The Economics of Endangered Species

Because habitat conversion is the greatest threat to species, this article focuses on economic incentives for private land users to protect habitat. Habitat protection policies that fail to account for private incentives often have unintended negative consequences. Private incentives for habitat protection depend on many factors: whether landowners are compensated for the costs of habitat protection, the design of compensation mechanisms, underlying property rights and security of tenure, the structure of conservation contracts, and whether markets can be created that internalize external benefits of habitat protection. In developing countries, agricultural price, credit, tax, and land tenure policies have important effects on the demand for habitat conversion. Private landowners often can provide crucial information about costs of habitat protection and species or habitat values on their property. Policies that encourage self-reporting of this information can greatly improve the cost effectiveness of policies to identify and acquire sites for species protection.