at the Pigouvian and the Coasian Solutions

Even as the economics profession was slow to respond to Stoddard’s (1951) call to develop a branch of the discipline devoted to the economics of wildlife protection, so too was Congress sluggish in its response to the call for subsidies to private landowners to encourage wildlife production. Indeed, over 30 years elapsed between Stoddard’s article and congressional legislation authorizing subsidies to landowners for habitat conservation efforts. The 1985 farm bill, known as the Food Security Act of 1985, established a Conservation Reserve Program (CRP) that offered farmers rental payments of about $50 per acre per year for agricultural land taken out of crop production (Section 1231). Although initially designed as both a means of preventing soil loss on highly erodible land and a way to increase commodity prices through commodity supply reductions, the program is now viewed by the U.S. Department of Agriculture (USDA, 2007) as a primarily environmental program. Nearly 40 million acres of agricultural land are presently enrolled in the program, although the 2008 farm bill has reduced the target for future enrollments to 32 million (USDA, 2009). Additional landowner subsidy programs have been added to the mix— the Wetlands Reserve Program, the Environmental Quality Incentives Program, the Conservation Security Program, the Wildlife Habitat Incentives Program, and the Grasslands Reserve Program—which together add another 21 million acres of privately held land to those CRP lands managed with the goal of promoting wildlife habitat, according to the USDA. The total cost of these programs was estimated at $4.961 billion in 2008 (Cowan & Johnson, 2008).

The rationale for these subsidies, as introduced in the 1985 farm bill, sounds distinctly Pigouvian. Section 1231 of the 1985 legislation calls on the secretary of agriculture to enter into contracts with private landowners to encourage them “to conserve and improve the soil, water, and wildlife resources” (Food Security Act of 1985). However, insofar as the government makes no attempt to set the level of these subsidies to reflect the difference between the social and private welfare generated by conservation activities on private land, the subsidies fall far short of Pigou’s suggested instrument. The informational demands of marginal benefits-marginal costs analysis make it practically impossible to estimate the requisite level of the Pigouvian subsidy, let alone arrive at an efficient means of taxing individuals for the benefits such a subsidy would generate. For this reason, Nobel Laureate James Buchanan (1962) criticized the Pigouvian solution as “not only politically unimaginable in modern democracy: it is also conceptually impossible” (p. 27).

Rather than tackling the unimaginable and impossible, applied economic research on subsidies to promote wildlife production has concentrated on evaluating the efficacy of the existing set of government programs. Although the CRP initially made no attempt to target cost-effective means of achieving conservation goals, later enrollments in the CRP have considered the ratio of environmental quality benefits to their costs, with salutary effects on program cost effectiveness (Osborn, 1993). However, because wildlife benefits appear to be uniformly distributed across CRP-eligible land, improving the overall cost effectiveness of the CRP enrollment appears to have little impact on the wildlife benefit generated by CRP participation (Babcock, Lakshminarayan, Wu, & Zilberman, 1996). Recent research on the cost effectiveness of government conservation subsidy programs compares the relative efficacy of land retirement programs like the CRP to programs like the Environmental Quality Incentives Program that keep the land employed while mandating landowner investment in ecosystem improvement. Here, the published evidence is somewhat mixed. Some (Polasky, Nelson, Lonsdorf, Fackler, & Starfield, 2005) have found the potential for significant savings is realized by satisfying a wildlife conservation goal through a mixed land use strategy that provides both wildlife habitat and crop production. Still others have obtained results that indicate that complete and total land retirement is a more cost-effective means of conserving wildlife (Feng, Kurkalova, Kling, & Gassman, 2006). Clearly, this is an area where more research should prove both enlightening and productive.

Given the necessarily wild nature of wildlife, attempts to implement a Coasian solution to the wildlife undersupply problem are handicapped by an inability to assume away the problem by assigning property rights to the wildlife resource. The metaphysical essence of wildlife prevents it from becoming someone’s property or herd. Coasian-inspired research has therefore focused on identifying the incentives that contribute to changes in the overall size of the wildlife population. These incentives can be directed at those whose actions affect the supply of wildlife as well as those responsible for changes in the demand for wildlife.

Regarding wildlife supply, Coasian-inspired analysis has examined how landowners respond to direct payments to create more wildlife habitat. Not surprisingly, research reveals consistently that landowners whose only interest in land is as a productive input to some market-related activity require higher payments to engage in habitat production than landowners whose interests in the land are not purely financial. Therefore, the somewhat expected result emerging from the analysis of landowner willingness to participate in wildlife conservation programs is that motives matter. Those landowners who exhibit an interest in wildlife or are not dependent on the land for their livelihoods require lower incentive payments than those who report no interest in wildlife or have only a financial interest in their own land holding. Whether this result would hold if habitat payments become standard across landowners is, of course, a matter of speculation. If government were to institute a large-scale program to pay landowners for their contributions to wildlife habitat, it could use its monopsonistic powers to discriminate among landowners based on these differences in wildlife habitat supply elasticity.

Coasian-inspired analysis of those factors that contribute to demand for the extractive use of wildlife focuses on the efficacy of trade bans as a means of reducing extractive pressure on a wildlife population. The desirability of the trade ban has been shown to depend on the ability of the state to protect the wildlife resource from illegal predations. If the police powers of the state are so extensive that the expected returns to poaching, given the probability of arrest, fines, or detention, are less than many would-be poachers could earn in their next-best income-generating opportunity, then trade bans should be discouraged because they reduce the returns to state-sponsored wildlife stewardship. That is, the state’s incentives to protect its threatened wildlife are decreased under a trade ban, because the ban limits the potential for remuneration from the harvest of the protected species. On the other hand, if the police powers of the state are so nugatory that the species exists under what are essentially conditions of open access, import bans might be desirable because they lower the potential returns from exploiting the wildlife resource by restricting the size of its potential market. Mixed and muddled empirical results seem to confirm the theoretical ambiguity regarding the desirability of these bans. While Pigouvian subsidies will continue to be subjected to efficacy tests, Coasian attempts at limiting government intervention in wildlife exchanges and interactions will confront continued tests of their overall desirability.

Addressing Market Failure in the Access to Wildlife:Understanding the Role of Property Regimes

Perhaps the most well-known application of economic theory to address the wildlife access problem concerns the development and implementation of individual transferable quotas (ITQs). Like a license, which represents one way of regulating access under a common property regime, an ITQ is a government-granted right to extract a certain amount of a resource. But unlike a license, the individual possessing the ITQ can sell this right to another. By allowing sales, ITQs provide their owners with a means of capturing some of the benefits of conservation efforts. As the wild population increases in size, the ITQ increases in value because presumably less effort need be expended to harvest the same amount of resource. The ITQ addresses the open access problem by restricting access to the resource to only those individuals who possess licenses, and it attempts to solve the potential common property problem by rewarding restraint in resource extraction through increases in the value of the ITQ.

Unlike some economic policy suggestions, ITQs have an observable track record. New Zealand adopted the ITQ system as a means of regulating its fishery in 1986. A similar system was implemented 5 years later in Iceland. Studies evaluating the ITQ system give it relatively high marks for promoting economic efficiency. As predicted, the system allows the same amount of the resource extraction with less effort than is exerted under other systems regulating the commons (Arnason, 1991; Yandle, 2008). However, ITQs have admittedly undesirable distributional consequences, because those able to buy up ITQs can effectively close a regional fishery and thereby cause localized economic collapse and dislocation (Eythorsson, 2003).

Other empirically based research examines the effect of alternative property regimes on wildlife supply. Relying primarily on case studies in lieu of theoretical abstraction, the litmus test applied to the various property regimes is typically not whether a given ownership configuration is likely to promote economic efficiency so much as whether the ownership pattern will conserve the wildlife resource (Brown, 2000, p. 902). As such, these studies reflect what for some is a paradigm change in the economics of wildlife protection, because sustainability of the wildlife resource replaces efficiency as the norm about which property regimes are to be judged.

Addressing Market Failure and the Benefits of Wildlife

Convinced by Krutilla’s (1967) argument that unique natural assets generate more benefits than are revealed through market transactions, economics developed a distinct typology of those benefits generated through interaction with the natural environment. Within this classification system, benefits sort into two main categories: use values and nonuse values. Those benefits generated as the result of direct in situ interaction with an asset are use values, while nonuse values are those that require no direct interaction with the environmental amenity. Hunting, bird-watching, nature photography, and fishing are all use values, while knowledge—of the existence of a wildlife population or a scenic wonder like the Grand Canyon—is a nonuse value.

The taxonomy of values includes a second tier of subordinate classifications. Use values can be consumptive or nonconsumptive, depending on whether they reduce the stock of the natural asset. Hunting and fishing represent consumptive uses of wildlife, while bird-watching and nature photography are nonconsumptive uses of the wildlife resource. Nonuse values are categorized on the basis of the type of knowledge generating the value. Knowledge that the resource exists to fulfill a potential future desire to interact with it contributes to the option value of the wildlife resource, while knowledge that the resource exists for the use and enjoyment of future generations contributes to its bequest value. Existence value is the monetized measure of satisfaction that one experiences from simply knowing that the wildlife population exists, independent of any desire to interact with it directly or save it as a bequest for one’s heirs.

Benefit estimation techniques for these nonmarket goods differ according to whether one is estimating use or nonuse values. For a use value like bird-watching, even if the use itself is not allocated via markets, economists can estimate the value of the benefits it generates by observing how demand for complementary goods, like binoculars, changes with changes in the quantity of the nonmarket good consumed. From these changes, one can derive at least a minimum value for the nonmarket good. However, this technique is not available in the case of nonuse values, which we consume without leaving behind any “behavioral trail” (Smith, 1990, p. 875). Without market generated prices and quantities on which to base benefit calculations, economists have been forced to abandon their insistence on revealed preference and seek some other way of determining the value of these scarce goods that fail to exchange in markets. The contingent valuation method (CVM) is the invention to which this necessity gave birth.

Although initially a cause of great controversy within the discipline, CVM is now the orthodox method of quantifying nonuse values. In a CVM survey, individuals are asked to reveal their willingness to pay for the right to enjoy a particular environmental amenity or their willingness to accept payment to forgo the enjoyment of the amenity. Typically, a CVM survey describes an environmental asset and then proposes a scenario in which the quantity of the asset is changed. Survey respondents are asked to describe how much they value that change. Using individual responses to hypothetical changes in the quantity of an environmental asset, economists can estimate its value.

But even though CVM is now well accepted as a means of quantifying nonuse benefits, concerns remain. One persistent issue is whether to measure the respondents’ willingness to pay (WTP) to acquire a certain amount of an environmental asset or to instead measure their willingness to accept (WTA) payment to forgo the use of the asset. Lest this seem like a merely semantic difference, consider the likely difference between the amount an individual might require from a cousin in exchange for the engagement ring a grandmother bequeathed to the individual and the amount the same individual would offer to purchase the identical ring from his or her cousin if the cousin had inherited the ring instead. Property rights matter. One’s WTP is constrained by one’s budget constraint, but no such constraint limits one’s willingness to accept payment. As a result, WTA has been found to be higher, for certain goods, than WTP. But this is not solely a result of the effect of the budget constraint. Rather, even controlling for the income, the fewer the substitutes that exist for the good, the greater the difference between WTP and WTA. Although the price that would induce an individual to part with a grandmother’s engagement ring might be significantly greater than what he or she would be willing and able to pay to purchase it from a cousin, one might expect that the price that would induce the same individual to part with his or her present refrigerator is similar to the price the individual would be willing to pay to purchase a similar one. There are many likely substitutes for a given refrigerator; there are no substitutes for a grandmother’s engagement ring.

As concerns payments to conserve wildlife, contingent valuation surveys have evinced significant differences between WTP and WTA. Richard Bishop and Thomas Heberlein (1979) found that Wisconsin duck hunters required nearly five times more in payment to surrender their licenses than they were willing to pay to purchase the same license. David Brookshire, Alan Randall, and John Stoll (1980) found that elk hunters were willing to pay only one seventh as much to purchase a license from the state to hunt elk as they were willing to accept in payment for the retirement of a license that they had been given by the state. G. C. van Kooten and Andrew Schmitz (1992) discovered that Canadian landowners were willing to pay only $3.90 per acre annually for a permit entitling them to drain wetlands but needed $26.80 per acre in compensation from the government to refrain from draining wetlands. These observed discrepancies between WTP and WTA lead to a conclusion that private activities that reduce the amount of wildlife impose a greater cost on society than is reflected in the measured WTP that appears in many CVM studies. In the words of Jack Knetsch (1990), the observed differences between WTA and WTP mean that “it is likely that, among other implications, losses are understated, standards are set at inappropriate levels, policy selections are biased, too many environmentally degrading activities are encouraged, and too few mitigation efforts are undertaken” (p. 227). If landowners had to pay the public for activities they engage in that diminish the wildlife resource, fewer of these activities would take place.

Contingent valuation studies have provided a set of estimates of interest to wildlife protection. Measured WTP for individual species ranges from a low of $8.32 annually (2006 dollars) to avoid the loss of the striped shiner to $311.31 per year (2006 dollars) to support a 50% increase in the saltwater fish population of western Washington and the Puget Sound (Richardson & Loomis, 2009). International visitors to China have a measured average WTP of $14.86 (1998 dollars) to conserve habitat for the giant panda (Kontoleon & Swanson, 2003). Citrus County, Florida, residents appear to be willing to pay a combined total of $194,220 (2001 dollars) per year to protect the Florida manatee (Solomon, Corey-Luse, & Halvorsen, 2004). As concerns the preservation of rare and endangered species, estimated WTP has increased over time (Richardson & Loomis, 2009). Evidence exists that WTP to protect a species grows at an increasing rate with the degree of perceived threat and at a decreasing rate as the population of a threatened species increases (Bandara & Tisdell, 2005).

WTP estimates reveal interesting and novel insights into wildlife conservation motives. Pennsylvania duck hunters were willing to pay more to avoid a reduction in duck populations resulting from global climate change than they were to avoid the same population reduction when caused by agricultural practices (Kinnell, Lazo, Epp, Fisher, & Shortle, 2002). A survey of Dutch households found that the respondents were willing to pay more to prevent reductions in the native seal population caused by oil spills than by a lethal, naturally occurring virus (Bulte, Gerking, List, & de Zeeuw, 2005). Economic research on payments for changes in wildlife populations continues to chip away at the margins, providing insight to many individual cases and refining and codifying survey techniques and statistical methods of analysis.

Economics has addressed the problems posed by the public-good nature of many wildlife benefits by developing new tools to measure these benefits. Once quantified, these values have been able to influence public policy through their inclusion in benefit-cost analysis. As such, although economics has not been able to solve the problem created by the existence of public goods, it has been able to propose partial remedies that are at least potentially welfare enhancing. Additionally, economic explorations into the differences between WTP and WTA have provided important insights into human behavior, even as they challenge the discipline to develop consistent theoretical explanations. Equally interesting and challenging for the discipline is the recent empirical evidence that WTP for wildlife conservation depends on the factors that make such payments necessary. Ducks threatened by agricultural practices are not the same as ducks threatened by climate change, and seals threatened by oil spills appear to be more valuable than seals threatened by a virus. Future research to explain these observed differences promises to both complicate and improve the discipline of economics.

Other Economic Contributions to Wildlife Protection: Economics of Species Preservation

Although economics has made great strides in helping provide information of value to policy makers as they make discreet decisions regarding wildlife conservation, the discipline has had difficulty developing a coherent and useful response to questions concerning wildlife preservation policy and strategy. This is largely because the benefits of biodiversity remain unknown and largely speculative, even though all agree that biodiversity is a good—and a pure public good, at that. Furthermore, while CVM might be reasonably effective at elucidating individual WTP to preserve a particular species under conditions of partial equilibrium, it has been unable to determine a WTP to preserve biodiversity in general. CVM estimates can be used to inform preservation decisions on a solely case-by-case basis and not as part of some overall preservation policy.

Economic contributions to the question of how much biodiversity to preserve include the controversial approach of recommending that all species be managed to preserve a population of sufficient size to avoid the threat of extinction. This minimally viable population size, known as the safe minimum standard (SMS), was originally described by Siegfried von Ciriacy-Wantrup in 1952. Ciriacy-Wantrup (1968) argued that conservation requires a collective choice rule that subjects “the economic optimum to the restriction of avoiding immoderate possible losses” (p. 88). This SMS functions as “an insurance policy against serious losses that resist quantitative measurement” (Ciriacy-Wantrup & Phillips, 1970, p. 28). As insurance, investments in the SMS should themselves be constrained; the SMS should be adopted unless the social costs of doing so are unacceptably large (Bishop, 1978). The abandonment of marginal analysis and the lack of rigor inherent in a policy based on judgments of what constitutes immoderate losses and unacceptably large social costs inhibit widespread adoption of the SMS within the discipline of economics.

As a choice made under uncertainty, the SMS has been portrayed as a dominant strategy in a two-person game between society and nature. In this game, society chooses between development and preservation, while nature chooses whether to inflict a disease on society and whether to encode a cure for that disease within the species threatened with extinction. If the decision rule calls for minimizing the maximum possible loss, the game yields inconsistent results, depending on whether the source of the uncertainty is whether the disease outbreak will occur or whether the cure will be found in the species (Ready & Bishop, 1991). However, if the decision rule calls for society to minimize its regrets instead of its maximum possible losses, the game’s results consistently favor the SMS. Under a regret-minimizing strategy, society makes choices that minimize the potential losses associated with being wrong. If society chooses development when it should have chosen preservation, the losses are greater than if society chooses preservation when it should have chosen development (Palmini, 1999). However, although regret minimization may well inform individual behavior, economists have not been able to make a case for regret minimization as an economic norm. Thus, the SMS may describe a human behavior but not an economic objective.

The SMS approach demands that the economic objective of welfare maximization be replaced by that of preservation whenever extinction is a real threat, and this demand inhibits its widespread adoption by the economics profession. By demanding a discrete policy regime shift from the pursuit of welfare enhancement to the pursuit of preservation, the SMS exposes itself to criticism of its inconsistency. Because the rationale for this shift has eluded any formal statement, the SMS enjoys only limited support as an economic norm. Applied economic research regarding the SMS has focused on measuring both the WTP for preservation and the threshold level for what constitutes excessive preservation costs, as revealed by empirical analysis of costs incurred in the preservation of endangered species.

At the heart of the dissatisfaction with the SMS is its inability to help inform the choice between preservation and development that is the core issue for endangered species policy. The SMS approach argues for the preservation of all species, and although this argument is certainly appealing and popular, it is not economics. As Gardner Brown (2000) wrote poignantly, “Economists know what many ecologists cannot bear to admit, that not all species can be saved in a world of scarce resources” (p. 908). Brown’s remarks echo those of Andrew Metrick and Martin Weitzman (1998), who critically observe, “At the end of the day, all the brave talk about ‘win-win’ situations, which simultaneously produce sustainable development and conserve biodiversity, will not help us to sort out how many children’s hospitals should be sacrificed in the name of preserving natural habitats. The core of the problem is conceptual. We have to make up our minds here what it is we are optimizing. This is the essential problem confounding the preservation of biodiversity today” (p. 21).

In place of the SMS, some economists have argued that preservation decisions should maximize biodiversity, subject to a budget constraint, by giving marginal preference to those species with no close substitutes as measured by the number of species within a genus. According to this model, the next dollar of preservation investment is more productively spent on a species with no close substitutes than on one that shares its genus with many other species. Of course, this assumes both that society has decided that biodiversity is the good whose production it values most and that the system of Linnaean taxonomy, an arguably human construct, accurately reflects the sort of biodiversity that society wishes to maximize. Economists remain frustrated by the inability of their discipline to help inform one of the central debates of our times.

Policy Implications

The immediate and obvious result of decades of economic inquiry into the challenges facing wildlife protection is that there is ample reason to believe that the present supply of wildlife is smaller than optimal and that government intervention is necessary to protect and augment it. Government intervention can be in the form of direct subsidies to private landowners, rearrangement of property regimes and the rules of access, trade bans, absolute prohibitions on activities that degrade the wildlife resource, and public acquisition of land and resources as necessary to augment the supply of wildlife.

Regarding government subsidies to private landowners providing habitat for wildlife, economic research indicates that the current practice of removing land from production might be improved by offering a mix of programs, some of which offer subsidies to encourage multiple uses of the land base. This promises to lower the costs of achieving some wildlife protection goals. As the relative cost effectiveness of these alternative land management regimes appears to differ with the particular characteristics of the landscape and its native wildlife, government should be prepared to tailor its incentive programs to arrive at the most cost-effective subsidy mix.

Government attempts to rearrange property regimes by providing a transferable right to wildlife extraction have succeeded in reducing the overall cost of the extractive effort and have thus promoted efficiency. However, although privatization of a publicly held good, like wildlife, might lead to more efficient exploitation of the resource, it might also lead to its extinction or to a smaller population size than would occur under a common property regime. If the goal of the property rights rearrangement is species conservation, there is little evidence supporting the efficacy of privatization as a means to realize this goal.

The overall impact of trade bans on endangered species populations has not been settled empirically. Because the trade ban reduces the market value of the traded species, it is not clear from the empirical evidence whether this in turn leads to reduced poaching or to reduced investment in species conservation. To be effective instruments of species preservation, trade bans might need to be coupled with direct payments to those bearing the costs of conservation efforts.

Both the policies resulting in absolute prohibitions on otherwise productive activities that threaten the wildlife stock and the use of government resources to promote conservation activities should be guided by a consideration of the benefits of these activities relative to their costs. In estimating the value of the benefits of the wildlife resource, policy makers need to be cognizant of the difference between WTP and WTA estimates of wildlife values. Insofar as wildlife belongs to the nation, reductions in wildlife are losses in the real income of a nation’s citizens. Therefore, the correct measure of the loss is obtained by asking citizens how much they would be willing to accept as compensation for a reduction in the population level, or the extinction, of a species. However, if increasing the population of wildlife entails constraining actions on private property, respondents should be asked to consider how much they are willing to pay private property owners for the loss of a beneficial land use. Values obtained in this manner should be used to guide public appropriations to preservation efforts.

Although economics can be used to inform the level of welfare-enhancing preservation investment in individual species, public policy has eschewed using this information in its preservation decisions. Domestic endangered species policy is absolutist; the law requires that any species found to be in danger of extinction is to be protected, regardless of either the costs or the benefits associated with its preservation. This implies that society has embraced some version of the SMS, at least as a matter of public policy. However, empirical analysis of the listing process under the Endangered Species Act indicates that species protection is influenced by interest group participation in the rule-making process (Ando, 1999). Listing decisions have also been shown to be sensitive to the likely impact of species protection on the districts of key congressional stakeholders (Rawls & Laband, 2004). Policy makers wishing to depoliticize the preservation process might well consider including a consideration of the biodiversity benefits of a given preservation option as part of their deliberations prior to awarding protection to a species.

Future Directions

Trends in population growth, habitat modification, energy use, and waste production signal that wildlife populations will face increasing pressure in the future. Expanded use of the land base to meet the consumption needs of an ever-growing world population implies further that the opportunity cost of wildlife habitat is also likely to increase in the future. Finally, increasing political unrest in areas of the globe stressed by water shortages and climate change is likely to take its toll on native wildlife populations. In sum, the suboptimal supply of wildlife is likely to continue unabated and become more profound in the years to come.

Economics can contribute to ameliorating these problems with research concerning the most cost-effective means of providing wildlife habitat. This includes the development of spatially explicit landscape models linking conservation costs to the wildlife supply response across a variety of landscape types, thus allowing the manager to choose the least-cost method of achieving a particular conservation goal. Another line of research that holds promise for promoting conservation cost effectiveness examines incentives motivating landowner participation in conservation programs. Wildlife managers can use information gleaned from these studies to target those landowners most willing to participate in conservation efforts and therefore lower conservation costs.

An important area for new research involves developing mechanisms to reward those who engage in wildlife conservation efforts and compensate those who bear the costs of species preservation. This means identifying and addressing the perverse incentives to eradicate species that are created by preservation mandates that constrain traditional land uses and the use of private property. It also means continued research on the effects of divergent property regimes on conservation and wildlife protection.

Perhaps the most important contribution economics can make to the problems posed by wildlife protection is that of values discernment. Although existence values provide much of the economic basis for investment in wildlife preservation, they constitute a rather gross aggregation of the nonuse benefits accruing to individuals as a result of the preservation decision. These values need to be further refined and teased into their constituent parts if economists are to improve how they inform preservation decisions.

Although the public has consistently expressed both substantial interest in avoiding extinctions and measurable WTP to avoid them, economists need to develop better ways to help the public describe just what it is that they wish to avoid via these expenditures. The present disciplinary emphasis on maximizing biodiversity assumes that the public values genetic distance over, say, honoring an ethical commitment to stewardship or maintaining something wild in an increasingly tamed world. Would the pub-lic be less concerned with extinction if the science of cloning progresses to the point where animals can be recreated from saved genetic material? What distinguishes the value of a wild specimen from a particular species with an otherwise identical specimen living in a zoo? What are the valuable attributes of wildness? These are the questions that are likely to be addressed by future economics research, because these are the questions that need to be answered if preservation is going to be allocated by informed, transparent policy decisions.

Taken together, these future directions for wildlife economics imply a more interdisciplinary, more nuanced approach to research, which will increasingly rely on input from the natural sciences as well as other social sciences. Research teams including economists, biologists, psychologists, sociologists, political scientists, and soil scientists are likely to become both more common and more necessary as conservation and protection move beyond the wildlife reserve to lands devoted to other productive uses. Not only will economists increasingly rely on other disciplines in the conduct of their research, but they will also need to continue to improve upon methods of engaging in conversation with the public at large to elucidate the values informing the desire to engage in conservation efforts. Simple-minded, predictable Homo economicus will be replaced by sophisticated and complicated real human beings as the object of economic research on values and objectives for wildlife protection. How interesting and how ironic that in studying wildlife, economists end up learning more about being human.


The economics of wildlife protection has struggled over the years to incorporate a fugitive, unowned, and unownable natural asset into a discipline that is most comfortable describing exchanges of discretely bound goods in a market economy. Indeed, the nature of wildlife as an economic good is so unique that the discipline’s early work in the field was devoted almost entirely to taxonomic descriptions of the benefits generated by wildlife and the property regimes that govern human interactions with the wildlife resource. These efforts were rewarded by a greater understanding of both what economists mean when they speak of value and the role property regimes play in determining resource conservation and exploitation.

Both wildlife protection and economics have benefited as a result of the development of this field of economic research. To the field of wildlife protection, economics has brought an explicit recognition of opportunity costs and their impact on the decisions of private landowners faced with deciding between promoting habitat conservation or development. Economics has emphasized the importance of understanding how distribution of costs and benefits flowing from wildlife conservation and extractive activities affect ultimately the rate of extraction, even the probability of extinction, of a wild population. Economics has expanded the number of stakeholders explicitly recognized by wildlife managers to include those who receive real but largely unob-servable nonuse values from the wildlife resource.

Engagement with the questions and issues posed by wildlife protection has also benefited economics. The challenges confronted when working with such an unconventional subject have forced economics to grow beyond its regular confines. For a discipline accustomed to dividing the world into consumers and producers, the challenges posed when examining a system in which benefits can be enjoyed by millions, even billions, of persons, absent any act of consumption, and a system in which goods are supplied as part of a natural, replenish able endowment have proved both liberating and confounding. Disciplinary engagement with the problem posed by wildlife protection has revealed that welfare can be augmented or diminished independent of the act of consumption. Indeed, economics has shown that sometimes something as gossamer as the mere knowledge of a good’s existence constitutes an important part of an individual’s asset portfolio. This is a revolutionary concept for economics. Similarly, the idea of a supply function characterized by a range in which it irreversibly heads to zero has challenged the discipline to develop ways to consider whether and how to avoid treading into that range. This has in turn made the discipline more receptive to exploring alternatives to the private-property and market-oriented regimes as a means of attaining socially desired outcomes.

See also:


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