Thresholds, Perverse Incentives, and Preemptive Conservation of Endangered Species

Implementation of the Endangered Species Act (ESA) on private land has historically focused on regulation after a species was officially listed. In recent years it has shifted toward offering pre-listing incentives to avoid listings and the costs and conflicts resulting from regulation. In this paper we take an initial step toward examining these pre-listing incentives. We allow the incentive structure, perverse incentives to destroy habitat or preemptive conservation, to be endogenously determined. We show that which incentive structure emerges depends on how high the conservation threshold is and on the relative costs of habitat conservation versus habitat destruction. It is critical to distinguish between these incentive structures because a policy that works in one setting does not necessarily work in the other. Our results shed light on policy decisions in several recent high-profile ESA cases.