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Endangered Species
Who Should Pay for Habitat Takings?

When Benjamin Cone decided to sell timber from his land, a group of black and white birds cost him nearly $2 million.

In 1982, Cone inherited 7,200 acres of land in North Carolina. For almost a decade, he attempted to improve the forested area as a habitat for quail and deer. His efforts likely attracted another species--the red-cockaded woodpecker. This endangered bird nests in mature pine forests and has highly specialized habitat requirements.

To protect this habitat, Cone was denied logging rights on 1,560 acres. As a result, he changed his management practices in the unprotected areas. "I cannot afford to let those woodpeckers take over the rest of the property," Cone told the Wall Street Journal in 1993. "I'm going to start massive clear-cutting."

Cone's story illustrates just one of many complex issues in an on-going debate over endangered species policy, says Robert Innes, an AREC faculty member studying the economic ramifications of government "takings."

The Fifth Amendment to the U.S. Constitution prohibits government takings of private property without just compensation. "Legal and economic scholars have long debated the conditions under which the takings clause should apply," Innes says.

One exception to the clause seems to be endangered species protection. The Endangered Species Act prohibits private citizens from taking any threatened or endangered species on their private property. The U.S. Fish and Wildlife Service (FWS) has interpreted this type of "taking" to mean any action which injures or kills an endangered creature, or significantly modifies or degrades its habitat. The Supreme Court upheld this interpretation in 1995.

The scope of this protection is wide reaching. According to the FWS, more than half of the listed endangered species have at least 80 percent of their habitat on private land. The FWS can control private lands that it deems important to species on the endangered list. Landowners may be denied use of their land, while still being held responsible for property taxes.

"The courts have ruled in the past that the government does not need to compensate for endangered species protection," Innes says. "But there's still the question about whether the government should compensate."

To answer this question, Innes analyzes and designs compensation plans from an economic perspective. These theoretical scenarios attempt to maximize the benefits for endangered species and environmental resources, while minimizing the cost to the government and taxpayers.

"Generally speaking, I'm quite leery of compensation for government actions that protect the environment," Innes says. "It's essentially saying that the government should pay people not to harm others, whether it be a public resource or their neighbors. That's not good policy."

However, lack of compensation may cause landowners to act against endangered species. Like Benjamin Cone, they may increase the development of their land, or in extreme cases actually kill endangered creatures.

"In an endangered species context, it's really important that there be some compensation," Innes explains. "Otherwise, there will be an incentive to destroy the potential environmental value of the property."

Innes also points out that there are disadvantages for owners of undeveloped land under the current system. "Undeveloped property is a lot cheaper than developed property," he notes. "So the government takes the undeveloped land first." This creates an incentive for owners to develop their property early.

Government compensation would eliminate this incentive problem, Innes says. However, this is not necessarily the most efficient solution.

For example, a negligence rule could reduce the cost of compensation, Innes notes. "This can be advantageous in view of government budgetary constraints," he explains.

Landowners would only be compensated for a taking if they had acted reasonably to conserve their property. Owners that deliberately destroyed habitat or endangered creatures would receive no compensation for the taking.

"That kind of rule can be advantageous because you can elicit non-negligent behavior--prompting the landowners to protect the conservation value of their property with less money from the government," Innes says.

Implementing any sort of compensation for endangered species takings will require either judicial or legislative action. There are also more questions that need to be answered. For example, the public use value of land may not be known at the time of a takings decision. Innes is currently looking at what information is needed to determine this value, and how to ensure this information is acquired efficiently.

"There is not a final bottom line on the best way to go, but the absence of compensation is clearly a problem," Innes notes. "Moving toward some sort of compensation regime that acknowledges these problems would be beneficial."

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