The Endangered Species Act and Private Landowner Incentives

While intended to increase the habitat available to endangered species, the restrictions of the Endangered Species Act (ESA) increase the costs of harboring an endangered species to private landowners and create incentives for private landowners to reduce habitat. This paper illustrates the incentive for habitat destruction with a simple model of private land use under the ESA, and uses it to predict the effects of changes in policy or biological conditions on private landowner incentives. Many anecdotal accounts and recent empirical research support the predictions of the model. Because of the ESA’s perverse incentives, many have proposed replacing the punitive regulations of the ESA with positive incentives for habitat creation, including takings compensation, negligence compensation rules, tradable development rights, and land purchase programs. The paper concludes by reviewing economic analysis of these proposals’ effectiveness.