The Species Endowment Effect

How much would you pay to save the snoot or bring back the dodo?

Many readers will have heard of the endowment effect, which refers to the difference between how much someone will pay for something that they have versus how much they will pay for the very same thing if they don’t have it.

From the perspective of economics, these two prices should be the same. If you value a mug at $10, then you should be willing to buy it or sell it for $10. Rationally, a mug in the hand should be worth the same as a mug on the store shelf.

However, when you bring people into a laboratory, that’s not what you find.¹ People require a higher price for selling something they own—are “endowed with,” as economists like to say—than for buying something they do not. A mug in the hand is worth more than a mug on the shelf.

While this effect was originally found for goods such as bottles of wine and mugs, it crops up in many different contexts, many of them of considerably greater import than wine. For example, recent research shows that it has moved into the housing market: people selling houses tend to over-price them relative to what buyers are willing to pay. The effect is even larger for non-physical goods—think equities, cryptocurrencies, intellectual property rights.

Back in my graduate school days, we used to amuse ourselves by asking people how much they would sell their little toe for. Many people answered that there was no amount of money.² So when they have a toe, they value it infinity. We would follow up by asking how much they would buy it back for if it somehow went missing. To this, many people said they wouldn’t pay anything. So the size of the pinky toe endowment effect—according to these anecdotes—is infinity. A toe on the foot is immeasurably more valuable than a toe, well, that you can buy.

Selling Species

I recently have been puzzling over how this effect works in the context of species.³

Let’s take the blue-nosed snoot, a species I just made up. This particular snoot lives only in your 1 square mile field—it cannot survive anywhere else—and you just discovered the rare mineral unobtanium beneath the surface. Filled with dreams of avarice, you bring in a geologist to tell you just how much unobtanium there is and how much it is worth.

The geologist does his job and brings you the report. He begins by explaining that—the clue is in the name—it’s very hard to mine unobtanium. If you exploit the resource, the very last blue-nosed snoot will perish and the species will go extinct, vanishing forever from the Earth. Now, the geologist is also, it turns out, a behavioral economist, and he insists that before giving you the report, you must reveal your preferences. You choose a number, your minimum price. If the unobtanium is worth more than the value you choose, you will mine it and end the snoot. If the unobtanium is worth less than your number, the mineral stays where it is and the snoot lives to snoot another day.

In essence, the geologist is asking, how much is the species worth to you? Would you mine the patch if there was only $5 of the stuff under there? Probably not. But a million? A billion? A trillion? How much would you sell (out) the snoot for?

For some people, selling snoots is like selling little toes. They might not be priceless, but close to it.

Now, before continuing, I have to clear my throat, add some caveats, and generally say what I’m not saying. I am not taking a position on this debate. I have no specific view about how much any given species is worth. I do not favor genociding the snoot for a buck. My goal here is to interrogate the Species Endowment Effect and reflect on its implications for decision making.

Ok, with all the phlegm out of the way, let us move on.

Determining how much people value species is a tricky business. You can ask people how much they would pay in additional taxes to preserve a species. So a person might say, yes, I would be willing to pay an extra $100 per year in taxes to preserve the blue-toed bear, or whatever. The idea is that everyone’s extra tax money would be spent to preserve the species, perhaps by the purchase of the land on which they are found. You can also ask people how much they would need to be paid to do without the blue-toed bear. So a person might say if the government (or whoever) wants to kill all the blue-toed bears, they have to pay me $100 per year. Any less and I would prefer the bear to the money. This is called the contingent valuation method. These two values are analyzed to estimate how much the good is worth to people.

More or less, when researchers use these techniques to estimate the value of a species, it comes in between about $20 and $60, depending on a number of factors, including how “charismatic” the species is. A species such as a sea lion or monk seal that is “charismatic”—economists’ term, not mine—fetch twice as much or more than non-charismatic species, such as shrimp and minnows. In one study, researchers focused on the giant Palouse earthworm (Driloleirus americanus), native to the American northwest, and found that subjects were willing to pay about $20 per year to preserve the habitat of these little fellows.

That’s the laboratory. What about the real world?

There is at least some sense in which we already know a little bit about how society, as a whole, values species. We can estimate, albeit very imperfectly, by looking at actual cases in which people considered developing an area that would put a species, or multiple species, at risk. When I lived in Alaska, a common topic of discussion was the Pebble Mine, an area with vast mineral resources thought to be worth a little south of half a trillion dollars. (Not a typo. Trillion, with a trill.) Developing this part of the Bristol Bay would poison the watershed and harm local species, quite possibly threatening the local salmon, including the sockeye. The area has been left undeveloped and the fallout from the controversy continues to the present day.

Generally, then, from the point of view of an economist, we Americans, who are the ones making the choice through various administrative agencies, value the species at stake (and the other ecological harms) about half a trillion dollars. (I mean, we wouldn’t each get the share of the proceeds. The people exploiting the area would. So, you know, it’s complicated.)

Buying Species

Anyway, holding aside specific cases such as the Palouse earthworm or the Pebble Mine, my interest is in the fact that technology is poised to change the other side of the endowment effect when it comes to species.

Someday soon, we might be able to buy them back.

Work is currently underway to bring back some species which went the way of the dodo, including, well, the dodo. Also on the list for resurrection are the wooly mammoth and the Tasmanian tiger. Basically, a team of scientists is mucking around with DNA to create the recipe for each of these lost species. Which is pretty cool. (See also this recent piece, on the Dire Wolf.)

I recently had a conversation with someone who very much supports species not going extinct and we discussed how much money should be spent on this Easter for Elephants project, as I call it (in the privacy of my own head).

Nothing, she said. We shouldn’t do it at all. And not for the whole Jurassic Park reason, the unintended consequences. We just shouldn’t.

Now, gentle reader, ask yourself these two questions.

1. How much money should a species be “sold” for? That is, how much money, minimum, should we be willing to accept for the loss of a species, whether a fictional snoot or an actual salmon? It’s a thought experiment, so hold aside the other damage to the environment and such.⁴

2. How much money should we “buy” a species for, spending enough to bring back the extinct snoot or salmon? It’s a thought experiment, so imagine that the only obstacle is the money and that the tech will be figured out in short order.

My guess, and it’s only a guess, is that for most people the answer to (1) is far greater than (2). If that’s right, then it seems to me there is an endowment effect for species. We value the ones we’re currently endowed with more than ones we can bring back.

Now I add a twist. Suppose it turns out that the technology matures and it costs one billion dollars to bring a species back. And suppose we turn the Pebble Mine over to the Nature Conservancy.⁵ They are faced with the following choice. They can leave the mine undeveloped, as it is, which will allow them to bring back zero species. Or they can develop the mine, take the 500 billion in profits, and bring back 500 species, killing one (let’s just say) in the process.

Tough choice.

Or is it?

Note that the problem goes away if we value the snoot at the same number whether we are killing it or saving it. In that case, the economics make the decision clear: I can have one species worth one billion or 500 species worth, in all, half a trillion.⁶

We need not value all species equally. I myself like birds more than fish and reptiles, and I prefer mammals to birds. Yes, that makes me a species bigot, but you can have your own preferences and I won’t judge you for it.

But maybe the time has come for a discussion of how to handle the species endowment effect, now that we are on the precipice of bringing them back from the abyss.

1. Well, that’s not what economists, such as Kahneman, Knetsch, and Thaler (1991) found. See Thaler (1980).

2. We found this hard to believe. Even the most foot-vain would take a trillion dollars, right?

3. As I was doing the research for this essay, I discovered, perhaps unsurprisingly, someone already thought about this. See Richardson and Loomis (2009) for a review to that time.

4. Economists have struggled with how to measure this. See the paper I linked to above, Decker & Watson (2016), for a nice discussion.

5. I got this idea from the economist Kyle Hampton.

6. Sort of. Now it’s like a Trolley Problem. Would you push the last salmon off the footbridge to save 500 other species?