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«Toward More Effective Endangered Species Regulation By Jacob P. Byl Dissertation Submitted to the Faculty of the Graduate School of Vanderbilt ...»

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The results of the experiment also suggest that landowners may not always behave as profit-maximizers when responding to endangered species regulations. Perhaps most surprisingly, offering financial incentives to encourage endangered species may not always get landowners to provide more habitat for those endangered species. The conceptual model predicted that behavior of landowners in Groups 2 and 3 would be similar, with perhaps less harvest activity by those in Group 3 that are offered sellable credits for each woodpecker that moves onto their property. Instead, landowners in Group 3 harvested more than double the acreage of potential endangered species habitat per year even though they were offered the same agreement as landowners in Group 2 with an

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fines can move people towards thinking of the behavior in question as having a price attached to it.9 If landowners in Group 3 started thinking of woodpeckers as a financial vehicle when they were told that credits for woodpeckers were worth $1 to $2, those landowners likely decided that, from a financial standpoint, it made more sense to invest in tree harvests than in woodpecker habitat. Meanwhile, landowners in Group 2 were simply told of conservation agreements that sounded like attractive insurance policies against regulatory restrictions. In other words, the offer of financial reward may have a framing effect on the way landowners think about woodpeckers. In terms of the conceptual model, landowners in Group 2 tended to think of woodpeckers in terms of the utility that they would get through the conservation of the birds (c in the model).

Landowners in Group 3 instead may have thought of woodpeckers in terms of their financial value (x in the model) in a way that crowded out the role of c in the utility function. With the financial incentive ratcheted up to $3 to $4 per woodpecker for Group 4, the financial calculus tipped away from tree harvests and towards woodpeckers and we saw more of the behavior predicted by the profit maximization model. This first deviation from the model’s predictions suggests that the assumption that c does not play in a role in the landowner’s utility function probably does not hold. Instead, landowners seem to value how woodpeckers fare in ways outside of the financial consequences of woodpeckers on timber harvests, and providing a low financial incentive may crowd out some of this altruistic desire for conservation.

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A second deviation from profit-maximizing behavior is that landowners often paid money to improve woodpecker habitat immediately after harvesting a large number of acres of trees in a way that did not make financial sense because they were paying $0.25 to increase the probability of woodpeckers moving in from 0% to 0%. This behavior may suggest that the role of c in the utility function of landowners is more complex than a simple desire for woodpeckers to do well. There may be an element of “guilt avoidance” where landowners bring in a relatively large amount of money by harvesting many acres of trees, which harms woodpeckers by destroying potential habitat, but can avoid feeling guilty about it by contributing a token amount to improve woodpecker habitat. Even though this may not make sense financially, it could be a rational action if c enters the utility function in the form of disutility for actions that harm woodpeckers. If a small financial contribution can alleviate the disutility in c of feeling guilty more than it decreases the utility by dropping x by a small amount, then it is the rational thing for a landowner to do. This finding suggests that the preference for conservation enters the utility function in a way more complicated than a simple preference for woodpeckers to do well, and there may be an element of disutility from guilt when the landowners engage in activity that harms the woodpeckers.

An example of how landowner behavior sometimes tracked predictions can be seen in how landowners systematically broke out of safe-harbor agreements in the final years of the simulation. Thirty-nine percent of landowners who chose to enter conservation agreements also chose to leave them in the final years. When they did, they tended to harvest all of the trees on the property. Part of this result was likely driven by the setup of the experiment with a fixed timeframe. But it is an important aspect of any voluntary program that allows unilateral exit from agreements to understand what may drive landowners to leave those agreements or stay in them. Results from this study indicate that landowners who had strong financial incentives to stay in agreements were more likely to do so. In this study, landowners in Group 4 tended to stay in agreements so they could cash out valuable credits for woodpeckers. The weaker financial incentives in Group 3 were insufficient to effectively keep landowners in the agreements in the final periods. More research in this area could help delineate how much continued participation in voluntary conservation agreements was driven by financial incentives and how much was driven by social norms and other factors.10

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adjust behavior like harvesting timber in ways suggested by a profit-maximization model, although the predictions of that model do capture many of the general patterns about harvest and habitat improvement behavior.

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regulators considering alternatives for how to promote a more cooperative environment for endangered species conservation. Specifically, the results may inform the FWS about its proposed credit program in several ways. Although the context of the experiment is not identical to the proposed policy, the study did involve landowners engaging with decisions on whether to participate in voluntary conservation efforts or destroy habitat. I highlight three implications that the FWS should consider.

This line of research could tie into research of contract breach, such as Wilkensen-Ryan (2010).

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conservation. As seen with the difference between harvest behavior of landowners in Groups 2 and 3, offering safe-harbor agreements plus money to encourage habitat conservation was less effective than safe-harbor agreements alone. The low harvest behavior of landowners in Group 4 indicates that higher financial incentives can be effective. As FWS determines how to distribute credits for voluntary conservation (or approve state programs that do so) and other parameters of the new regulation-driven market, it should keep this in mind. If credits are distributed broadly, it is more likely that the market price will be low and landowners will behave more like those in Group 3.

Instead, more stringent standards for earning credits will make it more likely that the market price puts landowners in a situation similar to Group 4 where some decide to go all-in on endangered species habitat because of the financial incentive to do so. There is admittedly a difficult balance to strike between encouraging participation in the market, which means making it easy enough to obtain credits to make it preferable to habitat destruction, and encouraging a high enough market price to make the financial calculus favorable.11 While there is great promise in the use of markets to encourage things like provision of wildlife habitat, there is also the possibility that market-driven incentives may crowd out other reasons why landowners may conserve wildlife habitat.

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crowd out more altruistic conservation in another way by providing a mechanism for guilt avoidance. As seen in the habitat improvement behavior of landowners who put a Salzman and Ruhl (2010) discuss the delicate balance required to encourage participation in a market while also having prices high enough to create incentives to affect behavior in meaningful ways.

token amount of money toward habitat improvement when they harvest a large amount of trees, even when it does not make financial sense to do so, the opportunity to contribute toward a habitat fund may in some cases prompt more habitat destruction because landowners can now do it without feeling as guilty about the plight of the endangered species. I am not suggesting that FWS or any other entity should ban conservation funds, mitigation banks, or other tools that provide people with opportunities to contribute to the conservation of habitat and species. I am suggesting that FWS should keep in mind that the opportunity to pay a penance for a sin may lead to more sins being committed, and perhaps organize policies in ways that discourage token contributions.12

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before or after a change in regulatory policy. As seen in Chart 1 with the large bars for harvest in the last period of the simulation, landowners were likely to respond to strong incentives that may accompany the end (or beginning) of a program. Part of this result was likely a product of the experimental design with a fixed time period of 20 years, after which the simulation was over. In the real world, landowners tend to think about property over long timeframes because at the end of a set period like 20 years, the landowner continues to manage the land, pass it on to loved ones, or sell it to someone who will care about the condition of the property.

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leaving conservation agreements, serves as a reminder to give forethought to what Some policy tools may naturally discourage token contributions by having relatively high fixed costs of using them. For example, conservation easements often require customized documents and bind a property in perpetuity, so there are probably not a lot of landowners entering token conservation easements.

incentives landowners may face directly before and after changes in regulatory policy.

The FWS may want to use caution when considering policies that have set time horizons.

Just like there is a flurry of comment letters submitted right before the closing of a public comment period on a proposed rulemaking, there may be dramatic changes in landowner activity immediately before the beginning or end of a regulatory program. If the FWS is able to predict some of this behavior, the agency can have policies in place to help handle the situation and mitigate negative consequences.

Agencies like the U.S. Fish & Wildlife Service have substantial challenges implementing a powerful law like the Endangered Species Act. The power of the law makes it a threat to landowners, so the relationship between landowners and regulators is often adversarial. Tools like safe-harbor agreements are intended to dampen the adversarial nature, and proposed market-based tools like tradable credits hold the promise of actually aligning incentives of landowners and regulators. This experiment provides evidence that safe-harbor agreements can get landowners to alter activities like timber harvests that destroy habitat. Sellable credits can also alter harvest behavior and additionally prompt landowners to actively invest in habitat improvement. However, there is a risk that low financial incentives may crowd out some of the other reasons landowners provide wildlife habitat, so regulation-driven markets should be designed with care. Despite the challenges in design and implementation, changes from the status quo hold the possibility of improving conditions for landowners and for endangered species. Win-win results like that could make the power of the Endangered Species Act an asset instead of a liability.

REFERENCES Ferraro, Paul, Craig McIntosh, and Monica Ospina. 2007. “The Effectiveness of the U.S.

Endangered Species Act: An Econometric Analysis Using Matching Methods.” Journal of Environmental Economics and Management. 54: 245-61.

Fischbacher, Urs. 2007. “Z-Tree: Zurich Toolbox for Ready-made Economic Experiments.” Experimental Economics, 10(2): 171-178.

Gneezy, Uri, and Aldo Rustichini. 2000. “A Fine is a Price.” Journal of Legal Studies.

29: 1.

Greenstone, Michael, and Ted Gayer. 2009. “Quasi-Experimental and Experimental Approaches to Environmental Economics.” Journal of Environmental Economics and Management. 57 (1): 21-44.

Langpap, Christian. 2006. “Conservation of Endangered Species: Can Incentives Work for Private Landowners?” Ecological Economics. 57: 558-572.

Langpap, Christian, and Joe Kerkvliet. 2012. “Endangered Species Conservation on Private Land: Assessing the Effectiveness of Habitat Conservation Plans.” Journal of Environmental Economics and Management. 64: 1-15.

Langpap, Christian, and JunJie Wu. 2004. “Voluntary Conservation of Endangered Species: When Does No Regulatory Assurance Mean No Conservation?” Journal of Environmental Economics and Management. 47: 435-457.

List, John A., Sally Sadoff, and Mathis Wagner. 2011. “So You Want to Run an Experiment, Now What? Some Simple Rules of Thumb for Optimal Experimental Design.” Experimental Economics. 14: 439-457.

Lueck, Dean and Jeffrey A. Michael. 2003. “Preemptive Habitat Destruction under the Endangered Species Act.” Journal of Law and Economics. 46 (1): 27-60.

Mas-Collel, Andreu, Michael D. Whinston, and Jerry R. Green. 1995. Microeconomic Theory. New York: Oxford University Press.

Newell, Laurie W., and Stephen K. Swallow. 2013. “Real-Payment Choice Experiments:

Valuing Forested Wetlands and Spatial Attributes Within a Landscape Context.” Ecological Economics. 92: 37-47.

Parkhurst, Gregory M., and Jason F. Shogren. 2007. “Spatial Incentives to Coordinate Contiguous Habitat.” Ecological Economics. 64: 344-355.

Polasky, Stephen, and Holly Doremus. 1998. “When the Truth Hurts: Endangered Species Policy on Private Land with Private Information.” Journal of Environmental Economics and Management. 35: 22-47.

Quarles, Steven P. 1998. “The Pit Bull Goes to School.” Environmental Forum. 15: 55.

Salzman, James, and J.B. Ruhl, 2000. “Currencies and Commodification of Environmental Law.” Stanford Law Review 53: 607.

Shogren, Jason F. 1998. Private Property and the Endangered Species Act: Saving Habitats, Protecting Homes. Austin, TX : University of Texas Press.

U.S. Fish and Wildlife Service. 2006. The Safe Harbor Program for Red-Cockaded Woodpeckers in North Carolina. Atlanta, GA: Government Printing Office.

U.S. Fish and Wildlife Service. 2010. Red-Cockaded Woodpecker: Species Profile.

Atlanta, GA: Government Printing Office.

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