The Economic Approach to Environmental and Natural Resources, 3e

Renewable Resources and the Environment Part III

Introduction • Extinction of both plant and animal species is occurring at an unprecedented rate and the result is a decline in the total variety of life on earth (a loss of biodiversity). • A species becomes extinct when the last individual organisms of the species die. • There are both natural and anthropogenic sources of extinction. • The anthropogenic sources are related to market failure. • The primary question in this chapter is how to provide the optimal level of biodiversity for an entire ecosystem.

Natural Extinctions • Natural extinctions occur when the environment changes and existing species find themselves at a competitive disadvantage and are replaced by existing species that are better adapted to the new conditions. • Natural extinctions are always occurring, usually at a slow pace. • The disappearance of the dinosaurs is an example of a massive and rapid extinction, but it actually took place over a period of about 2 million years. • Table 14.1 lists extinctions of mammals over recent history and shows the extremely rapid rate of extinction that has occurred in modern times.

Anthropogenic Causes of Species Extinction • There are several important anthropogenic causes of extinction. • These include excessive harvesting of the species, loss of habitat, and competition from nonnative species. • Table 14.2 lists observed declines in animal species and their anthropogenic causes. • Table 14.3 lists the number of species in the United States that are declining to the point of extinction being a possibility.

Loss of Habitat • Many species are found only in a limited range of habitat, and if this habitat is destroyed by conversion into another land use, or contaminated by pollution, the species will become extinct. • Loss of habitat may be associated with either open-access or private property resources. • Coral reefs tend to be open-access and are destroyed both by pollution that is carried from firms located on a river to the coral lagoons and by fishing activities such as the damaged caused when recreational boats drop anchor. • The owner of a wetland area who is contemplating converting the wetlands to condominiums makes the decision by comparing the private net benefits of conversion with the private net benefits of preservation. • Social net benefits are generally excluded.

Competition from Nonnative Species • Competition from nonnative species can also be viewed as an externalities problem. • Introduction of an exotic species is often associated with a large ecological and social cost that is not realized by the person who introduced the species. • Non-native species may arrive as hitch-hikers with the importation of other species, importation of goods, and in the luggage and on the person of international travelers. • A good example of this is the zebra mussel that has been introduced into the US Great Lakes in the ballast water of tanker ships. • Non-native species impact native species through direct predation, competition of ecological resources, or destruction of habitat.

Open-access Harvesting • Common property resources often have restrictions on their use while open-access resources do not. • Cultural traditions of the Native Americans dictated the use of bison herds and prevented the destruction of the species. • By contrast, when the Native Americans lost control of their hunting grounds to nonnative Americans, the buffalo herds became open-access common property, with no restrictions on their use. • No individual hunter had incentive to preserve the resource, a destructive race began, with each buffalo hunter seeking to shoot as many buffalo as possible before they were shot by competing hunters. • Buffalo quickly disappeared.

Open-access Harvesting • Modern examples of this type of open-access harvesting pressure include many of the large mammals of Africa and Asia, such as the elephant, rhinoceros, tiger, bear, and leopard. • Although hunting of these animals is usually forbidden by law, it is extremely difficulty to enforce these prohibitions. • High profits associated with illegal trade of animals makes enforcement extremely difficult.

Costs of Losses of Biodiversity • Biodiversity promotes ecosystem stability and health. • The more diverse a system the greater its ability to withstand shocks and stresses. • In addition, people view a healthy and biodiverse ecosystem as intrinsically more valuable than a degraded or less diverse system. • Plants and animal species have value because they may be used to produce economic goods. • Organisms’ genes may be a source of genetic information that could be used in the development of new varieties of plants.

Costs of Losses of Habitat • A habitat provides an environment in which plants and animals can exist. • As an example, wetlands (which include forest wetlands, freshwater marshes, saltwater marshes, bogs, bayous, and mangroves) play a unique ecological role as a transition zone between aquatic ecosystems and terrestrial ecosystems. • Wetlands serve as a vast store of nutrients from terrestrial sources that are gradually released into aquatic systems. • Most estuarine shellfish and finfish are critically dependent on the productivity of the wetlands. • One of the most important roles of wetlands is to serve as a buffer against storms. • Wetlands absorb storm water and lessen floods from high levels of rain.

Policies for Maintaining Biodiversity and Protecting Habitat • It is important to develop policies which recognize not only the commercial importance of biodiversity in areas of medicine and agriculture, but also the non-commodity benefits associated with biodiversity and ecosystem health. • Since the future benefits of biodiversity are unknown, this is an example of the type of environmental problem in which the precautionary principle should be applied. • Under this principle, policy would be created that protected biodiversity as if the benefits were very large, even though we cannot prove that they would be large.

Policies for Maintaining Biodiversity and Protecting Habitat • Another reason to invoke the precautionary principle in biodiversity has to do with the idea of a minimum viable population of species. • A population level lower than this minimum viable level would move the species toward extinction. • A prudent policy would set the level of population well above the minimum viable level. • In some cases, captive breeding programs have been used to help in the recovery of species that have fallen below the minimum viable level. • In the US, examples of these programs include the bald eagle and California condor.

Policies to Reduce Loss of Habitat • Loss of habitat is the inevitable result of economic and population growth. • Excessive loss of habitat occurs when people confront choices about how to utilize habitat but do not have an incentive to incorporate preservation values into their decision making. • Consequently, marginal private cost of converting habitat is less than marginal social cost. • Closing the disparity between private and social costs or alternatively, the disparity between private and social benefits of preservation is an extremely difficult task.

Policies to Reduce Loss of Habitat • Any policy must recognize the public good characteristics of habitat preservation (nonrivalry and nonexcludability). • An approach suggested by Sedjo for addressing the disparity between private and social benefits from preserving rain forests would allow the country where the plant, from which the new medicine is derived, grows to receive a royalty payment from its use (which allows the to country share in the benefits from preservation). • The implementation of marketable carbon permits would allow countries to receive positive benefits, in the form of payments from wealthier countries, in exchange for preservation of forests. • This would also address the issue of preserving carbon sequestration.

Policies to Reduce Loss of Habitat • Some issues can be addressed with command and control regulations. • For example prohibition of wetland destruction and creation of national parks and wildlife sanctuaries to protect critical habitat. • The first question that must be answered in the development of policies to protect habitat is how much should be protected and at what level of protection. • Criteria for developing a prioritization scheme should consider: • uniqueness of habitat, • biodiversity contained in the habitat, • importance of habitat for the provision of ecological services, • existence values associated with the habitat and • the cost of protecting the habitat.

Policies to Reduce Loss of Habitat • The Endangered Species Act of 1973 is a particularly important and controversial piece of legislation directed at the protection of habitat of endangered species. • Under this act, it is illegal to use any federal funds in a fashion that might further threaten endangered species. • Since federal funds are used in many infrastructure projects (roads, sewers, etc.) this legislation applies to a surprisingly large proportion of development projects. • A major criticism of this act is that it is oriented toward species in trouble but does nothing directly to protect other species from becoming endangered or threatened. • This act came up for reauthorization in 1993, but was not changed.

Policies to Reduce Loss of Habitat • There are two basic types of policies that are available for protecting and preserving habitat in general. • One involves the creation of protected areas such as national parks. • The other involves the restriction of use of privately owned lands. For example, there are federal and state laws that restrict the destruction of wetlands. • In 1991, a controversy developed over the Bush administration proposal to change the definition of a wetland from a definition based on soil type and vegetation to one based on inundation by water for specified times during the growing season. • The new definition was not enacted but did serve to point out the importance of a clear, consistent definition and the potential for dramatic changes in wetland area designations should the definition change.

Policies to Reduce Loss of Habitat • The development of wildlife refuges and nature preserves is normally thought of as a government activity but is becoming increasingly private. • Nongovernmental organizations (NGOs), such as the Nature Conservancy, can act as agents for individuals. • These NGOs collect money from individual citizens and then use the funds to buy critical habitat from private landowners. • The private provision of a public good can take place because of the role of nongovernmental organizations. • These groups serve to reduce free rider problems by providing an organization through which individual citizens can commit to protect habitat. • These organizations also serve to reduce the transactions costs to citizen action.

Policies to Reduce Problems with Nonnative Species • Policies for prevention of introduction of non-native species are difficult to develop. • The US has a policy of prohibiting importation of plants and animals believed to be a risk to native species (black-listing). • An alternative policy would be to develop a “white list” where people would have to prove that an imported species is safe before it could be imported. • Direct controls can be used to make it illegal to have undeclared plants and animals in possession when crossing borders. • The most promising economic incentive for addressing non-native species is a liability system which would make importers liable for future damages associated with imported plants and animals.

Policies to Reduce Open-Access Exploitation • The logical solution to open-access exploitation would be to better define property rights. • However, assignment of private property rights to wild game and fish would be politically unfeasible. • It is possible to design policies which limit access such as season limits, limits on the number harvested, and restrictions on how and where animals may be harvested. • However, certain endangered or threatened animals are not allowed to be harvested at all. • Both assignment of property rights and restriction of access are ineffectual when profits from illegal harvesting are high relative to opportunity wage of the hunter, where the opportunity wage is the highest alternative wage for the hunter in a different occupation.

Policies to Reduce Open-Access Exploitation • Policies directed at both supply and demand can address the open-access issue. • A combination of prohibitions on all sales of animal products and publicity campaigns making it socially unacceptable to use animal products can eliminate the profitability of the illegal trade. • This was the rationale behind the ban on ivory by the Convention for International Trade in Endangered Species (CITES).

Summary • Biodiversity, or the total variety of life on earth, is important for ecosystem stability, direct and indirect contributions to social welfare, and the preservation of genetic information. • There three primary anthropogenic sources of loss of biodiversity: overharvesting, competition from nonnative species, and loss of habitat. • Both command and control and economic incentives can be used to reduce the socially inefficient loss of habitat.

The Economic Approach to Environmental and Natural Resources, 3e