Elephants: Reply

Erwin H. Bulte et al. (2003) note that the rules of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) ban trade in products from endangered but not extinct species. They argue that governments may therefore have incentives to strategically kill off all their elephants so as to secure the end of the ban on ivory trading. This incentive will be stronger if governments hold stockpiles of ivory. Bulte et al. therefore advocate that outside conservation organizations rather than national governments hold any ivory stocks and that CITES be modiŽ ed either so that trade could not be resumed if African governments deliberately destroyed their remaining populationsof elephants or so that trade in ivory could be resumed at some sustainable elephant population. The Comment is interesting and we agree with the policy suggestions. Nonetheless, we feel that the scenario sketched by the authors of deliberate extinction is unlikely. It is useful to start by reviewing the difference between our approach and that of Bulte et al. In “Elephants” (Kremer and Morcom, 2000), we argue that the economics of storable natural resources, such as ivory, differ fundamentally from those of nonstorable open access resources, such as Ž sh. Future overharvesting of storable resources will reduce long-run yield, or, in extreme cases, lead to extinction. Prices of the resource will therefore be high in the future, which, by arbitrage, implies they will also be high in the short run, stimulating increased harvesting or poaching. Thus, expectations of high harvesting rates can be self-fulŽ lling and there may be multiple equilibria: one in which the species is driven to extinction and one in which it survives. A government which seeks to preserve the resource can eliminate the extinction equilibrium if it can ex ante credibly commit to endangered species laws that mandate that if a species nears extinction the government will spend enough to protect the species even if this would not be justiŽ ed on cost-beneŽ t grounds ex post. We then consider the case of a government that values conservation and would be willing to incur the expenditures necessary to preserve the species if it started out with a large stock of the resource, but would not Ž nd preservation optimal if it starts out with only a small stock and cannot credibly commit to following a strategy that is not subgame perfect. We argue that such a government could eliminate the extinction equilibrium by building up stockpiles of the storable good and threatening to release them on to the market if the species became extinct. This would eliminate the extinction equilibrium by depressing the price in the event of extinction, which would make poaching less attractive now. While we consider the globally optimal policy for a government that values conservation in each of these cases, Bulte et al. take the institutions embodied in CITES as given, and consider the behavior of governments that do not greatly value survival of the species. They argue that under the provisions of CITES, trade in ivory is illegal now and would remain illegal unless the population returns to levels much higher than the current stock, but that the trade would become legal if elephants were driven to extinction. They then argue that given their estimates of the tourism value of elephants, the crop damage elephants cause, and the value of ivory, countries with elephants would be better off strategically killing all their elephants so as to secure the end of the ban on ivory trading and then selling any initial ivory stockpile as well as the ivory collected by killing off elephants. For their preferred parameters, this would be optimal even if countries started with zero ivory * Kremer: Department of Economics, 207 Littauer Center, Harvard University, 1875 Cambridge Street, Cambridge, MA 02138 (e-mail: [email protected]); Morcom: J.P. Morgan Securities, Inc., 270 Park Avenue, New York, NY 10017 (e-mail: [email protected]). The views expressed in this Comment are those of the authors and should not be interpreted as those of J.P. Morgan Chase.