Efforts to value and protect ‘natural capital’ – Earth’s lands, waters, and biodiversity and the stream of benefits that flow from it – have emerged over the past decade in many arenas that formerly seemed far removed from matters of ecology and conservation. For example, several large multi-national corporations have teamed up with conservation organisations to incorporate the values of nature into corporate operations (e.g., Dow Chemical Corporation and The Nature Conservancy, Coca Cola and World Wildlife Fund, Unilever and the Natural Capital Project). The World Bank initiated the Wealth Accounting and Valuation of Ecosystem Services (WAVES) programme. Governments worldwide have established the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). These, and many other initiatives, make clear that many people now recognise the vital importance of nature for human well-being.

INTRODUCTION

A majority of species listed under the ESA depend on private land for a majority of their habitat (U.S. Fish and Wildlife Service 1997). Conserving endangered species on private land has triggered fierce debates in the courts and in Congress. The courts have wrestled with the question of the reach of the ESA on private land. In Babbitt v. Sweet Home Chapter of Communities for a Great Oregon, the Supreme Court ruled that the ESA allowed the government to prohibit otherwise legal land uses on private land if such use significantly modifies habitat in a way that would harm a listed species. Congress has wrestled with the question of whether the government must pay compensation to private landowners who face restrictions on land use to conserve listed species. At present, such compensation is not required.

The current structure of the laws governing species conservation on private land creates several incentives problems that are likely to lead to inefficient outcomes. The fundamental problem with current law is that landowner cooperation with conservation policy is necessary for an efficient result, but such cooperation is unlikely to occur. Before the government can restrict an activity on private land, it must find convincing evidence that the activity will cause “harm” to a listed species. While it is not exactly clear what constitutes convincing evidence, the courts have generally insisted on a showing that a listed species inhabits the area and that the proposed activity would have a detrimental impact on the species (Polasky and Doremus 1998).

Evidence suggests that Earth's species may be in the midst of a wave of extinction, disappearing at rates 10 to 1,000 times greater than background or natural rates of extinction (Jablonski 1991; May, Lawton, and Stork 1995; National Research Council 1995; Pimm et al. 1995). If we agree that the extinction problem is due to human action, then modifying human behavior must be part of the solution. And yet the consistent exclusion of economic behavior in the calculus of endangered species protection has led to ineffective and, in some instances, counterproductive conservation policy.

This chapter argues that endangered species preservation must take into account basic principles of economic behavior to avoid wasting valuable resources that yield no gain in species protection. We address why economics matters more to species protection than many people think, and what this implies for the ongoing debate over the reauthorization of the ESA (ESA) of 1973.

A news columnist's quip captures a common reaction to reports of species at risk: “What scientists call endangered most people call bait” (Smith 1996). To others the value of protecting endangered species is so obvious, and so overwhelming, that estimates of costs and benefits seem immaterial. This view is exemplified by Roughgarden (1995), who argues that economics should not be confused with morality: “In fact, we should not take costs into account when setting environmental (or other) objectives, but we should take costs into account when considering how to implement moral objectives as policy” [emphasis in original].