Endangered Species Conservation on Private Land

I. INTRODUCTION A large fraction of species listed as threatened or endangered under the Endangered Species Act (ESA) inhabit private land, and some are almost totally dependent on private land for habitat (The Nature Conservancy, 1993). Conflicts between economic activity and species conservation on private land have become widespread. In San Diego, Orange, and Riverside Counties in Southern California and in the Texas Hill Country near Austin, conflicts exist between preserving habitat for endangered species and development activity caused by rapidly expanding urban areas. The Pacific Northwest and the Southeast have witnessed conflicts over the choice between preserving habitat for endangered species and harvesting timber on private land. Other less publicized cases exist around the country as well (Mann and Plummet, 1995). These conflicts arise because the ESA allows the government to restrict private land use activities in order to protect species. In June 1995, the Supreme Court upheld federal regulations prohibiting significant adverse modification of habitat of threatened and endangered species on private land (Babbitt v. Sweet Home Chapter of Communities for a Great Oregon, 1995). These regulations limit the ability of private landowners to engage in otherwise unobjectionable land uses such as timber harvest, crop cultivation, or construction. The current ESA does not provide compensation to landowners when such restrictions reduce the value of their property. There is pressure in Congress and elsewhere, however, to reduce the burden of environmental legislation in general, and the ESA in particular, on private landowners. One suggested reform is to require compensation for regulations that reduce property values by some threshold amount. Critics of this suggestion argue that landowners do not deserve compensation for fulfilling their duty to conserve. This paper analyzes the effect of alternative institutional arrangements on the conservation of endangered species and economic activity on private land and discusses problems in obtaining an efficient solution when species conservation and economic activity on private land conflict. Species conservation may yield positive externalities, in which case a market solution will be inefficient. In theory, government intervention can lead to an efficient outcome. However, three potentially important elements may make this difficult: (i) incomplete information about the benefits of alternative land use decisions, (ii) the ability of a landowner to invest prior to regulatory intervention, and (iii) government failure, such as fiscal illusion. The latter two points have been extensively analyzed in the economic literature on takings (Blume et al., 1984; Fischel, 1995; Fischel and Shapiro, 1989; Hermalin, 1995; Innes, 1995; Miceli and Segerson, 1994). Decision making under uncertainty and the incentive to acquire information prior to making a land use decision have received little attention in the takings literature to date. Hermalin (1995) considers cases with incomplete information. In his model, however, the information structure is exogenous and does not affect the outcome unless government failure occurs as well. The problems caused by incomplete and endogenous information play an important role in the species conservation context. Initially, little may be known about the conservation value of particular parcels of land. With some expense, though, information can be acquired about the biological and economic significance of a parcel. Polasky and Doremus (1995) analyze equilibrium information collection and land use decisions in a model without landowner investment. The analysis also considers species conservation on private land with initially unknown conservation value, endogenous acquisition of information, and the potential for investment by landowners prior to a regulatory decision on land use. The current system creates perverse incentives for landowners to prevent information collection and to invest in ways that harm species. …