Species at Risk

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Species at Risk

Using Economic Incentives to Shelter Endangered Species on Private Lands

Edited by Jason F. Shogren

In this book, lawyers, economists, political scientists, historians, and zoologists come together to assess the challenges and opportunities for using economic incentives as compensation for protecting species at risk on private property.



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Protecting endangered species of animals and plants is a goal that almost everyone supports in principle—but in practice private landowners have often opposed the regulations of the Endangered Species Act, which, they argue, unfairly limits their right to profit from their property. To encourage private landowners to cooperate voluntarily in species conservation and to mitigate the economic burden of doing so, the government and nonprofit land trusts have created a number of incentive programs, including conservation easements, leases, habitat banking, habitat conservation planning, safe harbors, candidate conservation agreements, and the "no surprise" policy.

In this book, lawyers, economists, political scientists, historians, and zoologists come together to assess the challenges and opportunities for using economic incentives as compensation for protecting species at risk on private property. They examine current programs to see how well they are working and also offer ideas for how these programs could be more successful. Their ultimate goal is to better understand how economic incentive schemes can be made both more cost-effective and more socially acceptable, while respecting a wide range of views regarding opportunity costs, legal standing, biological effectiveness, moral appropriateness, and social context.

  • Foreword (Mike Sullivan and the members of the board of the Institute of Environmental and Natural Resources, University of Wyoming)
  • Chapter 1. Introduction (Jason F. Shogren)
  • Part I. Current and Proposed Incentive Options for Species Protection on Private Lands
  • Chapter 2. The Endangered Species Act and Its Current Set of Incentive Tools for Species Protection (Debra Donahue)
  • Chapter 3. An Economic Review of Incentive Mechanisms to Protect Species on Private Land (Gregory M. Parkhurst and Jason F. Shogren)
  • Part II. Challenges to Using Economic Incentives for Species Protection
  • Chapter 4. Endangered Species Protection and Ways of Life: Beyond Economy and Ecology (Frieda Knobloch and R. McGreggor Cawley)
  • Chapter 5. A Critical Examination of Economic Incentives to Promote Conservation (Debra Donahue)
  • Chapter 6. Appraising the Conservation Value of Private Lands (Steve W. Buskirk and Samantha M. Wisely)
  • Chapter 7. Markets for Conserving Biodiversity Habitat: Principles and Practice (Thomas D. Crocker)
  • Chapter 8. The Role of Private Information in Designing Conservation Incentives for Property Owners (Jason F. Shogren, Rodney B. W. Smith, and John Tschirhart)
  • Part III. Economic Incentives for ESA Reauthorization
  • Chapter 9. Evaluating the Incentive Tools (Gregory M. Parkhurst and Jason F. Shogren)
  • About the Authors
  • Index

A sunflower named the desert yellowhead (Yermo xanthocephalus) is known to live on fifty acres in Fremont County, Wyoming. This rare perennial flower is a species at risk from both natural and human-caused disturbances. The U.S. Fish and Wildlife Service (USFWS) announced in the spring of 2002 that it would list the desert yellowhead as a threatened species under the Endangered Species Act (ESA) of 1973. A threatened species like the desert yellowhead is one feared to become endangered from future pressures of human activity. The ESA codifies the idea that species have "ecological, educational, historical, recreational and scientific value" unaccounted for in the course of "economic growth and development" (ESA, Sec. 2). Thirty years ago this language seemed harmless enough to the U.S. Congress, which passed the act with little or no opposition: 390-12 in the House and 92-0 in the Senate (see Mann and Plummer 1995).

Nevertheless, the ESA has proven to be controversial. First, the act broadened the scope of species protection (Bean 1999). It makes every species, subspecies, and discrete population, restricted to plants and animals, eligible for protection by being listed either as endangered or threatened. As a consequence, the list of endangered and threatened species in the United States expanded by an order of magnitude, from about 100 in 1973 to nearly 1,300 in 2002 (see Table 1.1). Plants at risk, like the desert yellowhead, make up two-thirds of the listed species. The large variety of species that might require protection under the act implies ever-increasing conflicts with on-going human demands to use and develop land (see, for example, Wilcove et al. 2000; Beissinger and Perrine 2001).

Second, the original language of the act implies that all species will be protected regardless of costs, which reversed the preceding doctrine that species protection would be "practicable and consistent with primary purposes" of land use. The Supreme Court upheld this view in Tennessee Valley Authority v. Hill, stating that "it is clear from the ESA's legislative history that Congress intended to halt and reverse the trend toward species extinction—whatever the cost." The ideal of protection at any cost creates additional conflicts because species protection must compete with other worthy public goals such as education or health care, all constrained by scarce resources and limited budgets.

Economists have not attempted to estimate what the ESA might cost the entire nation as measured by reduced opportunities due to restricted land use. They do have an estimate, however, on what federal and state agencies have spent on endangered species protection between 1989 and 1996. Table 1.2 shows that expenditures increased from $44 million in 1989 to about $270 million in 1996—out of total government expenditures of more than $1.4 trillion in 1996 (Dawson and Shogren 2001). Limited budgets and political realities also create conflicts within ESA recovery plans, in which over 50 percent of expenditures go to ten vertebrates (see Table 1.3).

Third, the ESA covers species that live on public or private land or both. The fifty acres that shelter the desert yellowhead are part of public lands managed by the Bureau of Land Management. Although not without its challenges, the protection of the sunflower is relatively straightforward; if the bureau and the USFWS can work together as sister federal agencies, they can draft a public-to-public conservation agreement. Species protection on private lands, however, is a different story. Now we are talking about creating new private-to-public agreements. The ESA prohibits private citizens from taking any threatened or endangered species on their private property, and the USFWS has interpreted "taking" to mean any action that injures or kills an endangered species or degrades its habitat. The U.S. Supreme Court has upheld that interpretation in the recent past. Most land in the United States is in fact privately owned, and since about half of the listed endangered species rely on private land for 80 percent of their habitat, the potential reach of the ESA is extensive (see Bean 1998; Brown and Shogren 1998).

Protecting nature on private lands presents both a challenge and an opportunity. The challenge is to protect both private landowner concerns and the biological needs of the environment; the opportunity is to integrate the many disciplines that fall within the natural and social sciences. Such integration offers scientists the prospect of gaining more understanding about the complexities that arise in the protection of human-dominated environments. Better integration also can help policymakers make more informed decisions about how to manage private lands by adding insight into the efficacy and efficiency of alternative choices that try to balance private rights with the public gains. Integration occurs at several different levels, ranging from accounting for feedbacks between both society and ecology within formal models to incorporating diverse methods of control to link the multiple objectives of various interest groups and people.

A good example of the private lands challenge is the proposed listing of the black-tailed prairie dog (Cynomys ludovicianus) as a threatened species under the ESA. Historically, both state and local governments and ranchers have considered the prairie dog a pest, believing the rodents compete for livestock forage, create livestock hazards with their burrows, and increase soil erosion. Ranchers and government agencies have engaged in systematic programs to eliminate populations. Environmentalists and biologists, however, argue that these actions have had serious implications for grasslands, as the prairie dog is believed to be a keystone species in Great Plains ecosystems. Current biological research indicates that in addition to providing prey for various species of raptors and black-footed ferrets, the prairie dog's presence provides habitat for burrowing owls, spotted salamanders, and mountain plovers. In addition, prairie dogs rework the soil, providing nutrients for plant growth of benefit to grazing animals (Whicker and Detling 1988).

Ranchers and hunters throughout the state are understandably worried about such changes on national grasslands, but they are even more worried about the implications that actual listing of the animal would have for private land. If the prairie dog were listed as threatened, under the terms of the Endangered Species Act, ranchers would not be allowed to engage in any measures to control its population on their lands. Hunters would also not be allowed to shoot the animal for sport, an activity gaining increased commercial weight throughout the West. Furthermore, in anticipation of this possible policy change, some ranchers are currently conducting prairie dog extermination programs on their own lands to ensure that if the policy comes into effect, management of their land will not be an issue (Matthews 1999).

Once the animal is listed, a landowner with black-tailed prairie dogs will have to work with a federal agency whose basic goal is to protect species by putting explicit restrictions on how the land can be used. Strict regulatory enforcement of the ESA (or any other environmental or land-use law) may deny property owners valuable uses of their land without rising to the level of a Fifth Amendment taking—private property shall not be taken for a public use, without just compensation (e.g., Blume et al. 1984). The ESA can be used as a tool to influence actions on private lands that people believe matter to species protection. Landowners can be restricted from using their land as they once did, while still being held responsible for paying their property taxes.

Although fears of land use restrictions are real, Michael Bean (1998) argues that they are exaggerated. Bean points out that the provision of the ESA that directly affects landowners (the species takings provision) has a "far narrower sweep than either the environmentalists or landowners commonly think." The provision does not apply to plants, is not automatic for threatened animals, is not absolute even for endangered species, and is shrouded by ambiguity about whether a taking implies just a threat or the actual death or injury of the animal. The ESA is not without its bite, however, for persons caught violating the act. Of those prosecuted on criminal charges for illegal takings, one-fourth went to jail for periods of 10 to 1,170 days, one-fourth paid fines of $1,000 to $50,000, and many others were put on probation (GAO 1995).

Land restrictions are not new, and most landowners understand this. For centuries in Europe and then in Euro-America, common-law restrictions have limited what people could do to or with their property. The ESA has triggered a profound backlash, however, because private property has held a special status in the history of the United States. Many laws impose inequitable burdens on people (e.g., mountain bikers paying taxes for interstate highways), but to some people, restricting private landowner autonomy to protect obscure species seems a threat to both the economic system and broader social order.

Regarding economics, land is natural capital, and it is capital that provides people the ability to create, store, and share private wealth essential to national survival and prosperity. This classical liberal viewpoint has faith in the Hamiltonian perspective that the government should abdicate to market forces that create wealth by allowing for resources to move freely from low-valued to high-valued uses. These people follow the utilitarian view of nature promoted by John Stuart Mill and Gifford Pinchot—the resource conservation ethic is "the greatest good of the greatest number for the longest time" (Pinchot 1947).

Regarding social order, many agree with James Madison's argument within the Federalist Papers that "the wide diffusion of independent property rights . . . was the essential foundation for stable republican government" (McEvoy 1998). The fear is that unjustifiable restriction of private land use for species protection without just compensation is another step down the slippery slope that would undo much of what is good about America (see Epstein 1985, 1995). Gail Norton, the current Secretary of the Interior, supports this view: "The goal of government must be to empower people to be citizen conservationists while respecting the need to make a living off the land" (Norton 2002). The idea that private landowners hold the key to species protection, however, is neither new nor novel. Aldo Leopold argued in the 1930s that conservation "ultimately boil[s] down to reward the private landowner who conserves the public interest" (see Bean 1997).

Others disagree. The romantic-conservation ethic promoted in the United States by Ralph Waldo Emerson, Henry Thoreau, and John Muir is a good example. The preservationists, as they came to be called, believed that land had other uses than just for human financial gain. Landowners would be free to pursue private profits provided they behaved as responsible social citizens too, because by definition land is already in public service. All land uses should be viewed as "harm-preventing" rather than as "public good providing." As Sagoff (1997, p. 845) puts it: "The conviction that the freedom to wring the last speculative penny from one's land is of a piece with one's most fundamental civil, political, and personal liberties seems to be grounded less on argument than on assumption." Based on recent Supreme Court decisions (e.g., Lucas v. South Carolina Coastal Council, Dolan v. City of Tigard), the Fifth Amendment takings clause is not applicable to all ESA restrictions. These decisions have established that a regulation related to the public purpose will require compensation only if it singles out a vulnerable minority, deprives a landowner of all viable uses of his property, or physically invades or occupies the property (Sagoff 1997). Most landowners affected by the ESA arguably do not satisfy any of those three criteria.

Although the courts have ruled that the government does not need to compensate for endangered species protection, it does not answer the question of whether the government should compensate private landowners (see Innes et al. 1998). Michael Bean (1998), who has studied the ESA-private lands-compensation triangle for years, believes that "without positive incentives, the act's goals are unlikely to be achieved." This argument reflects Leopold's evolutionary-ecological land ethic, which emerged in the 1940s, in part out of frustration with the other two views. Leopold (1949) based his ethic on the scientific notion that nature is not a collection of separate parts but an integrated system of actions, reactions, and feedbacks. This more scientific notion focuses on defining the natural system within the context of human interaction and well-being. Within this mind-set of integrating natural science and social science, one can promote more understanding between mind-sets by working together to define a set of evaluative criteria that reflects the range of ethical views. For the private lands challenge, the criteria should address perceived biological needs, landowner incentives, and regulatory power and control.

Regulatory approaches do exist to offer compensation to landowners for the costs of protecting species on their land. Providing landowners with incentives for better practices relies on the carrot of financial reward, rather than the stick of prosecution for violating ESA's prohibition on harming listed species or their habitat (Eisner et al. 1995; Shogren et al. 1999). Since the benefits of protecting endangered species accrue to the entire nation, should the public use incentive methods to compensate private landowners who pick up a sizable share of the costs? If not, why not? If so, how should these compensation schemes be designed to maximize protection to species and maximize the rights of self-determination? How should we determine the value of the compensation, the value of private land use lost due to species protection, or the public nonmarket value of land as species habitat? (See Farrier 1995; National Research Council 1995; Innes et al. 1998; Thompson 1997.)

Policymakers have addressed the compensation question in part by offering up voluntary incentive programs to landowners to increase their incentives for private species protection and biodiversity conservation. The idea is to transform an environmental liability into a marketable asset (Bayon 2002). The USFWS and more than a thousand nonprofit land trusts promote habitat conservation by using voluntary incentive mechanisms to elicit the cooperation of private landowners. Mechanisms include conservation easements, leases, habitat banking, habitat conservation planning, safe harbors, candidate conservation agreements, and the no-surprises policy (see Bean 1999).

The Defenders of Wildlife (2002) recently reviewed incentive-based approaches currently being used to encourage habitat conservation on private land across the United States. Based on a survey of state incentive programs, they found that about four hundred incentive programs enrolling some 70 million private acres exist in the fifty states, 50 percent of which were created within the last decade. The typical state offers four to six conservation incentives, usually in some form of direct payment and easement with tax relief. About 28 percent of the states make direct payments, 22 percent provide education and technical support, 20 percent give tax relief, and 13 percent use property-right tolls like easements and deed restrictions. Market institutions for species protection were used in about 3 percent of the programs.

Despite the existence of many incentive systems, internal rifts within the landowner and ESA-supporter communities continue to cloud the compensation question. Some landowners want compensation; those who complain about the high costs of complying with the ESA demand compensation for compliance. Ranchers and farmers say they will retire acres for habitat or will put up with large predators (e.g., grizzly bears, wolves) provided they are compensated. Those landowners willing to consider compensation demand a very fine level of detail about the program, need to see a local precedent, and need some basic reassurances to overcome an instinctual distrust of the regulatory aspects of the government (Korfmacher and Elsom 1998).

Some ESA defenders agree that compensation is needed; they see compensation as a pragmatic way to bring private land into the fold of species protection. Compensation would reduce a landowner's incentive to wipe out the potential environmental value of land, thereby avoiding any potential ESA restrictions. The Defenders of Wildlife, for example, have paid out more than $64,000 for nearly 100 grizzly depredations since 1997, and more than $200,000 to about 180 ranchers for livestock losses to wolves since 1987.

Other landowners do not want to be paid to protect species. They say they want nothing to do with a compensation policy for they fear further public erosion of their autonomy and private control. They also fear that any contracts they enter with federal agencies will be unenforceable (see Melious and Thorton 1999). They see compensation as a set of golden handcuffs, in which more and more will be required of them and taken from them. Their view is that sometimes compensation is not enough; landowners want their privacy respected, their prior stewardship efforts acknowledged, and their ability to protect their investments flexible. As one rancher put it, "It sounds to me like you're basically selling the state or federal government the right to control, not necessarily your land, but down the road it seems to me that the government then has control of private lands" (as quoted in Korfmacher and Elsom 1998).

Some proponents of the ESA also think compensation is a bad idea, although for a different reason. They view compensation payments as a tool to paralyze the ESA through continual congressional underfunding of budget sources. They fear that mandatory compensation that is not coupled with the necessary federal funding would in effect gut the ESA.

The compensation question has helped stall ESA reauthorization for over a decade. Congress has proposed several bills; none has passed. A good example is the Endangered Species Recovery Act (ESRA) introduced into the House of Representatives numerous times by Representative George Miller (D-CA) and others. The ESRA encourages habitat planning by allowing for multispecies, multilandowner conservation plans. The act would expand opportunities for public participation and help landowners through tax incentives, technical assistance, and a streamlined permitting process. The act is silent, however, about direct compensation to landowners who shelter species. Another bill introduced from the opposite view is the Penalties Liability Reform Act (H.R. 1404), which affirms as a legitimate defense the case in which a landowner did not respect an endangered or threatened species because he or she did not know, nor could reasonably have known, that the species was endangered or threatened. To date, neither the ESRA nor the Liability Reform Act has been passed, and neither have any other bills falling to the left or right.

No one sees a quick end to the ESA controversy. Society is faced with difficult economic choices, choices that affect and are affected by biological needs and political realities. Working through this tangle requires more explicit attention to how economic incentives might affect private landowners, ESA supporters, and policymakers. People can point to voluntary programs that have worked to encourage some landowners to protect endangered species on their private property. These programs offer a regulatory safeguard to promote cooperation; some use explicit economic incentives such as payments for easements. Examples exist in which private landowners have voluntarily become partners in positive and proactive plans to protect and enhance natural resources on their land. Turner and Rylander (1998), for instance, describe several examples in which incentives have worked to protect species like the Louisiana black bear and the red-cockaded woodpecker.

Other observers remain skeptical of voluntary incentive programs within the ESA. They question whether economic incentives will work and what we know about the opportunities and challenges of using such schemes to promote proactive measures on private property. Although their concerns are legitimate, the cooperation of private landowners still remains vital to the preservation of endangered species. One can attempt to compel their cooperation through command and control mandates, or one can attempt to induce cooperation through flexible incentives that reward landowners for their good stewardship of habitat and species. A variety of such flexible compensation schemes are possible: direct compensation from the government to owners of land; conservation banking and tradable rights in habitat, under which those who wish to develop land would buy permits from those who would then not be able to develop; insurance programs under which landowners are compensated if endangered species impose costs on them, like the fund created by Defenders of Wildlife; estate tax relief to allow large chunks of land to be preserved, rather than broken up to pay federal estate taxes, or tax deductions for conservation expenses.

All incentive systems present opportunities and challenges. No incentive tool or approach is a panacea. The type of species, landowner, and land configuration problem can affect each incentive system. Aligning the incentives for unique landowners with society's desire for protection of certain species is not a one-size-fits all proposition. Assessing and integrating how each incentive system works for each landowner and species and habitat will require a case-by-case process. This book primarily focuses on the abstract ideas underlying incentives because these issues cut across people, species, time, and space. Several case studies are presented to help make the abstract more concrete.

Compensation for private landowners can be subject to shaky claims and extensive litigation. Trading habitat requires ways of measuring what quantity and quality of habitat is equivalent—not a simple task. Although the government can provide the institutional framework within which people make trades for goods of value, widespread use of the insurance mechanism may be curtailed because of the costs of ascertaining the losses to property owners. It is not obvious that tax breaks for preserving large estates would generate more benefits than buying the land, or allowing it to be sold with some sort of easement, and the political attractiveness of providing additional tax breaks to wealthy landowners is questionable.

Plus, buyers of species protection will have to find willing sellers, those landowners who will sell or lease their property rights to habitat. In addition, determining a value for habitat requires independent and confidential biological and economic appraisals of habitat. Private companies are now also playing a role. The goal of the developers Greenvest, for example, is to develop land to balance "the goals of profit maximization and the creation of unique and aesthetically pleasing residential communities and commercial developments."

Creative suggestions on how to generate and use public monies more effectively are also welcome, even those with low odds of short-term political success. One wide-reaching proposal offered up by Gregg Easterbrook (1998) is that Congress should codify a "build-and-save" plan. For each and every acre developed, another acre of habitat must be purchased and conserved for species protection. The idea is to align developers' and conservationists' interests such that if the economy grows, so do our national parks and forests and grasslands. Over the last decade about 1.5 million acres of new development has occurred each year; therefore, a development fee of $1,000 an acre would generate a conservation fund of about $1.5 billion per year.

Such schemes have appeal, but a more likely approach in the short run is to find more creative ways to use compensation in conjunction with existing programs in the government. The difficulties of implementing new programs might suggest that one could fund conservation through existing programs, such as the Wetlands Reserve Program run by the USDA Natural Resource Conservation Service. The WRP, a nationwide voluntary program, offers payment based on agricultural value for wetlands that have been drained and converted to agricultural uses. Another USDA incentive is the Wildlife Habitat Incentive Program, which provides cost-sharing to assist landowners who use their habitat to protect wildlife and threatened and endangered species. In addition, Title II of the new farm bill (the Farm Security and Rural Investment Act of 2002) has budgeted about $17 billion for incentives for conservation on agricultural lands, including the newly created Conservation Security Program. The CSP pays producers who adopt and maintain conservation practices on private lands. Contracts run five to ten years, and annual payments range from $20,000 to $45,000. The CSP uses an initial Secretary's bonus to encourage people to sign up.

Another imaginative bonus scheme that could be incorporated into these existing incentive options is an agglomeration bonus. Suppose the dual goal is to maximize species protection cost-effectively and minimize private landowner resentment. The agglomeration bonus mechanism pays a bonus for every acre a landowner retires that borders on any other retired acre (see Parkhurst et al. 2002). The mechanism provides an incentive for adjacent landowners to create a contiguous reserve across their common border voluntarily, resulting in the single large habitat usually desired for effective conservation. A government agency's role is to target the critical habitat, to integrate the agglomeration bonus into the compensation package, and to provide landowners the unconditional freedom to choose which acres to retire.

Oregon's Conservation Reserve Enhancement Program (CREP) illustrates the idea of an allied land retirement bonus scheme. The CREP pays an extra bonus to enrollees along a stream if at least 50 percent of the stream bank within a 5-mile stream segment is enrolled in the U.S. Department of Agriculture's Conservation Reserve Program. The bonus is a one-time payment equaling four times the annual rental rate for each acre enrolled. Note that the CREP does not require retired acres to be contiguous, which might not create a single large habitat (see USDA 1998). Such targeted bonuses could also reduce the risk of a piecemeal approach that spreads conservation dollars too thinly among too many scattered landowners or programs (see Wu and Boggess 1999).

This book addresses the challenges and opportunities to use economic incentives as compensation for protecting species at risk on private property. Extending our first volume, which explored the challenges and opportunities of protecting species on private property (Shogren 1998), we have assembled a collection of essays by lawyers, economists, political scientists, historians, and zoologists who have examined the role of economic incentive schemes for species protection. Each chapter considers the promise of and the trepidation over economic incentives. The authors raise questions about whether landowners should be provided the opportunity to sell private shares of critical habitat rights on the open market without opening themselves up to public access. The goal is to form a better understanding of how incentive schemes can be both more cost-effective and socially acceptable given alternative views toward the nature of opportunity costs, legal standing, biological effectiveness, moral appropriateness, and social context. Each essay offers a different perspective on how we got here, what options we have, and what pitfalls confront us as we try to provide more species protection at less cost.

Overview of the Book

Some main points raised in the book are highlighted in Part I, an overview of existing and future options for incentives. In Chapter 2, law professor Debra Donahue examines the history of the Endangered Species Act and the current set of tools available for species protection. She examines the current programs offered by the USFWS to landowners for maintaining some financial uses of their land. These programs aim to reduce regulatory uncertainty for the landowner while protecting species at risk. The programs include habitat conservation planning (HCP) with no surprises, safe harbors, and candidate conservation agreements with assurances (CCA). HCPs with no surprises are useful for landowners who already have ESA-driven land use restrictions in place and who want to regain some financial uses on other portions of their land. For landowners who want to undertake land practices that increase the quality of habitat on their land but are hesitant to do so because of the actual or potential threat of increased ESA restrictions, the safe harbors and CCA programs assure a regulatory ceiling. Safe harbors apply to listed species; CCA is applicable to species that are candidates for listing.

The HCP program has been characterized as win-win; the landowner reduces the ESA land use restrictions on her land, which increases the landowner's expected profits, and the USFWS insures a level of species protection. But is it win-win? From the landowner's point of view, she is a loser if her expected profits prior to ESA restrictions are compared against expected profits after completion of the HCP process. The landowner can be considered a winner when comparing her expected profits after ESA restrictions with her expected profits on completion of the HCP process. The landowner is still faced with the incentive to avoid initial ESA restrictions. Safe harbors are similar, in that landowners with land uses already restricted by ESA regulations can benefit. As of 2000, five safe harbor programs exist in the United States.

In Chapter 3, Gregory Parkhurst and myself review a set of economic incentive mechanisms designed to protect species on private land. We explore the pros and cons of eight incentive mechanisms for conserving habitat. These incentive mechanisms range from command-and-control, in which the government establishes a standard that landowners must satisfy, to voluntary incentive mechanisms that compensate the landowner. Each incentive mechanism has good and bad points as measured by economic, biological, and political criteria. No one incentive mechanism is the all-inclusive solution. The incentive mechanism that performs best under any given situation depends on the regulator's objectives, the budget, available land, how land qualities vary, landowner dispositions toward conservation, and the information available to the regulator.

As economists, we focus our pro-con discussion primarily on economic criteria. We acknowledge and appreciate that other scholars and policymakers use alternative social criteria to judge the pros and cons of these incentive mechanisms, including justice, fairness and equity, control, power, authority, and public participation in environmental protection. Part II explores the idea of incentives from a broader context. These chapters address the challenges facing the use of economic incentives for species protection. In Chapter 4, professors Frieda Knobloch and McGreggor Cawley examine endangered species protection and ways of life beyond our current narrow perspective of economics and ecology. They argue that extending the ESA to private property creates a conflict between preserving species and preserving a community's way of life. The way of life consists of all the values of the people of the community. Financial incentives are but one value. The effects of financial incentives should not be considered alone. They should be viewed by acknowledging how compensation affects all other individual values and obligations that define the community. When protecting species is in conflict with a community's way of life, financial incentives may be insufficient. Here Knobloch and Cawley suggest that protecting species must be aligned with people's way of life, so that compensation is combined with land management techniques that provide for the long-term reconnection of "people's livelihoods and ways of life" with "environmental health and stability."

Debra Donahue returns in Chapter 5 to evaluate the role of economic incentives for conservation. She argues that the use of financial incentives to protect species has four major pitfalls: funding is insufficient, individual efforts often lead to fragmented habitat, failure will occur unless the incentive policy is backed with enforced penalties for noncompliance, and landowners may not develop a land ethic that protects species long-term because they expect to be compensated for every lost land use. The chapter considers the details at work in her fourth pitfall, how landowners, looking to be compensated when land uses are restricted, do not establish a land ethic that employs adaptive management techniques for species preservation. Donahue argues that financial incentives should be tied to a stewardship ethic, thus altering the attitudes of landowners toward conservation, making species protection an asset, and changing land use expectations permanently, perhaps redefining property rights to include the obligation of maintaining and enhancing the land's biota. Donahue further asserts that for a financial incentive policy to be effective in promoting a stewardship ethic, the underlying regulation should have teeth.

Biologists Steven Buskirk and Samantha Wisely address the challenges associated with appraising the conservation value of private lands in Chapter 6. They develop a bioappraisal process that assesses the conservation value of land by describing and documenting land characteristics and attributes that affect the conservation value of the land. The relevant land characteristics and attributes (and hence the land parcel's conservation value) are dependent on the objectives of the regulator or conservator. A short list includes a description of the property and the types and frequencies of habitat and species, how the land parcel's habitat relates to the habitat on surrounding properties, and the extent to which habitat quality and species viability can be enhanced through active management.

Though a system of bioappraisals is not established today, conservation valuation approaches have been used in implementing the ESA and the National Forest Management Plan. Those approaches lack the comparability that is obtained through the use of the bioappraisal process suggested by Buskirk and Wisely. The bioappraisal process will need to establish a common language, in the form of a certification process that may need to be species- and region-specific. Bioappraisals might also require a professional association that can define standards and transfer information between buyer and seller. The process must be defined by contract law as it applies to appraisals. Implementing any method that measures and quantifies biodiversity has similar needs.

In the next chapter, economist Thomas Crocker addresses whether people can create actual markets for conserving biodiversity habitat in principle or in practice. Crocker argues that the current command-and-control policy for achieving the goals of the ESA on private lands is an inefficient approach to species conservation. Efficiency, or achieving habitat conservation at lower costs, can be enhanced with the use of markets to transfer the responsibility of conservation to those who can afford it best because of lower opportunity costs or higher values for conservation or both. A standard approach of tradable habitat credits is suggested, but in the ESA setting, the regulator sets a minimum amount of land conservation that must be achieved, and as such, each landowner benefits by the other landowners' conserved acres. This creates a positive externality between landowners, which reduces each landowner's willingness to conserve land and makes tradable habitat credits less than efficient. Tradable habitat credits combined with a tax subsidy mechanism can achieve the ESA land conservation objective at the lowest cost.

The final chapter in Part II considers the role of information in designing conservation incentives for property owners. Rodney Smith, John Tschirhart, and myself consider how financial incentives that align landowner objectives with those of the ESA are embodied in a policy of voluntary participation. The argument is that in designing a cost-effective voluntary incentive mechanism the regulator should account for landowners' private information regarding their alternative land use values as well as the conservation value of their land. In accounting for information shortages, the regulator establishes a menu of alternatives that combine subsidy payments with specific conservation acre set-asides, which exposes each landowner's type through self-selection of program alternatives. To insure that each landowner type chooses the appropriate alternative, low-value landowner types are overcompensated. Compensation that exceeds the landowner's private land use value is called information rent and is the cost to the regulator of purchasing private landowner information. (For a more technical investigation see Smith and Shogren 2002.)

Greg Parkhurst and I close the book by evaluating the set of economic incentive options. Based on the discussions from earlier chapters in the book, we consider three sets of criteria to assess how each incentive can address a set of biological needs, landowner interests, and government or regulatory concerns. We offer our evaluation as a broad starting point; specific applications will have different success rates depending on the specific combination of species, landowners, and habitat type.

Concluding Remarks

The logic of Jim Berger, the former president of the Wyoming Stock Growers Association, that the "best wildlife management we can have is a local game warden, a rancher, and a cup of coffee" (Kruckenberg 2000), rings true for many people. Species are local, and politics are local, which makes the political economy of species protection local. Many others might add that a fat checkbook would be helpful too. This book addresses whether this ESA checkbook makes sense from several vantage points, and if so, how much compensation should be paid to landowners who protect endangered species on private land. Reauthorization of the Endangered Species Act has been blocked for a decade in part by this issue, which leaves undefined the scope of species protection and the method by which species will be protected. Central to the discussion is who should bear what fraction of the costs to protect listed species on private lands: the landowners or the general public. In the past, implementation of the ESA on private lands has asked the landowner to pay most of the costs to preserve species and their habitat through the loss of profitable land uses (some costs are financial but most take the form of forgone opportunities). Landowners want to avoid these costs if possible and might even take actions to avoid them. Landowners who fear that the government will not keep its word and will impose future ESA land use restrictions have an incentive to alter or develop habitat, if they believe their personal investments to create and store wealth will be left unprotected.

Private lands do matter for successful ESA implementation (Bean and Wilcove 1997). Attempts to reauthorize the act have focused on altering the incentives to private landowners by creating financial incentives that shift the burden of conserving habitat from the landowner to a government agency or a private organization. Financial incentives for landowners have proponents and opponents on both sides of the debate. Some landowners and activists will buy and sell habitat and species protection; others want no part of this transaction. The authors in this volume examine the issues behind compensation to expose the elements that have promoted or impeded the success of such incentive programs. Key issues are the necessity of gathering better information provided by methods to measure habitat value (biological, social, and economic) and the need to respect landowners' privacy and provide assurances against future regulations. In the end, if compensation plans are to work cost-effectively, they should be voluntary for private landowners, be flexible enough to accommodate the species' biological needs in a single large reserve or several small habitat reserves, provide incentives for the landowner to profit from his or her private information about the land (biological and economic), and account for the opportunity costs of the funds used to compensate for acre set-asides.

All this suggests that to succeed at protecting species at risk cost-effectively, incentive mechanisms will have to be used in combination. Combining incentives into a cohesive strategy for species protection can be complex, depending on the target and desired degree of efficiency. We have to ask ourselves the basic questions: how much of a risk do we face, what will the solution cost, how much better will the solution make things, and what else could we spend our money on. Making the cost of achieving species protection goals cheaper increases the demand to achieve these goals and reduces the resistance to achieving them. The essays in this book illustrate how academic insight can significantly lower the cost of doing society's business. Although the authors differ about the advisability and application of economic incentive systems, the question of which compensation package is the best for species protection is here to stay. Evaluating the range and mix of incentive options that exist within the context of government regulation and stakeholder-participation processes can allow all of us to enjoy more species protection at the best price possible. Although my bias is obvious, I agree with the recent remark by commentator Bill Moyers: "If you want to fight for the environment, don't hug a tree; hug an economist."


Jason F. Shogren is Stroock Distinguished Professor of Natural Resource Conservation and Management at the University of Wyoming.

"This book presents the most comprehensive discussion of the economics and practicalities of incentive instruments that could be used for endangered and threatened species conservation. I believe the book will have broad appeal to lawyers, biologists, economists, and others working in the field of endangered species, as well as to general readers with an interest in conservation."

—J. B. Ruhl, Florida State University, author of The Law of Biodiversity and Ecosystem Management

"For those considering development of an incentive program, Species at Risk should be required reading. For others, it offers some clear perspective on what the next era of species-at-risk conservation in the United States could look like."

Great Plains Research