Economics of the ESA

Now that we have an analytical framework to work with, let us now turn to an assessment of the Endangered Species Act.The ESA has been called one of the most important environmental laws ever enacted in the United States, and there appears little doubt that it has had an important impact in protecting endangered species. However, economists have raised various concerns regarding whether it has done so in an economically sensible manner. And, indeed, the original ESA did not recognize costs and benefits as being factors germane to whether or not species should enjoy protection, as we have seen. In this section, we will focus on two related issues. The first is whether the correct decisions are being made with regard to which species get protected under the ESA.The second concerns the impact of protection on the species themselves.

I. Which species get protected?

Weitzman and his co-author Andrew Metrick have performed an analysis of the listing decisions by the U.S. Fish and Wildlife Service (FWS) to examine the extent to which they conform to good practices, as suggested by the Noah’s Ark framework [Metrick and Weitzman (1998)].The basic question is whether FWS listing policies target species according to expected benefits and costs. They find mixed evidence on whether species that are more endangered receive more protection. On the one hand, they find that species tend to get listed when they are more endangered and also, interestingly enough, when they happen to be the only species in their genus.They interpret the latter finding as suggesting that species that contribute more to species biodiversity' (variable B) tend to receive more protection, at least when it comes to making the list of species that are considered endangered.

On the other hand, they also find that after they are listed, species that are more endangered do not actually receive greater spending of public moneys for protection and recovery efforts. In a related study', they argue that non-economic characteristics of the species probably play an important role in affecting decisions to protect different species [Metrick and Weitzman (1996)]. For example, certain species such as elephants, pandas, and lions and tigers - examples of so-called charismatic megafauna — simply have more emotional appeal to humans. The result is that we tend to overspend on protecting them, relative to the extent to which they are actually endangered or contribute to overall biodiversity.

Further suggestive evidence that emotional appeal matters is shown in Table 17.1.This table lists the ten animal species on which the most spending for protection had been lavished in the United States by the mid-1990s, when their study was published.These ten

Table 17.1 Top ten species by total spending, mid-1990s

Common Name Spending (Smillions) Cumulative spending (Percent)

(1) Bald eagle



(2) Northern spotted owl



(3) Florida scrub jay



(4) West Indian manatee



(5) Red-cockaded woodpecker



(6) Florida panther



(7) Grizzly (or brown) bear



(8) Least Bell’s vireo



(9) American peregrine falcon



(10) Whooping crane



Source: Metrick and Weitzman (1996), p. 2.

species received over half of total spending on species protection, and the top species — the bald eagle — enjoyed nearly one tenth of total spending all by itself.

You can see that the list consists entirely of relatively large mammals and birds, the type of animals that evoke the greatest emotional response in humans (as opposed to, say, fish and small reptiles). At the time, several of these species such as the bald eagle, northern spotted owl, and grizzly bear were not in danger of actually becoming extinct. Furthermore, several of the species — the northern spotted owl, Florida scrub jay, and grizzly bear — had closely related subspecies that were not in danger.They thus added relatively little to overall biodiversity.

II. The impact of protection

Let us now turn to an assessment of what may be the most common policy employed by the FWS for endangered species protection: habitat set-asides. As we have seen, under the ESA, endangered species protection can occur through setting aside land for habitat. On the surface, it may seem like a simple matter for the ESA: just designate lands to be protected as habitat and, thus, spare endangered species from damages from economic development.

One problem is that the operation of the set-aside program provides perverse incentives for landowners to preemptively destroy habitat once they realize lands will be listed. There are numerous examples of this, some of which have been rigorously documented by economic studies. In one case, mere days before the golden-cheeked warbler was set to be listed by the FWS, a firm hired workers to saw down hundreds of acres of forests comprising warbler habitat. In other cases, timber was harvested prematurely to avoid ESA regulations over protection of northern spotted owls and black-capped vireos. If this behavior occurs with regularity, implementing the provisions of the ESA could actually lead to a long-term decline in habitat and populations of endangered species.3

In a rigorous economic study, economists Dean Lueck and Jeffrey Michael investigated the issue of preemptive timber harvesting for the case of red-cockaded woodpeckers (RCWs) in North Carolina [Lueck and Michael (2003)]. Using data on timber harvesting and the presence of local populations of RCWs, they found that timber tended to be harvested more quickly and trees were harvested at a younger age when RCWs were present. These results are consistent with preemptive harvesting of timber in order to avoid costly ESA regulations on timber harvesting. This study provides more compelling evidence of preemptive harvesting than accounts in the news because of its careful experimental design. In North Carolina, RCWs are found only in mature stands of southern pine, so that there was a clear connection between the listing decision and harvesting behavior. Furthermore, other endangered species were not present in these pine stands to muddy the interpretation of the findings.

Box 17.1: Preemptive harvesting in the news

News item: “Town, woodpeckers fight over nest eggs,”, September 26,2006.

In 2006, NBC news reported that landowners in Boiling Spring Lakes, NC were clear-cutting thousands of trees to prevent them from becoming homes for red-cockaded woodpeckers. This occurred when the Fish and Wildlife Service announced that it was working on a plan to set aside land to protect 15 active clusters of woodpeckers. Landowners reportedly “swarmed” city hall to apply for land-clearing permits [Breed (2006)].

One important open question of the Lueck and Michael study concerns the magnitude of the preemptive harvesting effect. They estimate that the premature harvesting by itself resulted in the loss of thousands of acres of mature pine stands and the loss of a few dozen RCW colonies over a six-year period. Furthermore, landowners may have harmed RCWs in other ways, including directly killing them. On the other hand, listing of RCW habitat by the ESA probably protected some pine stands from being harvested. It is unclear whether the positive effects of these habitat set-asides outweighed the negative effects of preemptive harvesting and private takings of RCWs.

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