Animal conservation through prices

Lynne Kiesling

The fundamental cause of most environmental problems — whether air pollution, climate change, or species extinction, for example — is ill-defined property rights. Ill-define property rights lead to inefficient resource use decisions, resource overuse, and accelerated resource use. The effect of human action on the rate and pattern of species extinction is an example of this issue. Places where people have found ways to define property rights in endangered species have seen them return to healthy, robust populations (such as elephants in Kenya). Some previous KP posts have addressed species extinction.

This proposal from a team of biologists is another idea in the direction of establishing property rights in endangered species: require property developers to buy financial contracts tied to the health of a species:

Under their plan, the government would determine the cost of protecting a species if it becomes endangered. That money would be set aside to fund contracts with payouts pegged to species health. The contracts would be sold to landowners and developers whose actions directly affect the animals, though the contracts could be freely re-sold.

Should animal numbers fall beneath a predetermined threshold, contracts would be voided, and money devoted to anticipated recovery programs. If the species thrives, investors would be rewarded, with profits growing in direct proportion to species health.

Despite the snarky comments in the Wired blog post, this is an idea worth elaborating on and testing (using economic laboratory experiments, of course). The experimental testing would be crucial for ensuring that such a policy would achieve its intended objectives, and not result in, for example, strategic species arbitrage transactions.

Very interesting.