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Economics and the Endangered Species Act
By: Jason F. Shogren
When Congress passed the Endangered Species Act (ESA) of 1973, it was explicit in stating that economic criteria should play no role in species listings or in the designation of critical habitat. The U.S. Supreme Court supported this stand, ruling in Tennessee Valley Authority v. Hill that "... it is clear from the Act's legislative history that Congress intended to halt and reverse the trend toward species extinction whatever the cost." It was not until the amendments to the ESA in 1978 that economics first entered into the ESA. Under Section 4, the Secretary of the Interior may "take into consideration the economic impact, and any other relevant impact, of specifying any particular area as critical habitat." Under Section 7, a Federal agency, State Governor, or permit or license applicant may apply to the Secretary for an exemption from the ESA given the availability of reasonable and prudent alternatives to the agency's proposed action, taking into account "the nature and extent of the benefits" of the action and proposed alternatives. In addition, four executive orders (EOs 11821, 12291, 12630, and 12886) requiring the assessment of costs and benefits of different regulatory actions have forced policymakers to acknowledge that economics matters.
Today it does not take an economist to see that economic issues are critical to the ESA debate. With a large fraction of endangered or threatened species inhabiting private land (75 percent according to a 1993 estimate by The Nature Conservancy), a significant portion of the ESA costs are borne by private property owners, while the ESA benefits accrue to the entire nation. Assessing costs and benefits in endangered species protection, however, is not a simple concept. If an economist was asked what he or she knows about the national costs and benefits of the ESA, "not much" would be the truthful response. Economists know that a wedge exists between private and public values. From society's perspective, endangered species with limited commercial or consumptive benefits are undervalued by market prices, and thus there is pressure to use the private services at the expense of the public services. Most non-economists understand this intuitively, however, and economists do not know the magnitude of this private-public wedge because of a lack of data. There is no national estimate of the transaction costs of species protection, opportunity costs to property owners of restricted property rights, and opportunity cost of public funds used in species recovery. The few regional studies, each focusing on a particular species, suggest that distribution may be of more concern than efficiency, i.e., how the economic "pie" is split between people changes, but not the size of the pie. In addition, there is no national estimate of the economic benefits, either private or social, of most of the nearly 1000 listed species. The species-by-species estimates that do exist are subject to technical questions that limit their usefulness for policy analysis.
The best measure of economic loss is opportunity cost-the foregone opportunities due to restrictions on the use of property due to listings, designation of critical habitat, and recovery plans. Opportunity costs include the reduced economic profit from restricted or altered development projects including agriculture production, timber harvesting, minerals extraction, and recreation activities; wages lost by displaced workers who remain unemployed or who are re-employed at lower pay; lower consumer surplus due to higher prices; and lower county property and severance tax revenue. Currently, there is no national estimate of the difference in actual economic growth with the ESA and potential economic growth without the ESA.
Opportunity costs have been estimated for a few high-profile, regional ESA conflicts such as the northern spotted owl. One study estimated that an owl recovery plan that increased the survival odds to 91 percent for a population of about 1,600 to 2,400 owl pairs would decrease economic welfare by $33 billion (1990 dollars), with a disproportionate share of the losses borne by the regional producers of intermediate wood products, a relatively small segment of the population (Montgomery et al. 1994). If the recovery plan tried to push a goal of 95 percent survival odds, costs increased to $46 billion. Another study estimated the short-run and long-run opportunity costs to Washington and Oregon of owl protection at $1.2 billion and $450 million (Rubin et al. 1991). Short-run costs include the value of timber foregone plus the additional costs of displaced workers, whose numbers range from 13,272 lost jobs by 1995 to over 28,000 by 2000. Long-run costs include chiefly the value of the timber foregone, and assume that displaced workers find other positions at similar wages.
Opportunity costs have also been estimated for critical habitat designation in the Virgin River basin for the woundfin, Virgin River chub, and Virgin spinedace, and in the Colorado River basin for the razorback sucker, humpback chub, Colorado squawfish, and bonytail (Brookshire et al. 1994, 1995). Three conclusions emerge from these studies. (1) The difference in total economic output with and without critical habitat designation is relatively small, e.g., 0.0016% of the present value of the baseline stream of output for Washington County, Utah. Similar results hold for earnings income, tax revenues, and employment. (2) The impact of critical habitat designation is not evenly distributed across the states in the basin, as streamflow requirements may negatively impact recreation, electric power production, and future consumptive use in some states but enhance these activities in other states. (3) The potential national impacts of the designation are negligible.
Opportunity costs also exist with public programs, because resources devoted to species conservation could have been spent on something else viewed as potentially more valuable to the general public. The U.S. Department of Interior estimated that the potential direct costs from the recovery plans of all listed species were about $4.6 billion (U.S. Fish and Wildlife Service 1990). The General Accounting Office (GAO; 1995) compiled estimates of the predicted direct outlays needed to recover selected species, including the costs of implementing the most important, "high priority," recovery actions. The GAO reported on 58 approved recovery plans, finding that 34 plans had a total cost estimate for carrying out the recovery, 23 plans had cost estimates for the initial three years of recovery, and 1 had a cost estimate for one part of a twelve part plan. The total for the 34 plans with complete cost estimates was approximately $700 million, with estimates for single plans ranging from a 1994 cost of $145,000 for the White River spinedace to a 1991 estimate of about $152 million each for the green sea turtle and loggerhead turtle. Estimates of costs for the 23 plans with initial three year estimates ranged from a 1990 estimate of $57,000 for the Florida scrub jay to a 1991 estimate of $49.1 million for the black-capped vireo, with a total three year cost for all 23 plans of over $350 million. "High-priority" actions accounted for about $223 million of the total.
Of the money actually expended on endangered species recovery by federal and state agencies between 1989 and 1991 (1989 was the first year data were published), over 50 percent was spent on the top ten species: bald eagle ($31.3m), northern spotted owl ($26.4m), Florida scrub jay ($19.9m), West Indian manatee ($17.3m), red-cockaded woodpecker ($15.1m), Florida panther ($13.6m), grizzly bear ($12.6m), least Bell's vireo ($12.5m), American peregrine falcon ($11.6m), and whooping crane ($10.8m) (Metrick and Weitzman 1996). Over 95% of identifiable expenditures have been on vertebrates, suggesting that visceral characteristics have a bigger role than scientific characteristics in public spending decisions on individual species.
In addition to direct public spending, private expenditures add to the cost of ESA implementation. These expenditures include the time and money spent on applications for permits and licenses, redesign of plans, and legal fees. National estimates for these expenditures do not exist for the ESA. As a possible benchmark, private firms fighting over Superfund spent an estimated $4 billion through 1991 (Dixon 1995).
Economists have suggested that economic value has two parts, use and non-use values. Some use values of species are straightforward, for example, the economic value of current commercial, consumptive, and recreational use. Commercial and recreational harvesting of species are perhaps the most straightforward benefits to estimate, given a visible market price. For example, commercial and recreational salmon fishing in the Pacific Northwest helps support 60,000 jobs and over $1 billion in personal income in the regional economy (Irvin 1995). Commercial recreation can also be non-consumptive, as with the $200 million California whale watching industry.
The value of other commercial uses can be more difficult to measure and involves the issues of substitution and adaptation. Economic value depends on the number of available substitutes, and one's ability to adapt around scarce goods. The more substitutes that are available, the less scarce the good, and the less value a person places on the good. This is the classic diamond-water paradox-why are diamonds sometimes more valuable than water? Because if there are plenty of substitute water sources, the value of one additional lake is relatively low. In a place like the arid western U.S., however, where there are few substitute water sources, water is scarce and very valuable. The same holds true for endangered species. If one sub-species of, for instance, a snail can substitute for another snail sub-species in the production of some new drug, the value of the first snail is lower than if the second snail did not exist.
Additionally, if I can adapt such that the scarce good is no longer needed for either consumption or production, its value to me decreases. If I can learn to live without a good, by changing my preferences or my production technology to exclude the good that is scarce, what I am missing is no longer valued as highly. If I cannot change my life and live without the good, it will be highly valued by me.
An example of these concepts is in the potential use of new species in pharmaceutical research. If one species substitutes for another in potential market success, the value of extensive genetic exploration declines as the odds increase that a firm will find a profitable substitute quickly. For example, assume that 250,000 species are sampled with 10 new products expected to result, $300 million spent in research and development, $450 million in revenue produced over the life of the new products, and a 10% discount rate. In this case the maximum value of a species is estimated at $9,400 (Simpson et al. 1996). This value declines to less than $0.0000005, however, given an order of magnitude increase in the probability of a successful "hit."
Estimating non-use values is more problematic and controversial. Most people are unfamiliar with many services provided by endangered species. As a reasonable proxy to how people in the U. S. may view the issue, a recent survey revealed that over 70 percent of Scottish citizens were completely unfamiliar with the meaning of biodiversity (Hanley and Spash 1993). This lack of realization of the services provided by species makes estimating non-use values especially problematic. How do we assign economic value to goods that most people will never directly use and may not even recognize exist, and are the tools we use to estimate these benefits accurate?
Critics complain that non-use value acts as a surrogate measure of environmental preferences, rather than for the particular species in question. One study, for example, showed the average perceived benefits from preventing 2,000 birds from dying in oil-filled ponds was no different than the value from preventing 20,000 or 200,000 birds from dying (Desvousges et al. 1992).
In other studies, a bimodal distribution of values has been observed. The distribution of hypothetical willingness to pay for non-market goods such as species conservation is split between those who see no reason to pay anything (due to either low value or their willingness to "free ride" on other people's bids) and those who want to pay their fair share-typically about $40, an amount similar to the level they give to some charities.
The contingent valuation survey (CV) has been used to measure benefits of a non-market good such as an endangered species. The results suggest that the average person's lump sum willingness to pay ranges from $12.99 to $254 for sea turtle or bald eagle preservation. The average individual's annual willingness to pay ranges from $6 to avoid the loss of the striped shiner to over $95 to avoid the loss of the northern spotted owl.
A piecemeal species-by-species approach, however, overestimates total ESA economic benefits because it does not address potential substitution and adaptation possibilities. Adding the average person's benefits elicited in 18 CV surveys suggests that he or she would be willing to pay about $953 to protect 18 different species (Loomis and White 1996). Multiplying this payment by the number of U.S. households (about 75 million) gives a total benefit estimate of $71 billion. This estimate is roughly 1% of the 1995 U.S. Gross National Product, for less than 2% of all threatened and endangered species. Clearly this estimate is inflated, and shows that a better understanding of the relationship between the values for species and their substitution/adaptation possibilities is necessary before any national estimate of non-use values will be useful in the ESA debate.
More economic thinking about how the ESA has affected our economic system, for better or worse, is a research priority. Economists have not yet estimated the national costs or benefits of the ESA, and no one has even dared to guess, given the complexity of the ESA debate. Furthermore, we need to address a broader question of social order: how we trade secure property rights and protection of endangered species. One person's inalienable right to protect endangered species will need to be balanced against another's inalienable right of self-determination. A better understanding of the economic costs, benefits, trade-offs, and opportunities should fuel a more informative debate over ESA reauthorization.
Brookshire, D., M. McKee, and C. Schmidt. 1995. Draft economic analyses of critical habitat designation in the virgin river basin for the woundfin, virgin river chub, and virgin spinedace. Report to the U.S. Fish and Wildlife Service.
Brookshire, D., M. McKee, and G.Watts. 1994. An economic analyses of critical habitat designation in Colorado river basin for the razorback sucker, humpback chub, Colorado squawfish, and bonytail. Final report to the U.S. Fish and Wildlife Service.
Desvousges, W., F.R. Johnson, R. Dunford, K. Boyle, S. Hudson, and K. Wilson. 1992. Measuring natural resource damages with contingent valuation: tests of validity and reliability. Research Triangle Institute, NC.
Dixon, L. 1995. The transaction costs generated by Superfund's liability approach. Pages 171-185 in R. Revesz and R. Stewart, editors. Analyzing Superfund: economics, science, and law. Washington, DC: Resources for the Future.
General Accounting Office. 1995. Correspondence to representative Don Young on estimated recovery costs of endangered species. Washington, DC, B-270461.
Hagen, D., J. Vincent, and P. Welle. 1992. Benefits of preserving old-growth forests and the spotted owl. Contemporary Policy Issues 10:13-25.
Hanley, N. and C. Spash. 1993. The value of biodiversity in British forests. Report to the Scottish Forestry Commission, University of Sterling, Scotland.
Irvin, W.R. July 13, 1995. Statement to the Subcommittee on Drinking Water, Fisheries, and Wildlife of the Senate Environment and Public Works Committee.
Loomis, J. and D. White. 1996. Economic benefits of rare and endangered species: Summary and meta analysis. Colorado State University. Fort Collins, CO.
Metrick, A. and M. Weitzman. 1996. Patterns of behavior in endangered species preservation. Land Economics 72:1-16.
Montgomery, C., G. Brown Jr., and M. Darius. 1994. The marginal cost of species preservation: The northern spotted owl. Journal of Environmental Economics and Management 26:111-128.
Rubin, J., G. Helfand, and J. Loomis. 1991. A benefit-cost analysis of the northern spotted owl. Journal of Forestry 89:25-30.
Simpson, R., R. Sedjo, and J. Reid. 1996. Valuing biodiversity for use in pharmaceutical research. Journal of Political Economy 104:163-185.
The Nature Conservancy. 1993. Perspective on species imperilment: a report from the Natural Heritage data center network. Arlington, VA: The Nature Conservancy.
U.S. Fish and Wildlife Service. 1990. Report to Congress: endangered and threatened species recovery program. Washington, DC: U. S. Government printing office.
Jason F. Shogren is the Thomas Stroock Distinguished Professor of Natural Resource Conservation and Management and Professor of Economics, Department of Economics and Finance, University of Wyoming, Laramie, WY 82071. He is also Senior Economist, Council of Economic Advisors, Executive Office of the President, Washington, DC 20502. View expressed may not reflect those of the organizations with which the author is affiliated.
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