Journal Article

Banking on extinction: endangered species and speculation

Charles F. Mason, Erwin H. Bulte and Richard D. Horan

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 28, issue 1, pages 180-192
Published in print January 2012 | ISSN: 0266-903X
Published online March 2012 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grs006
Banking on extinction: endangered species and speculation

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Many wildlife commodities, such as tiger bones, bear bladders, ivory, and rhino horn, have been stockpiled in large quantities by speculators who expect that future price increases justify forgoing the interest income associated with current sales. When supply from private stores competes with supply from ‘wild populations’ (in nature) and when speculators are able to collude, it may be optimal to coordinate on an extinction strategy. We analyse the behaviour of a speculator who has access to a large initial store, and finds that it is optimal to deter poachers’ entry either by depressing prices (carefully timing own supply) or by depressing wild stocks. Which strategy maximizes profits critically depends on the initial wildlife stock and initial speculative stores. We apply the model to the case of black rhino conservation, and conclude it is likely that ‘banking on extinction’ is profitable if current speculators are able to collude. Contrary to conventional wisdom, we also find that extinction is favoured by such factors as low discount rates or high growth rates.

Keywords: rhino horn; storage; conservation; hoarding; D43; Q27; Q28; Q57

Journal Article.  6503 words.  Illustrated.

Subjects: Environmental Economics ; Renewable Resources and Conservation ; Market Structure and Pricing

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