Smart Subsidies for Conservation Jason Shogren University of Wyoming October 2005

On-going research with: –Todd Cherry –Peter Frykblom –Terry Hurley –Stephan Kroll –Chris McIntosh –Greg Parkhurst –Chad Settle –Dave Finnoff Homo economicus?

Conservation on private lands Biological Needs Political Realities Economic Incentives

ESA policy Endangered Species Act of 1973 in the US Habitat Conservation Plans Compensation question

Experimental Economics Interactions between humans and nature through institutions

Rule of One One person is enough to make a market… One person is enough to break a game.

This distinction makes a difference if you are relying on rational choice theory to guide land management and environmental policy. It makes a bit more sense if people make, or act as if they make, consistent and systematic choices toward certain and risky events.

Range of actors HamletEconobot Machiavelli

Markets No Markets Missing Markets

Land policy and environmental policy is about structuring incentives –What do we know about how people react to incentives –How this affects nature –How this feedback loop affects people –And so on

Agglomeration Bonus Bonus* Retired Parcel Bonus* Bonus* Bonus* Retired Acre Bonus* Bonus* Bonus* Bonus*

Coordination Game Multiple Nash equilibria Payoff Dominance Risk Dominance

Coordination failure Coordination failure—any outcome other than the first best solution 2 forms of coordination failure: –fragmentation –second best outcomes of contiguous habitat reserves.

Definitions Biological efficiency –the number of borders shared between conserved parcels relative to the optimal number of shared borders Economic Efficiency –the percentage of possible rents earned by the group as a whole.

Payoff Matrix—Transfers w/ an Agglomeration Bonus Actions Player 2 Player

The Grid Game 10x10 spatial grid with 100 cells 4 players Each owns 25 cells Retire up to 6 parcels Creates ~68,000+ strategies (68,000) 4 potential outcomes Agglomeration Bonus Menu

Symmetric land grid

Conservation Objectives Corridor Core Cross Corners

Corridor

Core

Cross

Corners

Subsidies Four subsidies within the subsidy menu mechanism: –Per conserved habitat acre subsidy; –Own shared border –Row shared border subsidy –Column shared border subsidy Subsidies = + / – / 0.

Own Shared Border Bonus

Row Shared Border Bonus

Column Shared Border Bonus

Incentive Constraints

Agglomeration Bonus Menu Per Brown Own Border Row Border Column Border Corridor$3$8$16$0 Core Cross31916 Corners38- 5

Experiment Design Ten structural elements: –Treatments: A-B-A design –Players/matching—4 randomly matched each round –Land grid –Subsidies –Strategies—brown out cells –Grid Calculator –Communication—pre-play cheap talk –Information—common knowledge about payoffs and strategies in a round. Private information for accumulated payoffs –History –Procedures—standard protocol/computer

Core—Round 1

Core—Round 2

Core—Round 3

Core—Round 4

Core—Round 5

Core—Round 6

Core—Round 7

Core—Round 8

Core—Round 9

Core—Round 10

Corridor—Round 11

Corridor—Round 12

Corridor—Round 13

Corridor—Round 14

Corridor—Round 15

Corridor—Round 16

Corridor—Round 17

Corridor—Round 18

Corridor—Round 19

Corridor—Round 20

Core—Round 21

Core—Round 22

Core—Round 23

Core—Round 24

Core—Round 25

Core—Round 26

Core—Round 27

Core—Round 28

Core—Round 29

Core—Round 30

Corner-Core-Corner Round Economic Efficiency Group 1Group 2Group 3Group 4

New Research Asymmetric land values Combine agglomeration bonus with other incentive mechanisms (TDRs)

Asymmetric Land Values

Target Habitat

Agglomeration Bonus without Communication Entire Matrix—Bonus Specification Per brown cell bonus Tokens = 2 0 Own shared border bonusTokens = 5 0 Row shared border bonus Tokens = 24 Column shared border bonus Tokens = 22

Tradable Permit-Pilot treatments

Weak Bioeconomic Efficiency

Applications? Prairie dog towns in Montana Wetland reserves in Mississippi Conservation easements in North Dakota Conservation auctions in Victoria, Australia

J Roughgarden’s Guide to Diplomatic Relations with Economists Joan’s rules of engagement: Know who economists are Don’t assume the higher moral ground Get used to their idea of valuation Don’t underestimate them Explain how ecology promotes economic growth

“If you want to save the environment, don’t hug a tree, hug an economist.” Bill Moyers, Commentator for US Public Broadcasting System (PBS)