Endangered Species and Optimal Environmental Policy

This paper presents a theoretical model for developing an optimal environmental policy for endangered species management. It is argued that the choice between Pigouvian taxes and quantitative permits is dependent upon the species under consideration, and therefore no policy prescription can be given for wildlife management in general. Under the assumption of negative external effects, where operations by the firms have adverse impacts upon endangered species, we analyse the case when the marginal benefit function of the endangered species is known, while uncertainty enters the marginal cost function of species protection (modified operations). Marginal cost and benefit functions are estimated from empirical data obtained in three different Swedish studies. It is shown that the optimal policy for a species that primarily represents an existence value is a quantitative regulation set equal to the minimum viable population (MVP).