Some observations
on Conservation Economics
J Shogren
U Wyoming
Conservation Workshop
12 Sept 2013
O What has changed in the economics of
conservation incentives over the past 2
decades?
O Three elements:
O Biological needs
O Political concerns
O Economic realities
Identifying the failure
O Market Failure
O Coordination Failure
O Institutional Failure
O Behavioral Failure
Market failure
O Externalities
O Non-rival
O Non-exclusion
O Non-convexities
O Asymmetric information
Buyer’s
motivation & constraints
O Budget balanced
O Information, gathered or not
O Holdouts, identified or not
O Heterogeneity, captured or not
O Votes needed for support
O Coalition building
O Transparency, more or less
O Accountability, more or less
Seller’s
motivation & constraints
O Sweat Equity protected
O Privacy maintained
O Stewardship recognized
A compensation question
Willing to deal
Conserve
develop
No deal
Tradable set-aside
requirements (TSARs) with
agglomeration bonus
O Regulator determines parcels needed.
O The regulator allocates TSARs
proportionately to the landowners and
creates a market to facilitate trade.
O Agglomeration bonus to induce the desired
spatial configuration.
Lab Results
1) TSARs is a cost-effective land conservation
tool;
2) combining TSARS with the agglomeration
bonus increases habitat connectivity but at a
price—lower economic efficiency.
Optimal Landscape Grid No Trade
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Example—No Trade
Round 1
Round 2
Round 3
Round 4
Round 5
Round 6
Round 7
Round 8
Round 9
Round 10
Round 11
Round 12
Round 13
Round 14
Round 15
Round 16
Round 17
Round 18
Round 19
Round 20
Grid -- Trade Only
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Example—Trade Only
Round 1
Round 2
Round 3
Round 4
Round 5
Round 6
Round 7
Round 8
Round 9
Round 10
Round 11
Round 12
Round 13
Round 14
Round 15
Round 16
Round 17
Round 18
Round 19
Round 20
Dominant Nash Eq: Trade w/ AB
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Example—Trade w/ AB
Round 1
Round 2
Round 3
Round 4
Round 5
Round 6
Round 7
Round 8
Round 9
Round 10
Round 11
Round 12
Round 13
Round 14
Round 15
Round 16
Round 17
Round 18
Round 19
Round 20
Markets & holdouts
O General equilibrium impacts of setting aside
land, and raising prices of surrounding land.
O How to address hold outs—those who sit and
wait and speculate
Coordination failure
O Game theoretic world of strategic behavior
O Hyper-rationality & belief formation
O Communication
O Commitment
O Rule of one
O One good trader makes the market
O One bad gamer ruins the match
Auction
theory & performance
O
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Spatial interdependence
Affiliated values
Multi-units
Transparency
Bottlenecks
Holdouts
Resale
Collusion
Ambiguity
Mechanism design
Institutional failure
O Transaction cost economics
O Coase
O Williamson
O North
O Governance
O Ostrom
Behavioral failure
O Bounded rationality
O Bounded will power
O Bounded self-interest
O Long list of behavioral quirks
O Thinking, fast and slow
Behavioral failures
O Nudges vs. money pumps to address:
O Informational barriers
O Uptake and avoidance
O Self control
O Time inconsistency
O Social Norms
O Social preferences
O What do we know about the role of money
O
O
O
O
pumps in environmental policy?
Do nudges have a role in conservation
auctions?
Can policy-makers use nudges to
“supercharge” incentives?
Are money pumps and nudges substitutes or
complements?
Or are they such different philosophical
ideas that they cannot work together
O “has our more intimate knowledge of human
frailties got us any further than the road set
upon by the classical economists?”
Summary
O What is breaking down in conservation
provision and why?
O Market
O Coordination
O Institution
O Behavior
O What are the motives & constraints
O Monetary
O Non-monetary
O What is the proper benchmark to judge
success?
O Do we have a new second-best problem?
O What to do with context-dependence and
the long list of aversions?
Shameless
O Knobloch Chair in Conservation Economics
& Finance