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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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Wilkinsen-Ryan, Tess. 2010 “Do Liquidated Damages Encourage Breach? A Psychological Experiment.” Michigan Law Review. 65: 633.

Zhang, Daowei. 2004. “Endangered Species and Timber Harvesting: The Case of RedCockaded Woodpeckers.” Economic Inquiry. 42 (1): 150-65.

## FIGURES AND TABLES

Figure 1—Landowner Decision Tree from Conceptual Model

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Notes: Average harvest per year for all active landowners, excluding landowners after they were sent to the end of the game if woodpeckers moved onto properties not covered by agreements.

Chart 2—Landowner Profit Over 20 Years By Group Chart 3—Average Woodpeckers on Property Over 20 Years By Group Table 1—Timber Value and Woodpecker Probabilities by Tree Age

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Notes: N=139; Standard deviations in parentheses; All variables except age are indicator variables; Risk averse is based on a participant’s response to a question about how to handle a windfall of money.

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12.994 5.762 (30.546) (18.392) Notes: Standard deviations in parentheses. Each observation is one landowner-year. Includes all active landowners, excluding landowners after they were sent to the end of the game because woodpeckers moved onto properties when they were not in agreements.

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20.33 22.00 (3.04) (4.76) Notes: Standard deviations in parentheses. Each observation is a landowner at the end of the simulation (after year 20).

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1.79 2.07 (1.43) (2.05) Notes: Standard deviations in parentheses. Each observation is a landowner at the end of the simulation (after year 20).

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I. Introduction A question on the General Social Survey asks respondents whether they agree or disagree with the following statement: "Natural environments that support scarce or endangered species should be left alone, no matter how great the economic benefits to your community through developing them commercially might be." As depicted in Chart 1, approximately 60% of respondents agree with the statement, 34% disagree, and 6% are unsure. As reported in the first two lines of Table 1, suburban and rural residents are more likely to agree with the statement than are people who live in urban areas. However, when the respondents live in regions with lots of endangered species (the interaction terms in the next two lines of Table 1), those preferences flip and rural and suburban people tend to view the tradeoff between conservation and economic development differently. People who live close to the land and are surrounded by nature seem to put higher value on protecting natural environments, except when protecting natural environments threatens inherited livelihoods like agriculture, forestry, and fishing.

Unsurprisingly, those who are most likely to bear the burdens from conservation efforts are unwilling to give up their ways of life to protect imperiled species.

These results suggest a few things: first, people care about endangered species and the natural environments that support them. People enjoy interacting with wildlife, and even care that wildlife exists, even if they never plan to witness it or derive any material benefit from it. Second, people also care about the tradeoffs between protecting endangered species and engaging in other economic activities, especially in rural and suburban areas that may experience regulatory restrictions. In summary, data suggest that people care about both the benefits and costs of endangered species regulations.

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regulations, the agencies almost always estimate zero benefits and nominal costs. The low estimates of both benefits and costs of endangered species regulations do not reflect the ways in which people care about the conservation of wildlife. This article describes how economic tools can help protect critical habitat for endangered species while lowering burdens on regulated parties. Economics can help achieve this win-win move by providing tools that help understand how one particular species—humans—interacts with natural resources. The use of economic tools is called for in the current language of the Endangered Species Act (ESA), so agencies can embrace the move toward more effective regulations without waiting for Congress to pass amendments to the ESA.

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purpose of protecting “the ecosystems upon which endangered species and threatened species depend” (16 U.S.C. § 1531(b)). To achieve this purpose, Congress delegated authority to the Fish and Wildlife Service (FWS) and the National Marine Fisheries Service (NMFS) to regulate public and private parties that engage in activities that may affect endangered and threatened species.13 The FWS and NMFS work to protect imperiled species by going through regulatory steps to determine whether the species warrant protection by being listed as endangered or threatened. For species that are listed, The FWS has authority over species on land and in freshwater. The NMFS has authority over marine species. The two agencies have joint authority over species that spend part of their time in marine environments and part of their time on land or in freshwater.

the agencies implement the statutory provisions that provide legal protections to threatened and endangered species. One of the major regulatory steps that the FWS and NMFS take to protect listed species is to designate critical habitat for those species.

Critical habitat designation is done by the FWS and NMFS “on the basis of the best scientific data available and after taking into consideration the economic impact, the impact on national security, and any other relevant impact, of specifying any particular area as critical habitat” (16 U.S.C. § 1533(b)(2)).

The requirement to take “into consideration the economic impact” of critical habitat designation differs from the section of the ESA that calls for the FWS and NMFS to list species as endangered or threatened based “solely on the best scientific data available” (16 U.S.C. § 1533(b)(1)(A)). So the FWS and NMFS are charged with listing species as endangered or threatened without engaging in economic analysis, but are supposed to consider economic factors when designating critical habitat. Thus far, the FWS and NMFS have performed economic analysis of critical habitat designation by looking at the “incremental” change of protections for listed species (50 C.F.R. § 424.19).

In practice, this has led to economic analysis that weighs low benefits against low costs because the protections afforded by critical habitat largely overlap with the protections for listed species. In most cases, the FWS and NMFS estimate benefits of proposed critical habitat as zero and costs as limited to some thousands of dollars per year for administrative costs. Commentators, such as Sinden (2004), have argued that a lack of extensive economic analysis is a good thing because more elaborate weighing of costs and benefits of critical habitat would use agency resources and may result in regulatory paralysis.

I argue in this article that more accurate economic analysis of critical habitat designation should instead weigh the broad benefits against the real costs of critical habitat. There are two main reasons why economic analysis should play more of a role in critical habitat decisions. First, statutory interpretation of the ESA points to a Congressional intent that would be best fulfilled with more accurate economic analysis. I define accurate economic analysis as the weighing of costs against benefits of proposed regulations, with measurements of costs and benefits that reflect social values of the expected changes due to the proposed policies. In Part II, I discuss statutory interpretation of the ESA to attempt to discern the intent of Congress when it comes to the role of economic analysis in critical habitat designation.

The second reason why economic analysis should play a more active role in the process of designating critical habitat is that accurate economic analysis can enable ESA regulations to be more efficient, allowing for more conservation with lower burdens on regulated parties. In Part III, I describe how cost-benefit analysis can help lead to winwin results by encouraging more effective ESA regulations. The expertise of economists can contribute to the protection of endangered species by focusing agency resources on the most promising actions that have the highest net benefits to society.

In Part IV, I turn to how to accurately measure costs and benefits of critical habitat under the ESA. I pay particular attention to measuring benefits, which tend to be more nebulous and difficult to measure than costs. The current agency estimates of zero benefits do not accurately reflect social preferences. Society values preserving imperiled species, and also values the benefits that flow from the areas protected as critical habitat.

The most promising way to measure these benefits is by quantifying the values of ecosystem services like water filtration, carbon sequestration, and recreational opportunities. I argue that the best methodology for measuring benefits of critical habitat is to add together the values people place on: 1) the expected improvements to listed species due to the critical habitat designation, and 2) the value of the ecosystem services that are also protected due to the critical habitat designation.

In Part V, I provide an example of how to implement my proposed economic analysis using the recent economic analysis for critical habitat designation of the Northwest Atlantic population segment of the loggerhead turtle. As in most recent agency analyses, the estimates provided by the FWS in this analysis are of zero benefits and low costs. By using published estimates of the values of loggerhead turtles and ecosystem services that are likely protected by the proposed critical habitat, I arrive at an estimate of benefits that more accurately reflects the values society places on the proposed action of designating critical habitat along a major portion of the East Coast of the United States.

In Part VI, I conclude by discussing how more accurate economic analysis of critical habitat designation has the potential to change the dynamics of the often-lively debate that goes on between supporters and opponents of the ESA. With things like timber harvests and construction development at play, there are billions of dollars of economic activity at stake (Shogren 1998). Industries that face regulation under the ESA are quick to discuss how much economic value is lost from restrictions on timber harvest in the Pacific Northwest, solar power in the Mojave dessert, or water distribution in California. These quantified estimates lead to press coverage and statistics quoted on Capital Hill. On the other side of the conservation debate, proponents of more stringent endangered species protections talk mostly in moral terms about the importance of protecting species like spotted owls, desert tortoises, and delta smelt. Although these arguments may draw visceral responses in some audiences, they tend to provide few quotable statistics and get less press coverage. By engaging in more accurate economic analysis, the FWS and NMFS can help reframe the debate by providing credible statistics for both sides.

At the heart of the endangered species controversies are difficult tradeoffs between conserving imperiled ecosystems and developing resources in ways that affect quality of life for millions of people. By sidestepping these tradeoffs in economic analysis, the agencies implementing the ESA have missed out on an opportunity to target conservation efforts more effectively. Economic analysis can help the agencies improve the effectiveness of conservation efforts in ways that can lead to win-win situations compared with the current regime. These more accurate economic analyses can foster more balanced discussions of conservation controversies in ways that allow for better public involvement and, ultimately, more effective endangered species protections.

II. Interpreting the ESA’s Call for Economic Analysis The ESA requires economic analysis for critical habitat designation and the current practices of the agencies that implement the ESA follow the letter of the law, but not the spirit of it. This section considers different interpretations of the ESA and finds that the interpretation that best fits the intent of Congress is to have the FWS and NMFS engage in cost-benefit analysis that considers the broad benefits and real costs of critical habitat designations.

A. The Statute and Context The ESA was passed in 1973 to provide “a means whereby the ecosystems upon which endangered species and threatened species depend may be conserved” and to “provide a program for the conservation of such endangered species and threatened species” (16 U.S.C. § 1531(b)). The ESA requires agencies to use the “best scientific and commercial data available” when determining whether to list species as threatened or endangered. In Tennessee Valley Authority v. Hill, 437 U.S. 153 (1978), the U.S.

Supreme Court explored Congressional intent behind the ESA and held that listing endangered species must be done based on the scientific data available and not subject to lots of exceptions. Congress endorsed this interpretation of the ESA by adding “solely” in front of “scientific and commercial data” to make it clear that the listing decision for species should not include economic factors.

At the same time, Congress was sensitive to the backlash against the decision in Tennessee Valley Authority because many people saw it as wasteful to prevent use of the nearly completed \$100 million Tellico dam for the sake of a commercially worthless fish.

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