Notes on market failure and the Paretian (Kaldor-Hicks) relevance and irrelevance of unfavourable externalities

The following are notes that have been distributed by me over the last few years to students in Environmental Economics at The University of Queensland. They give particular attention to whether externalities are Pareto or Kaldor-Hicks relevant from a policy point of view. Externalities are Kaldor-Hicks or Pareto irrelevant if no change is possible for which gainers could compensate losers. Both absolute and marginal externalities may be Kaldor-Hicks relevant. Infra-marginal negative externalities are often, but not always, Kaldor-Hicks irrelevant. There are at least two cases where such externalities can be relevant. First, the absolute impact of the negative externality may be so great that the source of the externality should be eliminated. Secondly, if the externality arises from production, its nature may depend on the type of production technique adopted. Although for the technique adopted, an infra-marginal negative externality occurs. That is Paretian irrelevant given that choice of this technique is the only available possibility, alternative techniques may actually be available in practice. Some of these may generate even smaller total external effects and be socially preferable. Both cases are outlined and illustrated in these notes. The analysis reveals the dangers of relying on marginalism for deciding on environmental policy. Total (external) effects are often of great social and economic importance and appropriate social choices cannot be made on the basis of marginalism alone.

Economic Incentives to Conserve Wildlife on Private Lands: Analysis and Policy

Some believe that provision of private property rights in wildlife on private land can provide a powerful economic incentive for nature conservation because it enables property owners to market such wildlife or its attributes. If such marketing is profitable, private landholders will conserve the wildlife concerned and its required habitat. But land is not always most profitably used for exploitation of wildlife, and many economic values of wildlife (such as non-use economic values) cannot be marketed. The mobility of some wildlife (their fugitive nature) adds to the limitations of the private property approach. While some species may be conserved by this approach, it is suboptimal as a single policy approach to nature conservation. Nevertheless, it is being experimented with in the Northern Territory of Australia where landholders have the possibility of harvesting on their properties a quota of eggs and chicks of red-tailed black cockatoos for commercial sale. This scheme is expected to provide an incentive to private landholders to retain hollow trees essential for the nesting of these birds. Aspects of this approach are analysed using this case, and related ones, from Northern Australia. It is noted that the private property rights approach adopted in southern Africa is unlikely to be equally successful everywhere. The long-term survival of some species depends on their ability to use private lands without severe harassment, either for their migration or to supplement their available resources, for example, the Asian elephant in Sri Lanka. Nature conservation on private land is often a useful, if not essential, supplement to conservation on public lands. Community and public incentives for such conservation are outlined.

Recreational fishing: Its expansion, its economic value and aquaculture's role in sustaining it

Economic growth usually leads to a substantial increase in the demand for recreational fishing, and China is likely to follow this trend. Factors influencing this expansion in demand are identified. Recreational fishing is of major economic importance in higher income countries and indicators of its economic significance are given. Growing demand for recreational fishing results in intensified involvement of recreational fishers in conflicts about resource use. With increasing demand for recreational fishing, recreational fishers face growing competition with one another for limited fish stocks and with commercial fishers. Their concerns for environmental threats to fish stocks also intensify. Furthermore, some strategies of recreational fishers are increasingly criticised by conservationists. Governments, therefore, are put under pressure to adopt policies to address these conflicts. Some of the policy measures adopted to help sustain the fisheries and reduce conflict are outlined. These include limits on the catch and exclusive zones for recreational fishing. However, wild stocks of fish are likely to remain under mounting harvesting and other pressures. Therefore, we need to consider the role that aquaculture can play in overcoming these problems. The possible ways in which aquaculture can do this are outlined and discussed.

Management, conservation and farming of saltwater crocodiles: An Australian case study of sustainable commercial use

Opinions differ about what types of policies are likely to be most effective in conserving wildlife species. For example, the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES) is based on the premise that curbing the commercial use of endangered species favours their conservation, whereas the Convention on Biological Diversity envisages the possibility that such use may contribute to the conservation of species. In Australia, as illustrated in the case of the saltwater crocodile (Crocodylus porosus), the governments of the Northern Territory and Western Australia have favoured the latter policy in recent years, whereas Queensland has favoured the former approach. The saltwater crocodile management plan of the Northern Territory provides an instructive case study of the consequences of adopting a commercial use strategy to promote wildlife conservation. The methodology used in this study, which involves a survey of crocodile farm managers and managers of cattle properties in the Northern Territory as well as secondary data, is outlined, after providing background on the conservation status of saltwater crocodiles in Australia and the saltwater crocodile management plan of the Northern Territory. In the results section, after outlining the nature and structure of the Northern Territory crocodile farming industry, evidence is presented on whether or not the crocodile management plan of the Northern Territory encourages pastoralists to conserve crocodiles on their properties. This study concludes with a discussion of the overall conservation effectiveness of the crocodile management scheme of the Northern Territory and considers its possible implications for saltwater crocodile management in areas of Asia where the species occurs.

Public attitudes to the use of wildlife by Aboriginal Australians: Marketing of wildlife and its conservation

Indigenous Australians have socioeconomic attributes similar to those of residents in some developing countries. Their utilisation of wildlife could add to their economic opportunities. Attitudes of a sample of the Australian public towards the subsistence use of wildlife by Indigenous Australians and whether or not they should be allowed to sell wildlife and wildlife products are examined. Allowing such possibilities could provide economic incentives for nature conservation among local people. We explore whether those sampled believe that Indigenous Australians should do more than other groups and institutions to conserve Australia's tropical species, and whether or not they should be allowed to take common as well as endangered wildlife species for food. Attitudes of the sampled public towards Indigenous Australians earning income from trophy hunting and from the harvesting of northern long-necked turtles for the pet trade are canvassed. The possible conservation consequences of sale of wildlife by Indigenous Australians are discussed.

Comparison of funding and demand for the conservation of the charismatic koala with those for the critically endangered wombat Lasiorhinus krefftii

This study contrasts the actual conservation spending and the Australian public’s demand for conservation funding for two Australian mammal species, the koala and the northern hairy-nosed wombat. It involves a survey of 204 members of the Australian public. Willingness to fund conservation action to protect the northern hairy-nosed wombat was found to be higher than that for the koala despite the koala’s immense popularity. The critically endangered status of the northern-hairy nosed wombat and the more secure conservation status of the koala is a factor likely to have influenced the comparative willingness-to-pay decisions. Actual annual conservation expenditure for both species is lower than the estimated aggregate willingness-to-pay for their conservation. Furthermore, conservation funding for the koala is much more than that for the northern hairy-nosed wombat even though the estimated public willingness-to-pay (demand) for funding koala conservation was less than for this wombat species. Reasons for this are suggested. They may also help to explain misalignment between demand for conservation funding of other species involving differences in charisma and endangerment.

Knowledge about a species' conservation status and funding for its preservation: Analysis

Using a species’ population to measure its conservation status, this note explores how an increase in knowledge about this status would change the public’s willingness to donate funds for its conservation. This is done on the basis that the relationship between the level of donations and a species’ conservation status satisfies stated general mathematical properties. This level of donation increases, on average, with greater knowledge of a species’ conservation status if it is endangered, but falls if it is secure. Game theory and other theory is used to show how exaggerating the degree of endangerment of a species can be counterproductive for conservation.

Resource entitlements of indigenous minorities, their poverty and conservation of nature: Status of Australian Aborigines, comparisons with India's tribals, theory and changing policies globally

Considers the relevance of A.K. Sen’s theory of entitlements to the situation facing indigenous tribal people, its relationship to institutionalism, and to theories of property rights. Changing world views about the resource entitlements that should be given to local communities are outlined concentrating on the views expressed by the World Conservation Union (IUCN). These changing views have relevance for the resource entitlements of indigenous tribal communities and are reflected in differences in the policy approaches inherent in the Convention on International Trade in Endangered Species (CITES) and the more recent Convention on Biological Diversity. The latter embodies the view that provision of greater resource entitlements to local communities can provide economic incentives for nature conservation. There is a case for Indigenous Australians to be given greater rights to market the natural produce from their lands. Despite progress with land rights, they are not entitled to market much of the natural produce from their land. The socioeconomic status of Australian Aborigines is outlined. Their standard of living and their life expectancy are low by world standards and in comparison to other Australians. This is partly a result of historical events that have restricted their rights. These events are outlined briefly. Views differ about the appropriate development paths for Indigenous Australians and these are assessed. Concern on environmental and economic grounds is expressed about the view that the economic development of Australian Aboriginal communities would be accelerated by replacing their communal land titles by private land titles and encouraging Western-style agriculture and commercial development of their lands. Some comparisons are also made with the situation of India’s Tribals.

Public valuation of and attitudes towards the conservation and use of the Hawksbill turtle: An Australian case study

Managing hawksbill turtle populations for use and conservation requires (i) adequate scientific understanding of their population status and dynamics and (ii) consideration of the public’s attitudes to this species. This study employs experimental surveys to assess the Australian public’s attitudes towards the hawksbill turtle, their knowledge of it, their views about its sustainable commercial harvesting, and their support and financial contribution for the species’ conservation. Contingent valuation reveals that the Australian public’s willingness to contribute to the conservation of the hawksbill turtle is high even in comparison to threatened Australian bird and mammal fauna. Most of this stated contribution is based on the intrinsic (non-use) value associated with the hawksbill turtle. It seems that the Australian public will only accept its harvesting if the sustainability of this is assured and its population is more secure. The CITES categorisation of the hawksbill as an Appendix I species hampers the development of techniques for its sustainable use.

Public choice of species for the ark: Phylogenetic similarity and preferred wildlife species for survival

Humans play a role in deciding the fate of species in the current extinction wave. Because of the previous Similarity Principle, physical attractiveness and likeability, it has been argued that public choice favours the survival of species that satisfy these criteria at the expense of other species. This paper empirically tests this argument by considering a hypothetical ‘Ark’ situation. Surveys of 204 members of the Australian public inquired whether they are in favour of the survival of each of 24 native mammal, bird and reptile species (prior to and after information provision about each species). The species were ranked by percentage of ‘yes’ votes received. Species composition by taxon in various fractions of the ranking was determined. If the previous Similarity Principle holds, mammals should rank highly and dominate the top fractions of animals saved in the hierarchical list. We find that although mammals would be over-represented in the ‘Ark’, birds and reptiles are unlikely to be excluded when social choice is based on numbers ‘voting’ for the survival of each species. Support for the previous Similarity Principle is apparent particularly after information provision. Public policy implications of this are noted and recommendations are given.

Estimating Income Inequality in China Using Grouped Data and the Generalized Beta Distribution

There are two main types of data sources of income distributions in China: household survey data and grouped data. Household survey data are typically available for isolated years and individual provinces. In comparison, aggregate or grouped data are typically available more frequently and usually have national coverage. In principle, grouped data allow investigation of the change of inequality over longer, continuous periods of time, and the identification of patterns of inequality across broader regions. Nevertheless, a major limitation of grouped data is that only mean (average) income and income shares of quintile or decile groups of the population are reported. Directly using grouped data reported in this format is equivalent to assuming that all individuals in a quintile or decile group have the same income. This potentially distorts the estimate of inequality within each region. The aim of this paper is to apply an improved econometric method designed to use grouped data to study income inequality in China. A generalized beta distribution is employed to model income inequality in China at various levels and periods of time. The generalized beta distribution is more general and flexible than the lognormal distribution that has been used in past research, and also relaxes the assumption of a uniform distribution of income within quintile and decile groups of populations. The paper studies the nature and extent of inequality in rural and urban China over the period 1978 to 2002. Income inequality in the whole of China is then modeled using a mixture of province-specific distributions. The estimated results are used to study the trends in national inequality, and to discuss the empirical findings in the light of economic reforms, regional policies, and globalization of the Chinese economy.