My first reaction to this story was “Aha! Another reason to despise the UN and its tranzi fellow travellers! As if I needed one.” And indeed, there is plenty to despise in this story. It turns out that a thriving market in endangered animal skins has sprung up in Afghanistan to serve the demands of the UN and NGO personnel assigned there.
When I asked him if he had any coats made of snow leopard skin, he said no. But the reason was far from reassuring – he had sold out.
They have become so expensive for us – $500. Too expensive for Afghans but foreigners can buy them,” he said.
We have asked most of the foreigners not to buy these things and if there is not a market from the foreigners the Afghan people probably don’t need it,” [Afghan Environment Minister Yousef Nouristani] says.
“It’s the market created by the foreigners – particularly those who are working with the UN or other NGOs.”
The tooth-grinding hypocrisy of UN and NGO personnel flouting international law banning the trade in these skins is bad enough. The fact that most tranzis are also pious “movement” environmentalists is merely salt in the wound.
However, for dedicated libertarians, it raises one of the perennial dilemmas: what to do with wild animals? Laws restricting the harvesting and sale of wild animal skins, organs, meat, and whatnot would appear to run afoul of libertarian principles espousing free trade and free markets, and indeed the Afghan government is trying to reach the benchmark for protection of these animals set by, gulp, the Taliban.
The dilemma is sharpened in Afghanistan because the dire poverty of many people there puts their interests in direct conflict with protection of endangered species.
Snow leopards are most commonly found in north-eastern Afghanistan in an area known as the Wakhan.
I spoke to Ali Azimi, the author of a report on Afghanistan’s environmental problems, who has just returned from a 10-day trip to the area.
“I was struck by the abject poverty of the people,” he said. “Most can barely afford to have one meal a day.
“And the meal usually consists of a type of grass that grows in the Wakhan six months of the year. Six months it is snowbound.
“What they eat is what has been collected over the summer months – and it is a desperate situation for them. So they’re facing poverty and starvation in the Wakhan.”
This poverty and starvation is forcing people to hunt animals that would normally be the prey of the snow leopards – and the thousands of dollars that some people are prepared to pay for their skins is encouraging poachers to hunt these rare and beautiful creatures.
The long-term solution to these environmental issues is, of course, to raise the level of income and wealth in Afghanistan so that no one is forced to compete with wild animals for survival, and so that the “luxury good” of protected lands and species becomes affordable. In the shorter run (and in the long run as well) it is difficult to see how wild lands and, especially, wild animals can be protected from the tragedy of the commons without some form of state intervention, whether it is via market regulation outlawing the trade in animal products, the purchase and “protection” of lands, the regulation of hunting activity, or some variant or combination of all three.
Thanks to the inevitable and ubiquitous Instapundit for the first link to this story. Thanks also to (this hurts, folks) the BBC for originating the story.
Longterm, make sure that local groups or individuals have enforceable propertyrights in the wildlife.
If they can see their kids selling coats, they are more likely to manage the wilderness in a sustainable manner.
Areas that are commons, the government can and should define sustainable use rules.
The big problem with preserving wild species is the lack of truly enforceable property rights. It is very difficult to stop poachers from killing a valuable species. Because of this, everyone tries to get as much as they can now, since the species will be extinct soon anyways.
Given the lack of enforceable indidivudal property rights, the government can and should intervene to try and save species by setting up and patrolling refuges and parks.
Anyone that doesn’t want the governemnt to run animal refuges and parks needs to come up with a workable system to perserve nature.
In cases where there are people from rich countries who want to come and look at animals in poor countries, and where the tourists pay substantial amounts of money to do so and where the money actually goes to the local people then it rapidly becomes clear to local people that it is in their economic interests to save the animals, and not only do they stop killing them, but they actively look after them. (Similarly, when westerners are willing to pay large sums of money to come and hunt the animals, this can lead to locals making sure there is a viable population and looking after the species in general. This activity isn’t to my taste, but when hunters declare that they help the survival of the species they hunt, there is at least sometimes some truth in it).
However, my experience of paying fees to visit remote places in poor countries (in my case generally to obtain permission to climb mountains rather than look at animals) is that such fees are charged by the national government and the local people never see a penny of the money in question. Essentially the national governments in question have appropriated the property rights of the local people, and the consequences are pretty much what always happens when governments appropriate property rights.
The trouble is that many of the endangered species of the world will be extinct by the time we are likely to be able to get the sorts of local property rights in place that might save many of them. Plus of course wars and famines are generally catastrophic.
I think I agree with Byna. Patrolled refuges and parks are better than nothing, although how much better I’m not sure.
I once tried to explain a decade ago to a Canadian ministry official that index futures could in fact be used very effectively to protect stocks of an unowned animal (such as Atlantic fish) in international waters despite the apparent ownership/property problem, but he didn’t understand the idea.
Maybe I should have been talking to ARPA?!
Hunting. If it wasn’t banned, “big game” would be seen as a natural resource, not a pest on arable land. And I’m not talking cheapass “shoot them with cameras” bambified envirotourism. I mean pith hat, elephant-gun, the traditonal photo with your foot on the quarry’s head, and the skin and mounted head to take home.
All of a sudden, people would start treating lions, hippos, leopards etc like gamekeepers treat pheasants.
There are some very successful game preservation/management programs, especially in Africa, built on a combination of Julian’s hunting proposal and Byna and Michael’s insight that the locals need to have a stake. I subscribe to a newsletter put out by Conservation Force
that follows hunting issues worldwide, and it makes a powerful case that hunting is the key to preserving large game animals.
What is interesting to me from a more theoretical perspective is the issue of just how it is that you bring wild animals in from the commons so that they become a valued, and therefore protected, asset.
The simple solution, I would think, would be for people with money who wish to protect the snow leopard to buy the land. They can then set about protecting it with your average real estate property rights. It would all be very market capitalist and libertarian. Finally, the people currently living there would get a nice chunk of change to move somewhere more hospitable, where they wouldn’t have to eat grass to survive.
The suggestion of opening the species to legitimate forms of exploitation so that the locals see them as an asset to be maintained also has merit. I think private ownership of the protected lands would facilitate this by ensuring any money from hunters and tourists went to the local economy and not the national government.
Thomas Sowell once noted that the only species that are endangered are the ones that aren’t owned by anybody.
Perhaps a combination of private game preserves (as Scott suggested) and actual ranches for herbivore species such as zebras would work out.
I don’t object to the hunting idea in principle. However, in Africa game animals are relatively abundant compared to the snow leopard population in the Himalayas. Any managed hunting program depends for its success on discouraging hunters from exceeding their quota, either by limiting the amount of animals they can kill or by limiting the number of hunters, or both. A small population leaves a very small margin for error.
As RC Dean noted, the root problem here is the market for pelts in the West, and among Westerners stationed in Afghanistan. That’s an awfully big obstacle for conservationists to overcome. One answer — a desperate one — would involve trapping snow leopards or other endangered species with a view toward trying to breed them in captivity and relocate them back to their native habitat once conditions there improve. Some Western zoos have programs along this line, but they face many difficulties both financial and biological.
A noxious group of secondhanders and looters use their lavish US-taxpayer funded salaries to threaten endangered species so that they can bedeck themselves in ill-gotten trendy finery.
What a suprise.
I wish Ayn Rand were still alive so she could write about this scene :))
A hunting approach could help weaken the market for pelts etc, because it would then seem cheapass and cowardly.
Can it really be that Afghans would risk life and limb to hunt snow leopards for their meat alone? Unlikely. Therefore the crux of the matter is to prevent the aftermarket sale of pelts and pelt products. If foreigners are the bulk of buyers, and foreigners by their nature leave the country from time to time, the solution is simple: check all luggage at the airports, arrest those in possession of the furs and (by prior agreement with the NGOs, foreign governments, etc), have him/her blackballed from all further “humanitarian” ventures; for good measure, you can also feed names and photos to the freaks at PETA who will know what to do with them. Did I forget anything?
Trying to ban a product for which demand exists (1) raises the price and therefore the incentive (2) gets unscrupulous criminal elements involved (3) favors high price-per-volume forms which are usually more harmful (4) makes sustainable good business practises impossible. It also always fails to achive its aim of blocking the trade, because enforcement is statistical and crooks are willing to play the odds.
Banning trade in pelts is no exception to the above. Bans mean that only the most exotic and endangered animals are worth the hassle of smuggling, and that it suits the crooks just fine that they are killing off the last few. As the rarity goes up, so does the price they can ask.
RC, Scott, Alan – as I said earlier, index futures would do the job fine. Ownership not needed, as I tried to explain to the Canadian fisheries people a decade ago.
You create a futures contract based on regular and competing scientific counts which are contestable in court, so that the actual naturalists taking the censuses are penalised in their contracts for inaccuracy, and rewarded (on the basis of follow-up studies) for being scrupulous.
Then
1) everyone who is a buyer (or the holder of a call option) of high population numbers becomes an interested party directly rewarded if numbers rise or stabilise – so it’s the same as if they did own the animals – they will defend the species;
2) everyone who is a seller (or the holder of a put option) of low population numbers is an obvious suspect if population numbers drop sharply, and the same techniques used in detecting insider trading (or in detecting terrorism in the ARPA proposal) will create a paper trail straight to the poachers – leaving only legitimate hedgers on the sell side.
This is doctrinally correct, but untrue. Raising the price for a banned commodity only raises the incentive to trade in it if nothing else changes. Unless the ban is ineffectively enforced, however, the disincentive to trade in it also goes up.
For example, the international ban on trade in ivory was highly successful in reducing elephant mortality from poaching. An American ban on tuna from fishermen that did not take steps to reduce the number of dolphins killed in their business did not lead to traffic in illegal tuna, but to efforts by tuna fishermen to comply with the ban by changing their practices.
So what is the end result of bans on trading in commodities, animal or otherwise? The answer is that it depends on the circumstances, not on doctrine.
Zathras writes – “So what is the end result of bans on trading in commodities, animal or otherwise? The answer is that it depends on the circumstances, not on doctrine.”
But the circumstances are invariably that in each case, there will be less supply and demand for the good than would otherwise be the case. Thus bans achieve the end of reducing the amount of trade in the commodity in question. They may not reduce it nearly as far as the banners wish, but they reduce it below the free market level.
As for “bans don’t work”, this is only the case because the are not well enforced – largely a result of inefficient state law and order systems, and controls on bounty-hunting. There is a demand for murder, yet it is uncommon in the west, because large amounts of resources are devoted to enforcing the ban. Saying that the ban “raises the price” of murder, therefore we should legalise it, is missing the point – there is a lot less with it being illegal, than if it were legal.
Mark, let me see if I understand your system. Paraphrasing, we get a bunch of people to invest in the snow leopard, or whatever. Some invest in seeing it prosper, while some invest in seeing it fail. We then hobble the people on the fail side, preventing them from negatively impacting the leopard population. Meanwhile, we allow people on the success side to go to work protecting the leopard so as to maximize their profits. I’m dubious about such a system. I think I would need to at least read more details to be convinced.
Here are the problems I feel you would need to address to convince me. One, your solution seems complicated, requiring legislation and government intervention for setting up and maintaining the market. Two, it seems like betting on a horse race. It doesn’t really matter how people bet, the horse runs its course. While the buyers do have an incentive to protect the snow leopards, they don’t seem to have any mechanism to do so. If snow leopards are dying it seems easier to switch sides rather than actually doing anything to protect the leopard. Three, it raises the stakes. While creating more people who wish to protect the leopard, it also creates more people who wish to harm the leopard. It also increases incentive for the poacher by giving them two potential channels of profit. Sure, the government can intervene to stop sellers from killing leopards and thus profiting from both their skins and futures, but then we’re back to government anti-poaching enforcement that is already failing to work.
Of course, these may just be issues with your rather brief treatment of the subject above. I’m sure a more extensive exposition of your solution would account for such things.
mark – I am unclear as to how your futures idea relates to actual animals on the ground. It seems to me to be connected only to estimates of numbers of animals in the wild, and doesn’t give me, as a futures owner, any expectation at all of future delivery (unlike commodity futures, which may but do not need to ever settle out with a truckload of corn or pork bellies).
As a rational futures trader, I would not trade based on what I hoped would happen to the species, but rather based on my perception of likely future developments not currently reflected in the futures price. Thus, as a call trader, I have no real incentive to defend the species; rather, I have an incentive to unload the call option at its best price based on my beliefs about the next round of estimates. Even more importantly, I have no means of defending the species just because I hold a call option.
Giving landowners a means of realizing a return on wild animals, by contrast, creates incentives for the property owners to feed the animals, protect against poaching, and the like. The property owners where the animals reside already have the means to do these things; what is mostly lacking is any incentive to do so.
Unfortunately, because wild animals themselves are not any one person’s property, and there is no practical way of making them so (at least if they are free-roaming animals that cannot be deemed to be the property of the landowner), the tragedy of the commons looms unless the state steps in and imposes controls on the conversion of these animals to property – generally via regulations on hunting, limited licensing of hunters, and the like. Thus, the dilemma.
Fair criticisms Scott and RC – I’ll try to make it clearer (I did go into rather more length with the Canadians originally, I trust you believe!).
Easy bit first – there are lots of existing futures and options which do not give delivery of actual stuff.
Since the 70s there have been two ways to cover your arse (insure, hedge) against scary, unpredictable interest-rate movements:
1) get a future in the required direction on an actual loan;
2) get an index future where you subtract the interest rate from 100 and create an entirely artificial, rather odd kind of object.
I’m recommending a version of (2). Say your firm can cope with flexible-rate loans veering between 4 per cent and five per cent per year, but a sudden move to six per cent would really sink the business. You might then sell one of these peculiar index futures (or get an option on it) at “94.9”. The contract has a nominal value – let’s say 100,000 pounds (so 100 pounds per 1/10th of a per cent). You sell fifty contracts at 94.9 (equivalent to an interest rate of 5.1 per cent pa) and suddenly doom strikes, and the government slams the interest rate up to six per cent. You resell your fifty contracts at, let’s say 93.8 (perhaps the market got a bit nervous another increase is coming soon), and pocket a profit of 1.1 x 1000 x 50, so exactly 55,000 pounds.
Which does not make you a winner, since you already calculated said interest-rate increase would cost your business a sudden extra fifty/sixty thousand pounds next fiscal year.
If on the other hand, the threat of higher interest rates had receded, you would have bought back the fifty contracts at a small loss (say 95.0, so losing 0.1 x 1000 x 50, so losing a total of 5,000 pounds for your being covered against the real disaster your firm could not recover from – the sudden imposition of a six per cent lending rate on unfixed loans).
Of course I just made these numbers up. But that’s roughly what happens.
The point is, plenty of commodity contracts already work on the basis that there is no underlying product delivered.
With weather contracts, you could create a 100,000 dollar bond, and in the contract you price each degree Farenheit in a fifty-degree range at two thousand dollars each.
You can make all sorts of things up as long as everyone agrees on the rules – largely because people who stay in with the contract until “delivery date” are usually one per cent or less of the total volume. Buyers and sellers going in for one day or one hour are the vast bulk of all these markets – both those on physical things like pork bellies, and those on more intangible things like percentage points of inflation.
My suggestion for fish stocks or stocks of any wild animal outside the control of national governments (for example in international waters), so unowned, is that an index contract allows some people to legitimately hunt the creature, even if no-one can agree who owns it.
You buy high population numbers, you’re either a conservationist willing to put his money where his mouth is, or you’re a hunter intending to cull some next season, but interested in seeing them still there to cull when next season comes.
As you kill tigers, fish, whatever you will naturally wish to sell your high-population futures/options contracts the day you set out with guns/nets whatever. Everyone can see what the size of the proposed catch is, and the hunter profits twice over from there being a high population to catch, and then catching some.
The point to keep in focus (and I know from my experience explaining these markets to intelligent friends from other walks of life) is that these concepts can seem a bit slippery but are quite well tested.
If there are 20,000 whatsit tigers and you have a sell contract at 19,000 you obviously have good intelligence that you + some other hunters + disease whatever are going to cull 1000 head. If everyone regards this as within the normal range, no problem – the naturalists may think a fluctation between (say) 15,000 and 25,000 head is healthy and normal.
If the population is 20,000 and you try to acquire a sell future or option at 10,000 you’re going to raise some eyebrows straight away.
You’re either planning to slaughter half the stock, or you know someone else is. The naturalists will already have issued predictions of what is happening disease and prey (whatever the tigers eat) wise, and this will constitute ‘news’ – just as housing starts or consumer spending figures moves the T-bond futures, so antelope diseases will move the tiger bond futures.
So within a legitimate trading range written into the futures contract, an index future/option would do all the equivalent of issuing hunting licences and all that redtape stuff without there being a government or a national park or even (as on the high seas) a notional owner.
Outside the normal trading range – say in the extinction zone, whatever that is, you start checking the audit trail on the sell side (or even buy side – a sudden spike in predicted populations might excellently signal some other naughtiness, such as plans to cull some rival predator that eats the same herbivore, which is therefore inversely linked in population terms….).
It’s just another way a group of people can let each other know what they plan to do, and lose less money (or sometimes even make more money) if they are more honest about their intentions.
Does that seem a bit less murky?
It sounds as if the nugget of your idea is in this paragraph:
“So within a legitimate trading range written into the futures contract, an index future/option would do all the equivalent of issuing hunting licences and all that redtape stuff without there being a government or a national park or even (as on the high seas) a notional owner.”
The futures market that you describe will potentially have a very great number of individual contracts with different levels of tiger population, and even a number of different contracts with the same population level. Without a multitude of contracts, the market will lack any depth and I don’t think it would work.
So if I hold a contract at 19,000 tigers, and someone else owns a contract at 10,000 tigers, and there are 5 contracts out at 15,000 tigers, how many tigers may be harvested, who may harvest them, and who enforces the limits on harvesting tigers? Surely it can’t be the case that everyone holding a contract is entitled to harvest the difference between the total tiger population and their contract, because that would result in the issuance of far more hunting licenses than there are tigers.
For that matter, where do the contracts come from? It can’t be the case that I, as a private citizen, just call up the tiger exchange and announce that if someone pays me $X I will send them a contract for X tigers.
In the commodity futures markets, there really are corn and other commodities that will be settled on at least some of the contracts, and everyone involved in the market takes on an obligation to either deliver corn or accept corn. Even in the index futures markets, there are settlement obligations if you are standing there on settlement day with the damn contract in your hand. Now, nearly everyone sells or offsets their contract before the settlement date, but these are still real obligations and a very real and non-trivial number of commodity futures turn into real contracts with real deliveries.
In the tiger market, what happens if I have a put contract on 19,000 tigers on settlement day? Do I have to deliver 1,000 tiger hunting licenses? Where do I get these licenses?
These are real questions, not rhetorical ones. I am always looking for market solutions to wildlife management problems, and I am honestly trying to understand how the rubber meets the road in a wildlife futures market.
One more question (and really, this might be the most fundamental question of the lot):
What is to prevent someone who has never heard of the tiger exchange, or who doesn’t care about the tiger exchange, from just going in, shooting all the tigers, and selling their hides? How will the futures market act to prevent this from happening? The fact that lots of futures traders might lose their shirts will have no impact on the actual tiger hunter, whose profits from actual tiger hides will be unaffected by the futures market itself.
I understand your questions, RC. And I can see you are sympathetic to the suggestion.
But they’re not all separate kinds of contracts.
You design the contract so the number of tigers is the price.
There are already commodity markets not designed around delivering a product at the end. I worked at one in the late 80s.
What happens on delivery day is that you are forced to settle up. If you bought two months ago at 18000 tigers and today’s price (= estimated population) on closing day is 19500 tigers, then you are 1500 tigers in profit, but you must settle up.
This can mean you could (in a normal agricultural market of the type you describe) take delivery of 1500 tigers, somehow.
However, since we agree that tigers (or at least fish) are unowned (degrees farenheit are certainly unowned, and Chicago trades on weather, pricing dollars per degree farenheit), we exclude this option, and simply force you to settle up.
This means squaring off by selling your contract back to the market at the closing price, and you will profit. Short positions will have to square off too. The market can simply set up the rules so that everyone’s book is closed in the last hour and people take their profits or losses accordingly.
When I said it was the equivalent of issuing hunting licences, I didn’t mean to suggest really settling out with hunting licences.
What I’m saying is that simply putting bets on the numbers each population count will find can simulate much of the benefit of the process of issuing licences without having to go through all the drag of actually issuing and enforcing any licences at all.
This might help: when business was slow we used to play (but with real money) at trading on other things in our spare time – for example when one trader who was always late back from lunch would get back after lunch.
We were effectively just making a book, in the horse-race sense, but allowing the bets to be tradeable. We were betting, but within the commodity-market format.
Trader X should officially be back from lunch at 1 sharp. He’s always late, so around 12.45 we open the market. Someone sets an opening buy at (say)1.20pm and sell at (say) 1.25pm. Then we literally bought and sold minutes until X got back from lunch, enforcing a market close. I might gamble on a 1.30 return, so I would buy 10 units of the 1.25s being offered, but other traders thought this was on the high side, and start to sell into the 1.20s, leaving me uncomfortably short at 1.25 as the market drops (meaning the market’s consensus time for X to return gets earlier). But as we get down to 1.10pm (in the pricing, not the real clock) I spot an opportunity to buy back some 1.15s I sold and go long at 1.10.
Suddenly, X gets back at 1.12 and we all have open positions which we settle up, for example at a penny a minute a contract. Money is exchanged on the basis of comparing your open book to 1.12 (so 10 long 1.25s count as -130 pence = -13 pence/minutes x 10 contracts).
It may sound silly, but you see there is no delivery needed. You just force everyone who has not already closed off their positions to settle out with the house on the basis of the final number.
The predicted number of tigers at the next count could go up to 21000 and down to 14000 and settle out at 19000 inside one week or day of trading, and just like any other market, the losers would be the guys selling the contract at 14000 and buying back at 21000.
Like that.
Just quickly again on two of your last points.
If you have a put contract for 19000 tigers, you have a right to sell at that price, but no delivery can be enforced on you (either to sell or buy) even in pork bellies, because options are asymmetrical.
If you are the writer, ie seller, of the put contract, then you are indeed fucked, but this is because it is very dangerous to write options contracts in any markets unless you know what you are doing. But there are generally dozens of buyers buying all their options from a small number of expert writing firms.
Someone who has not heard of the market will not be influenced, but many people on the ground who know about the tigers will know about the market.
If anyone goes (excessively) short they attract suspicion, but if they are living near the tigers and they go long, they will suddenly have a direct incentive to spot any poachers going to kill the whole lot.
And even if the market is unknown to said poacher many of his buyers (or fences) will know about it, and will be presented with an alternative market to the actual skins.
If all you care about is profiting by buying tiger skins cheap and selling them expensively, then why not just pump your poacher idiot for info and trade in the information? And if you have a whole batch of illegal tiger skins and the population prediction of the market starts rising you are suddenly less inclined to buy new skins.
The more people get sucked into the market, the harder it is for others to do anything unobserved or unpredicted. People with long positions have money riding on protecting the tigers. Everyone has money on procuring information. The wildlife network will suddenly become a financial newsletter which can pay more for reliable information than anyone is paying for individual skins.
To sum up, the buyers will pay to protect the tigers, and the sellers will be likely poachers and traders of poached goods tempted by cash into revealing themselves and therefore largely neutralising their influence on the real tiger count (but performing a real service, since the existence of sell=kill pressure on the numbers makes us all price how much these tigers count to us and what we will spend to protect them, so making animal-protection a decision with a real price).
This was the essence of the ARPA terrorist market suggestion.
If we just say “all wildlife must be protected!” then we are writing a blank cheque and committing to a decision where we have no clear idea what we will be willing to sacrifice in other resources to make that decision stick.
For the record, I’d prefer to try this on Atlantic fish stocks first! It’s an interesting market, it’s clearly extraterritorial (so must skirt ownership), and (with all due respect to tigers) we should perhaps care a bit more urgently if herring, cod, whitebait are literally going to disappear.
Not actually on topic but –
where is everybody here these days?
Samizdata on summer holiday? 😉