The Economics of Saving Endangered Species: A Teaching Activity

Mark C. Schug and Jane S. Shaw

David Cameron is a third-generation Montana rancher. A lanky, middle-aged man with a salt-and-pepper beard, he raises cattle and sheep. Cameron is also a biologist, recently retired from Montana State University. He and his family have a long tradition of protecting wildlife. Elk, deer, mountain lions, and bears thrive on his ranch.
A few years ago, Cameron decided to reintroduce a native Montana fish that disappeared from nearby streams many years ago: the grayling. After consulting with specialists, he found a suitable stream on his ranch for bringing back the fish. But then he learned that the U.S. Fish and Wildlife Service was considering listing the Montana grayling as an endangered species. "I sadly bowed out," he says. Why? Cameron realized that once he had an endangered fish on his property, federal officials could change his life. They might think that his cattle would pollute the stream or otherwise harm the fish. If so, they could prevent him from using his pastures for grazing.

As this incident suggests, the problem of saving species from extinction or serious decline is more complex than it seemed in 1973 when Congress enthusiastically enacted the Endangered Species Act. The power to protect endangered species-power held by the U.S. Fish and Wildlife Service-has had some unintended consequences.

As a teacher discussing endangered wildlife, you can help your students gain a realistic understanding of why species disappear if you show them how incentives affect wildlife preservation, for good and for ill. Most textbooks that cover endangered species fail to discuss the vital role of incentives.

Textbooks usually point out that species decline for two reasons: (1) the habitat disappears or changes, or (2) the species is overhunted, or both. This is correct, as far as it goes. (Wildlife officials think that the grayling declined in Montana because its habitat changed-new species more attractive to fishermen, the brown and rainbow trout, were brought into Montana's rivers and streams, and it was difficult for the grayling to compete.) But looking into the problem more deeply, we recognize that extinction occurs because, so often, no one has an incentive to save wildlife.

Consider the passenger pigeon, a bird so common early in the 19th century that its disappearance is amazing. One naturalist saw a flock in Kentucky that he claimed contained more than 2 billion birds (it was a mile wide and 240 miles long, he said). But hunters shot pigeons and shipped them east for sale, much as farmers ship chickens today, and eventually the pigeon disappeared. The last passenger pigeon died at the Cincinnati Zoo in 1914.

Or consider the American buffalo, which roamed the Great Plains in enormous numbers early in the 19th century. Only in the mid-1880s, when buffalo had become extremely rare, did some businessmen in New York decide to save them. They hired trappers to capture the last few survivors and moved them to private land in the West.

These wild animals were vulnerable because they had no protectors. Even though many people wanted to preserve them for the future-to be available for food if for nothing else-there was no way for anyone to make sure that they would survive. No one had an incentive to hold back and not kill a buffalo because a buffalo not taken today would merely be taken by someone else tomorrow.

Because these animals were, in theory, owned by everybody, "in common," they were in practice owned by nobody. Nobody had the ability to protect them, therefore, and no incentive induced anybody to hold back on the killing.

But there are positive incentives, too, which do protect wildlife. Let us look at some other wildlife situations.

Elephants in Africa
Many elephants in Africa are endangered. Because their ivory tusks are valuable, they are hunted even where it is illegal to do so. Elephants are not nice neighbors-they destroy huts and can tear up a year's corn crop in a single night-so there is little incentive for local people to protect them from poachers. A ban on trade in ivory, enacted in 1989, has not stopped the poaching.
But elephants thrive in some parts of Africa. In some Zimbabwe villages, for example, people living near elephants protect them against poachers. Why? Because the villagers are allowed to benefit from the elephants. A legal harvest is permitted. The villagers receive the meat from elephants killed by hunters, and they get proceeds from the sale of hides and the fees that trophy ivory hunters pay to shoot elephants. These elephant herds are not disappearing.

Wolves in Yellowstone
Recently, wolves were reintroduced into Yellowstone National Park, where they had been eradicated years before. The success of the effort had a lot to do with incentives.
Ranchers don't like wolves because wolves kill calves and sheep. Ranchers know that wolves in Yellowstone are likely to leave the park and raid livestock on nearby ranches. Already, in northern Montana, wolves moving in from Canada have killed livestock.

But an environmental group recognized the importance of incentives. When talk about reintroducing wolves first surfaced some years ago, Hank Fischer, an official of Defenders of Wildlife, thought that it might be possible to allay the fears of ranchers. So he promised to compensate ranchers for any loss of livestock from wolf predation. Wolves were already crossing the Canadian border and inhabiting northern Montana. When these wolves killed a few ranch animals, Defenders of Wildlife quickly compensated the ranchers. In fact, since 1987, the organization has given ranchers about $20,000.

The compensation program changed the incentives of ranchers. They realized that the wolf was not going to be as great a threat as they had feared. They still didn't welcome the wolf to Yellowstone, but, according to Hank Fischer, many ranchers were less antagonistic to the idea than they would have been if they alone had borne the costs of wolf predation.

These examples illustrate the important role of incentives in wildlife protection. Negative incentives, such as the intrusion that Dave Cameron was likely to encounter if he brought back the grayling, can discourage wildlife protection. But positive incentives, like Hank Fischer's compensation program, can encourage protection. If your students can look at protecting endangered species through the lenses of incentives, they will obtain a more realistic view of what works and why.

A Classroom Activity
Consider the accompanying teaching idea dealing with the challenges of saving wolves and a rare bird. (Schug, Morton, and Wentworth 1997). Explain to your class that highly valued animal species have often experienced declines in population. The buffalo in North America and the elephant in some parts of Africa are examples. While many environmentalists look to government rules as the way to protect species, people who use an economic perspective with regard to the environment stress the importance of choices involving costs and benefits. They stress the point that private ownership and incentives can be used to encourage the voluntary stewardship of environmental resources.

Divide the class into groups. Assign them to roles as members of the International Species Protection Commission. Ask them to complete the following activity.

International Species Protection Commission
Policy Analysis
The International Species Protection Commission uses the principles of environmental economics to guide it in recommending actions to be taken by governments. Review the four principles below. Then read the following two cases, discuss the questions, and make your recommendations.
The Commission has often been praised by environmental groups for its clear analysis of problems. The success of past Commission efforts can be explained by the fact that it follows these rules of environmental economics when examining policy recommendations:

1. People's choices influence the environment.
2. People's choices have unintended results.
3. People's choices are influenced by rewards.
4. People take better care of things they own and value.

Case 1: Saving the Wolves
Policy Goal: Wolves once lived in many places in North America. However, they were driven into near extinction because they damaged livestock and pets. Environmentalists wish to reintroduce wolves to the western United States. Today, wolves would help balance the ecology. In Montana, for example, wolves would help control the populations of deer and elk, which now overgraze the land.
What is the policy goal?
(To reintroduce wolves into the western United States.)

Policy Choice A
When wolves are discovered on private property, require ranchers to protect the wolves. For example, ranchers should not come close to the wolves or harm them in any way.
1. What are the costs to ranchers?
(They cannot use their land in the way they would like.)
2. What are the costs to most citizens?
(Very few. The costs are borne by the ranchers.)
3. What are the benefits to ranchers?
(Ranchers in favor of wolves will benefit. Others won't)
4. Will the ranchers protect the wolves?
(Given the high costs and limited benefits, probably not.)

Policy Choice B
When wolves are discovered on private property, pay the rancher $5,000 for not using the land occupied by the wolves and for any risk the wolves present to the rancher's livestock.
1.What are the costs to ranchers?
(They may not use their land in the way they would like.)
2.What are the benefits to ranchers?
(They are compensated for the wolves' use of their land.)
3.What are the costs to other citizens?
(Tax payers or a voluntary group would pay for the compensation.)
4.Will the ranchers voluntarily protect the wolves?
(Since the benefits are higher in this option, many more ranchers will voluntarily comply.)

Decision
Which policy do you recommend? Why?
(Accept a variety of responses, but stress the importance of analyzing costs and benefits.)
Case 2. Saving a Rare Bird
Policy Goal: Government biologists have discovered a rare bird that lives in certain types of trees in the western United States. The government would like to protect this species.
What is the policy goal?
(To preserve this species of bird.)

Policy Choice A
When these birds are discovered on privately-owned forest land, require the owner to protect the bird. For example, the land owner may not harvest any trees within five miles of the bird's nest, or harm the bird in any way.
1.What are the costs to the forest owners?
(They cannot use their forest land in the way they would like.)
2.What are the costs to most citizens?
(Very few-the costs are borne by the forest owners.)
3.What are the benefits to the forest owners?
(Forest owners in favor of these birds will benefit. Others won't.)
4.Will the forest owners voluntarily protect the bird if they discover the bird
before the government does? Why or why not?
(Given the high costs and limited benefits, probably not.)

Policy Choice B
When these birds are discovered on privately-owned forest land, pay the land owner for not using the land around the nest. For example, pay the owner $5,000 at the end of each year when a nest on the land has been successfully preserved.
1.What are the costs to the forest owners?
(They may not use their land in the way they would like.)
2.What are the benefits to the forest owners?
(They are compensated for the bird's use of their land.)
3.What are the costs to other citizens?
(Tax payers or a voluntary group would pay to compensate the forest owners.)
4.Will the forest owners voluntarily protect the bird if they discover the bird
before the government does?
(Since the benefits are higher in this option, many more forest owners will voluntarily comply.)

Decision
Which policy do you favor? Why?
(Accept a variety of responses, but stress the importance of analyzing costs and benefits.)

Reference
Mark C. Schug, John S. Morton and Donald R. Wentworth, Economics and the Environment: Eco Detectives. New York: National Council on Economic Education, 1997.
Mark C. Schug is Professor of Curriculum and Instruction at the University of Wisconsin-Milwaukee. Jane S. Shaw is Senior Associate at Political Economy Research Center (PERC), Bozeman, Montana.