Perverse Incentives and the Endangered Species Act

This week, Jonathan Adler discusses one of the important flaws in the Endangered Species Act. In particular, the Act may provide perverse incentives for landowners to pre-emptively clear habit, if they perceive a risk that an endangered species might someday be discovered on the land, resulting in stringent regulations being imposed regarding future land use. A more promising approach may be to provide modest financial rewards for conservation of habitat that is home to threatened species.

The Endangered Species Act (ESA) is one of the nation’s most powerful environmental laws, often characterized as a pit bull, because it is short, compact, has sharp teeth and a strong grip.  Yet for all of the ESA’s force, it does not appear to have been particularly effective at recovering endangered species from the brink of extinction, particularly on private land.

The purpose of the ESA, which turns 35 this year, is to identify species that are in trouble and protect them.  While it has undoubtedly helped stem some species declines, it is unclear how much the ESA has done to recover species from the brink of extinction.  Since the law’s enactment, nearly 2,000 species have been listed as endangered (in danger of extinction) or threatened (likely to become “endangered” within the foreseeable future).  However, fewer than 50 species populations have been removed from the list. And, as of July 2008, the Fish & Wildlife Service, which administers the ESA in conjunction with the National Oceanic and Atmospheric Administration, could identify only 21 species recoveries. 

Indeed, more species have been delisted because of data errors or extinction than due to species recovery.  Yet even this may overstate the ultimate effectiveness of the Act, as some species recoveries – such as those of raptors saved by the banning of DDT or Australian kangaroo species– have had little to do with the ESA.   Moreover, there is not a single species recovery that can be credited to the ESA’s regulation of species habitat on private land.  This is particularly troubling because the majority of listed species rely on private land for some or all of their habitat.

In the most basic terms, the ESA discourages the creation and maintenance of species habitat on private land by penalizing it.  Specifically, under Section 9 of the act, it is illegal for a private landowner to engage in activities that could harm an endangered species, including habitat modification, without first obtaining a federal permit. Knowing violations can lead to fines of up to $25,000 and even jail time.

Such regulations can reduce private land values and antagonize private landowners who might otherwise cooperate with conservation efforts.  This is because Section 9 turns endangered species into economic liabilities.  The discovery of an endangered species on private land imposes costs but few, if any, benefits.    

Landowners have been known to destroy or degrade potential habitat on their land preemptively in order to prevent the imposition of the act’s requirements.  It is not illegal to modify land that might become endangered species habitat some day in the future, nor are landowners required to take affirmative steps to maintain endangered species habitat beyond refraining from actions that “harm” endangered species.

In the past, there was little more than economic theory and anecdotal accounts upon which to criticize the effectiveness of the ESA on private land.  Now, however, there is empirical data on three contentious species that demonstrates how the act itself compromises species conservation on private land.    

A 2003 study by Dean Lueck and Jeffrey Michael looked at whether private landowners engaged in preemptive habitat destruction when the presence of endangered red-cockaded woodpeckers placed the landowners at risk of federal regulation and a loss of their timber investment. Providing habitat for a single woodpecker colony could cost up to $200,000 in foregone timber harvests. To avoid the loss, those landowners at greatest risk of restrictions were most likely to harvest their forestlands prematurely and reduce the length of their timber harvesting rotations. The ultimate consequences of this behavior were potentially significant in that it resulted in a loss of several thousand acres of woodpecker habitat, a major loss for a species dependent upon private land for its survival.

In a second study involving the red-cockaded woodpecker, Daowei Zhang (2004) similarly found that “regulatory uncertainty and lack of positive economic incentives alter landowner timber harvesting behavior and hinder endangered species conservation on private lands.” Zhang also concluded that “a landowner is 25 percent more likely to cut forests when he or she knows or perceives that a red-cockaded woodpecker cluster is within a mile of the land than otherwise.”

Simply listing a species could discourage private landowners from participating in conservation efforts, according to a 2003 study by Amara Brook, Micheala Zint, and Raymond de Young.  Surveys of private landowners within the animal’s range found that as landowners became aware that their land contains Preble’s meadow jumping mouse habitat, some became less likely to support conservation efforts. In addition, landowners would refuse to give biologists permission to conduct research on their land to assess mouse populations out of fear of the consequences that would follow such a discovery. This revelation is especially troubling because accurate data on species populations and their habitat are essential to successful conservation efforts.

A 2006 study by John List, Michael Margolis, and Daniel Osgood, found that species listing can accelerate the development of potential habitat as landowners seek to preempt the imposition of land-use restrictions under the ESA.   Specifically, land proposed to be designated as critical habitat for the endangered Cactus Ferruginous pygmy owl was, on average, developed one year earlier than equivalent parcels that were not identified as habitat.  In addition, the value of undeveloped land identified as critical habitat fell relative to other lands in the study area.

These studies, taken together, provide powerful evidence that the ESA has the potential to discouraging species conservation on private land.  Worse, they suggest that the net effect of the ESA on private land could be negative. 

Recent administrations have sought to offset these effects through various cooperative conservation programs designed to encourage voluntary conservation efforts and provide landowners with greater regulatory certainty.  Insofar as these initiatives have been effective, however, they have effectively deactivated the ESA’s regulatory provisions by providing landowners with assurances they can escape regulation in return for undertaking conservation measures.  Such measures do very little, however, to discourage preemptive habitat destruction, and others could still be subject to court challenge for violating the express terms of the Act.        

Given that habitat loss and fragmentation represent the greatest threat to endangered species, the perverse incentives created by the ESA should be of grave concern.  Most land — approximately two-thirds of the continental United States — is privately owned.  At the same time, the vast majority of endangered species rely upon private land for some or all of their habitat.  The relative importance of such lands for the maintenance of species habitat and critical ecological functions is perhaps even greater.  Without active conservation on private lands, meaningful ecological conservation cannot be achieved — and the ESA’s poor record at recovering species suggests that it may be failing.

Experiments with voluntary incentives suggest such programs hold promise.  The North American Waterfowl Management Program, Partners for Wildlife, and the Wetland Reserve Program demonstrate that even modest financial incentives can produce significant ecological gains at modest cost.  Were Congress to support expansion of such efforts, and authorize greater use of incentives under the ESA, it should be possible to enlist thousands of landowners in species conservation efforts. 

If such efforts are to be truly successful, however, Congress must also revisit the punitive nature of the ESA’s regulations.  So long as the Act penalizes private landowners who own undeveloped habitat for endangered species, it will create perverse incentives that work against effective habitat conservation on private land.

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Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.

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