1. Smart Subsidies for Conservation Jason Shogren University of Wyoming October 2005

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

3. Conservation on private lands Biological Needs Political Realities Economic Incentives

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

12. Experimental Economics Interactions between humans and nature through institutions

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

14. 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.

15. Range of actors HamletEconobot Machiavelli

16. Markets No Markets Missing Markets

17. 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

18. Agglomeration Bonus Bonus* Retired Parcel Bonus* Bonus* Bonus* Retired Acre Bonus* Bonus* Bonus* Bonus*

19. Coordination Game Multiple Nash equilibria Payoff Dominance Risk Dominance

20. 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.

21. 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.

22. Payoff Matrix—Transfers w/ an Agglomeration Bonus Actions Player 2 Player 112345678 160 60 105 60 95 60 85 60 111 60 109 60 101 60 99 2105 60 105 105 95 105 85 105 111 105 109 105 101 105 99 395 60 95 105 95 95 85 95 111 95 109 95 101 95 99 4 85 60 85 105 85 95 135 85 111 85 109 105 121 115 129 5111 60 111 105 111 95 111 85 111 111 109 111 101 111 99 6109 60 109 105 109 95 109 85 109 111 109 109 101 109 99 7 101 60 101 105 101 95 121 105 101 111 101 109 121 121 119 899 60 99 105 99 95 129 115 99 111 99 109 119 121 129

23. 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

24. Symmetric land grid 2222222222 4444444444 6666666666 8888888888 10 8888888888 6666666666 4444444444 2222222222

25. Conservation Objectives Corridor Core Cross Corners

26. Corridor

27. Core

28. Cross

29. Corners

30. 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.

31. Own Shared Border Bonus

32. Row Shared Border Bonus

33. Column Shared Border Bonus

34. Incentive Constraints

38. Agglomeration Bonus Menu Per Brown Own Border Row Border Column Border Corridor$3$8$16$0 Core316138 Cross31916 Corners38- 5

40. 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

41. Core—Round 1

42. Core—Round 2

43. Core—Round 3

44. Core—Round 4

45. Core—Round 5

46. Core—Round 6

47. Core—Round 7

48. Core—Round 8

49. Core—Round 9

50. Core—Round 10

51. Corridor—Round 11

52. Corridor—Round 12

53. Corridor—Round 13

54. Corridor—Round 14

55. Corridor—Round 15

56. Corridor—Round 16

57. Corridor—Round 17

58. Corridor—Round 18

59. Corridor—Round 19

60. Corridor—Round 20

61. Core—Round 21

62. Core—Round 22

63. Core—Round 23

64. Core—Round 24

65. Core—Round 25

66. Core—Round 26

67. Core—Round 27

68. Core—Round 28

69. Core—Round 29

70. Core—Round 30

72. Corner-Core-Corner 0.70 0.75 0.80 0.85 0.90 0.95 1.00 123456789101112131415161718192021222324252627282930 Round Economic Efficiency Group 1Group 2Group 3Group 4

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

74. Asymmetric Land Values

75. Target Habitat

79. 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

80. Tradable Permit-Pilot treatments

83. Weak Bioeconomic Efficiency

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

85. 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

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