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Elephants
Author(s): Michael Kremer and Charles Morcom
Source: The American Economic Review, Vol. 90, No. 1 (Mar., 2000), pp. 212-234
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/117288
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Elephants
Most models of open-access resources as- large amounts of ivory (Jane Perlez, 1990). As
sume that the good is nonstorable (H. Scott the elephant population decreased, the constant-
Gordon, 1954; M. B. Schaefer, 1957; Colin dollar price of uncarved elephant tusks rose
Whitcomb Clark, 1976). While this may be a from $7 a pound in 1969 to $52 per pound in
1978, and $66 a pound in 1989 (Randy T.
reasonable assumption for fish, it is inappropri-
ate for many other species threatened by over- Simmons and Urs. P. Kreuter, 1989). These
harvesting, as illustrated in Table 1. Although higher prices presumably increased incentives
30 percent of threatened mammals are hunted for poaching.
for presumably nonstorable meat, 20 percent are Since the late 1980's, governments have
hunted for fur or hides, which are presumably toughened enforcement efforts, with a ban on
storable, and approximately 10 percent are the ivory trade, shooting of poachers on sight,
threatened by the live trade (Brian Goombridge,strengthened measures against corruption of
1992).1 game wardens, and the highly publicized de-
African elephants are a prime example of an struction of confiscated ivory.2 This crackdown
open-access resource which is used to produce a on poaching has been accompanied by de-
storable good. From 1981 to 1989, Africa's creases in the price of elephant tusks (Raymond
elephant population fell from approximately 1.2 Bonner, 1993), as well as a revival of the pop-
million to just over 600,000 (Edward B. Barbier ulation. Since these policy changes reduce
et al., 1990). Dealers in Hong Kong stockpiled short-run ivory supply as well as demand, it is
not clear that the fall in price would have been
predicted under a static model, and indeed most
* Kremer: Department of Economics, 207 Littauer Cen- economists did not predict this decline. How-
ter, Harvard University, 1875 Cambridge Street, Cam-
ever, the fall in price is consistent with the
bridge, MA 02138, Brookings Institution, and National
dynamic model set forth in this paper, under
Bureau of Economic Research (e-mail: mkremer@fas.
harvard.edu); Morcom: (e-mail: cmorcom@alum.mit. which improved antipoaching enforcement may
edu). We thank John Geanakoplos, Andrew Metrick, Marty increase long-run ivory supply by allowing the
Weitzman, and participants at seminars at the JFK School of elephant population to recover.
Government at Harvard University, the Hoover Institution,
Under the model, anticipated future scarcity
Princeton University, and Yale University for comments,
and Edward Drozd, Ted Miguel, and Andrei Sarychev for of open-access storable resources leads to
excellent research assistance. This research was supported higher current prices, and therefore to more
by the Center for Energy and Environmental Policy Re-
search at the Massachusetts Institute of Technology. The
views expressed in this paper should not be taken for those
of these organizations. 2 In September 1988, Kenya's president ordered that
1 I'he others are threatened by factors aside from over-
poachers be shot on sight, and in April 1989 Richard Leakey
harvesting, such as loss of habitat. took over Kenya's wildlife department.
2-12
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VOL. 90 NO. 1 KREMER AND MORCOM: ELEPHANTS 213
Sources: Sean Kelly (1991, 1992); David Sanger (1991); John Balzar (1992); William Booth (1992); Goombridge (1992);
New York Times (1992); Sharon Begley (1993); Robert Johnson (1993); Bill Keller (1993); Ian Mander (1993); Robert M.
Press (1993); Lena Sun (1993); Paul Taylor (1993); John Ward Anderson (1994); Timothy Egan (1994); Laura Galloway
(1994); Life Magazine (1994); Gautam Naik (1994); Bill Richards (1994); William K. Stevens (1994).
intensive current exploitation. For example, el- ample, for which we thank Martin L. Weitzman.
ephant poaching can lead to expected future Suppose that each year there is a breeding sea-
shortages of ivory, and thus raise future ivory son during which population grows by an
prices. Since ivory is a storable good, current amount B(x) given an initial population of x.
ivory prices therefore rise, and this increases Following the breeding season, an amount h is
incentives for poaching today. Because poach- harvested. Denote the elephant population at the
ing creates its own incentives, there may be beginning of the harvest season in year one as x.
multiple rational expectations paths of ivory Then the population at the end of the harvest in
prices and the elephant population. year one will be x - hI, and the population at
In order to gain intuition for why there may the end of the harvest in year two will be x -
be multiple rational expectations equilibria, it is h1 + B(x - hl) - h2. To keep the model as
useful to consider the following two-period ex- simple as possible, we assume that the world
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214 THE AMERICAN ECONOMIC REVIEW MARCH 2000
TABLE 2-TIME LINE FOR TWO-PERIOD EXAMPLE struction of bison populations in the nineteenth
century. There had been a gradual acceleration
Time Population
in bison killings before 1870, but in the next
Initial (year 1) X0 four years, over four million bison were killed
After harvest, hl, in for their hides on the southern Great Plains
year I xo - h
alone, and by 1883, the bison were nearly ex-
After breeding in year
2 xo- h, + B(xo- hl)
tinct. This followed an improvement in the
After harvest, h2, in tanning process for buffalo hides, which pre-
year 2 (end of sumably increased their storability.
world) xo- h + B(xo - hi) -h2 In the example above, we assume that the
good was destroyed when it was consumed. For
example, rhino horn is consumed in traditional
Asian medicines. Multiple equilibria can also
ends after two years. Table 2 shows the time arise for durable goods, which are not used up
line. when they are consumed, as long as either the
Let c denote the cost of harvesting an animal, good depreciates, or demand for the good grows
and denote the amount of the good demanded at over time. Both conditions are often fulfilled:
a price of p as D(p). Assume D' < 0 and ivory yellows with age, and pieces break or are
D(oo) = 0. The interest rate, which is assumed lost, and rapid population and income growth in
to be the only cost of storage, is denoted r. East Asia are increasing demand for goods
There will be an equilibrium in which the made from endangered species. In a previous,
animal is hunted to extinction in year 1 if the unpublished version of the paper, we derive
initial population is less than enough to satisfy conditions for multiple equilibria in a two-
demand during the first year at a price of c, plus period model with durable goods.
demand during the second year at a price of In any case, in practice, few goods are com-
(1 + r)c. Algebraically, this extinction condi pletely durable. For example, ivory is often
tion can be written as: x < D(c) + D((1 + considered an example of a durable good, but
r)c). new and old ivory are not perfect substitutes,
There will be an equilibrium in which the since ivory yellows with age, and there is con-
species survives if the initial population, minus stant demand for uncarved ivory for personal-
the amount required to satisfy first-year demand ized seals. To the extent that there is demand for
at price c, plus the births in the breeding season, new ivory, there may be multiple equilibria in
can more than satisfy second-period demand at the absence of demand growth or depreciation.
price c. This will be the case if x - D(c) + In the remainder of the paper we use a con-
B(x - D(c)) > D(c). tinuous time, infinite-horizon model, which al-
If both conditions hold, then there will be lows us to solve for steady-state population and
both a survival equilibrium and an equilibrium prices; to examine cases in which extinction is
in which the price is high enough that the pop- not immediate following a shift in expectations,
ulation is eliminated in the first period, and the or the path of population and prices is stochas-
breeding that would have satisfied second- tic; and to examine policy. We will focus on the
period demand never takes place. There will be case of goods which are storable, but not dura-
multiple equilibria if the initial population is in ble, such as rhino horn, but, except for the
the range [2D(c) - B(x - D(c)), D((1 + analysis of stockpiles in Section VI, the intu-
r)c) + B(c)]. ition should carry over to the case of durable
Note that as storage costs, r, rise, there will goods as well.
be an extinction equilibrium for a diminishing We focus on the case of a purely open-access
range of initial population levels. For suffi- resource. However, we also discuss the case in
ciently high storage costs, there will only be a which it becomes profitable to protect the re-
single equilibrium path of population for any source as private property at a sufficiently high
initial stock, just as in standard models of non- price. It is expensive to protect elephants as
storable fish. private property, since they naturally range over
The model may help explain the sudden de- huge territories and ordinary fences cannot con-
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VOL. 90 NO. I KREMER AND MORCOM: ELEPHANTS 215
tain them (Bonner, 1993). However, in a few libria in models of open-access resources with
parts of Africa, with proximity to tourist facil- small numbers of players (Kelvin Lancaster,
ities, it has become profitable to protect ele- 1973; David Levhari and Leonard J. Mirman,
phants as private property. If a species can be 1980; Jennifer F. Reinganum and Nancy L.
protected as private property above a certain Stokey, 1985; Alain Haurie and Matti Pohjohla,
price, then there may be one equilibrium in 1987; Jess Benhabib and Roy Radner, 1992). In
which the species survives as a plentiful open- these models, each player prefers to grab re-
access resource at a low price, and another sources immediately if others are going to do
equilibrium in which it survives only as a scarce so, but to leave resources in place, where they
private resource at a high price. will grow more quickly if others will not con-
The model carries several policy implica- sume them immediately. Aaron Tornell and An-
tions. Under the Gordon-Schaefer model, if the dres Velasco (I1992) introduce the possibility of
population is steady, or rising, the species will storage into this type of model. Gerard Gaudet
survive. In contrast, this model suggests that a et a]. (1998) examine the case of nonrenewable
species with stable or rising population could resources such as a comnmon pool of oil. This
still be vulnerable to a switch to an extinction paper is also related to those, of Vernon L. Smith
equilibrium. (1968), who sets forth a dynamic fisheries
The model suggests that expectations of fu- model, and of Peter Berck and Jeffrey M. Per-
ture conservation policy influence current loff (1984), who explore rational expectations
poaching equilibria. Announcements that the in an open-access fishery.
government will permanently toughen anti- The effects examined in the previous papers
poaching enforcement in the sufficiently distant are unlikely to lead to mnultiple equilibria if
future may lead to a rush to poach now, and there are many potential poachers, each of
even the extinction of the species. Governments whom assumes that his or her actions have only
may be able to eliminate the extinction equilib- an infinitesimal effect on future resource stocks,
rium, and thus coordinate on the high popula- and on the actions chosen by other players. In
tion equilibrium, merely by credibly promising contrast, this paper argues there may nonethe-
to implement tough antipoaching measures if less be multiple equilibria for open-access re-
the population falls below a threshold. This newable resources used in the production of
provides a potential justification for laws which storable goods, because if others poach, the
mandate protection of endangered species with animal will become scarce, and this will in-
little or no regard to cost.3 If the commitment iscrease the price of the good, making poaching
credible, the government will never actually more attractive.
have to spend the resources to increase anti- Because poaching transforms an open-access
poaching enforcement. renewable resource into a private exhaustible
Some governments, however, may not be resource, this paper can be seen as helping unify
able to credibly commit to protect endangered the Gordon-Schaefer analysis of open-access
species. In the case of animals used to produce renewable resources with the Harold Hotelling
nondurable but storable goods, it may be possi- (1931) analysis of optimal extraction of private
ble to eliminate extinction equilibria by build- nonrenewable resources.
ing sufficient stockpiles of the storable good, The remainder of the paper is organized as
and threatening to sell the stockpile if the ani- follows. Section I lays out an analogue of the
mal becomes endangered or the price rises be- Gordon-Schaefer fisheries model which allows
yond a threshold. This is somewhat analogous for storage. Section II uses zero-profit condi-
to central banks using foreign-exchange re- tions in poaching and storage to derive local
serves to defend an exchange rate. equilibrium condition,s on the possible rational
Several previous papers find multiple equi- expectations equilibrium paths. Section III uses
the local equilibrium conclitions to derive dif-
ferential equations that apply during those por-
3 Note, however, that this would not provide a justifica-
tion for why these laws would apply to species used to
tions of equilibrium paths in which poaching
produce nonstorable goods, or species threatened by causes takes place at a finite, but positive, rate. It then
other than overharvesting, such as habitat destruction. represents these subpaths using phase diagrams
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216 THE AMERICAN ECONOMIC REVIEW MARCIH 2000
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VOL 90 NO. 1 KREMER AND MORCOM: ELEPHANTS 217
1JNSTABLE STABLE
x Xn x- B(x) - D(c(x))a F(x) x=X, We will look for rational expectations equi-
libria, or paths of population, stores, and
o STABLE X
price. (We focus on perfect foresight equilib-
ria, but briefly consider stochastic rational
Vi 0 'population x
U expectations equilibria in Section V.) We
show that although the possibility of storage
does not affect the steady states of the sys-
tem,7 it dramatically alters the equilibrium
transition paths to those steady states, some-
times creating multiple equilibria leading to
different steady states.
FIGURE 1. DYNAMICS OF THE GORDON-SCHAEFER MODEL Any rational expectations equilibrium path
WiTH No STORAGE
must satisfy the following local equilibria and
feasibility conditions set forth below.
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218 THE AMERICAN ECONOMIC REVIEW MARCH 2000
more quickly, people would hold on to their be anticipated to jump down. As we discuss
stores, or poach more. below, there may be an initial jump down to get
to the equilibrium path. The underlying biology
does not allow population to jump up.
B. The Poaching Condition Since the storage and poaching conditions
can each either be satisfied with equality, or
Free entry into poaching implies that the price with inequality, there are four possible ways
of the good must be less than or equal to the that the equilibrium conditions can be satisfied.
marginal cost of poaching another unit of the We call each of these a subpath. The four sub-
good. The "poaching condition" is therefore: paths are: Poaching Without Storage, Poaching
and Storage, Storage Without Poaching, and
J c(x), if there is poaching Neither Storage nor Poaching.
p' < c(x), if thereisnopoaching
D. The Poaching Without Storage Subpath
where x is the open-access population. We will In this subpath, the zero-profit condition for
call the storage and poaching conditions slack if poaching implies that p = c(x). The storage
stores and poaching respectively equal zero. condition restricts the rate at which the price can
In addition to the local equilibrium condi- rise and not induce storage (p5 ' rp). Because
tions above, there are some feasibility condi- the price is inversely related to the population, it
tions, as described below. is possible to translate this condition that prices
may not rise too fast into a condition that the
population may not fall too fast: taking loga-
C. "Conservation of Animals" rithms of p = c(x) and differentiating with
respect to time implies that if p < rp, then
At all times, the increase in stores plus the
increase in population must equal net births dx c (x)
minus the amount consumed, or (4) dt?rC(X)
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VOL. 90 NO. I KREMER AND MORCOM: ELEPHANTS 219
ics of stores are determined by "conservation of stant, stores must be zero because, if stores are
animals," s = B(x) - D(p) - x, and we can positive, price must be rising exponentially. If
express all the local equilibrium dynamics in stores are zero, then the system will have the same
terms of the population, x: steady states as in the case in which storage is
impossible, i.e., x = 0 and Xs. This implies that
c(x) there are only two stable steady states: what we
(6) = r (x) will call the "high steady state," in which the
open-access population is Xs, stores are zero, and
= B(x) -D(c(x)) - price is c(Xs); and extinction as an open-access
resource (which for convenience, we will refer to
As discussed in Section IV, we will also need III. Dynamics Within Subpaths with Poaching
to determine starting values for x, s, and p, but
for now we will focus on laws of motion, rather In order to solve for the equilibrium paths, we
than boundary conditions. will first look at equilibrium subpaths, and then
examine the circumstances under which an
F. The Storage Without Poaching Subpath equilibrium path can move from one subpath to
another subpath. We will begin by looking at
In this subpath, the rate of change of popu- the two subpaths in which there is poaching:
lation is just the net birth rate, since there is no Poaching Without Storage and Poaching and
poaching. All demand is being satisfied from Storage.
stores, so stores must be falling at a rate equal to
instantaneous demand. For stores to be positive, A. The Poaching Without Storage Subpath
price must be rising exponentially at rate r. The and the Poaching and Storage Subpath
dynamics can thus be summarized by:
For the system to be in the Poaching Without
(7) = B(x) Storage Subpath, people must not want to hold
positive stores, so the price must not be rising
s -D(p) faster than rp. Since the price is determined by
the population, p = c(x), the storage condition
p= rp. implies that the population cannot fall too fast.
Specifically, from equations (4) and (5),
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220 THE AMERICAN ECONOMIC REVIEW MARCH 2000
X'1, , x1 if SI S_
Storage condition slack when i=F(x);s> reT , x c [X, X5]
p\ opulaion - . X_
CL~~~~~~~~~~~~~~~~~x
X,,, finite if s < s,
8 X, ', /\ X'
c(x)
/ r+_(~~~~~~~~C(X)\
.Y, Xn _ Popuilationl
ds
exactly Xu, the unstable steady state, the system
(9) dx
will stay there. Here, as elsewhere, for the sake
of clarity, we shall not discuss measure zero
cases like this in any detail. c' W- { (x) ((x) )-r- , ( c ) -
rc (x) { X
If the system starts with no stores and with
population in (X*, Xu), then the Poaching dxcldt is still just rc(x)lc'(x), which is strictly
Without Storage dynamics will eventually take negative, and bounded above.
population to a point less than X*. At some Equation (9) implies that rational expecta-
point, therefore, the system must leave the tions trajectories in population-stores space
Poaching Without Storage Subpath and enter must have stores increasing as a function of
the Poaching and Storage Subpath. We discusspopulation, x, if x < Xu, or x > X*. Stores
this after we have found the equilibrium Poach-
must be a decreasing function of population if
ing and Storage Subpath. x E (X*, Xx). There is a maximum of stores
at Xu, and a minimum at XV. Thus there will
B. The Poaching and Storage Subpath be a Poaching and Storage Subpath of the type
depicted in Figure 3, in which for populations
In the Poaching and Storage Subpath, the greater than X*, population and stores de-
dynamics of population are determined by the cline; for population Ez (X , Xs) population
price, which is rising exponentially. The dy- rises and stores decline; and for population
namics of stores are determined by "conserva- less than X* , population and stores decline.
tion of animals": what is harvested and not To see the intuition for this, note that if pop--
consumed must be stored. We may rewrite ulation is very high or very low, population
equation (6) as an equation for the phase trajec- would tend to fall rapidly without stores, and
tory of stores, s, in terms of x: as may be seen from Figure 2, in the absence
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VOL. 90 NO. 1 KREMER AND MORCOM: FLEPHANTS 221
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222 THE AMERICAN ECONOMIC REVIEW MARCH 2000
1. High Steady-State Storage Equilibrium Without Storage Subpath to the Poaching and
-In this equilibrium, population starts at x > Storage Subpath. If the initial population is small
X*. The system evolves until stores run out enough, an equilibrium path can move to the
when population is X*, and then enters the Poaching and Storage Subpath and thence to ex-
Poaching Without Storage Subpath. The equa- tinction. If Xu > 0 and the system starts in the
tions p = c(x), and dpldt = rp determine the Poaching Without Storage Subpath with popula-
path of population and price. Stores are given tion less than Xu, then the system must eventually
by s =s(x), where: move to the Poaching and Storage Subpath be-
cause if it did not, the population would fall fast
enough to violate the storage condition once pop-
(11) s?(x) c {B(q) - D( (q)) ulation was less than Xu. If the system starts with
zero stores and population greater than Xu but less
than Xmax, then it can go to the high steady state
c(q) A via the Poaching Without Storage Subpath, or to
- r > r7}dq extinction with stores. By continuity of stores, the
c'(q) J
system can only make the transition from the
Poaching Without Storage to the Poaching and
2. Extinction Storage Equilibrium.-In this Storage Subpath where Se(X) = 0, i.e., at Xmax?9 If
equilibrium, population becomes extinct, and at Xinax E [XMU, Xs], then the system can move to the
that moment, stores - U(cm). The equations Poaching and Storage Subpath Se leading to ex-
p = c(x) and dpldt = rp determine the path of tinction. At such a transition, the rates of change
population and price. Stores are given by s = of population, stores, and price will jump, but the
Se(X), where: storage and poaching conditions are not violated,
because the levels will not jump.
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VOL. 90 NO. I KREMER AND MORCOM: ELEPHANTS 223
A. Culling
XS Xp
SA J ipopolation A' X_,,,, X,
If the system starts below an Ae or A+ path,
there may be an instantaneous harvest, which
we will call a "cull."10 Although anticipated
X.\ <,
jumps up in price are inconsistent with rational
expectations, such jumps are possible at the
A,
A.
"beginning of time," as in this case. We will
distinguish between "initial" values of popula-
tion and stores and "starting" values, which are
population
the values just after the initial cull. When we
need to indicate this, we will write (xo, so) for
FIGURE 4. STORAGE AND NO-STORAGE REGIME initial population and stores, and (x(O), s(O)) to
EQUILIBRIUM SETS A , AND AE denote starting (i.e., at time 0 on the equilibrium
path) values.
In a cull, live animals are killed and turned
into dead animals one to one. This means that,
panel, but for high enough initial populations, in population-stores space, the system moves up
there will be no set of points leading to extinc- a downward-sloping diagonal, and the total
tion. quantity of animals, dead or alive, is conserved.
For the case in which Xs < Xmax? X the We call this quantity Q = x + s. For a cull to
situation is similar to the top panel (X =ax c), be rational, it must take the system to a point on
but the A e and A+ paths are coincident above one of the subpaths we identified above, A e or
Xmax. Much as in the Xu c Xmax - XX case, theA+.
point (Xmax, 0) is a branch point, where the It is possible to cull to reach the Ae subpath
system can continue on Ae or A +. from points below Se(x).11 There mnay also be
The bottom panel of Figure 4 illustrates the
case when Xmax < xu. As before, the survival
set, A+, is unchanged. The set leading to ex- ") Realistically, of course, poaching could not kill ani-
tinction consists of the Poaching and Storage mals at an infinite rate. If the marginal cost of poaching rose
sufficiently with the instantaneous rate of poaching, the
Subpaths beginning with population Xmax and
harvest would take place over time, rather than instanta-
zero stores, and the Poaching Without Storage neously. Structurally, though, there is little real difference in
Subpaths leading up to it. the two approaches: the rational expectations equilibria are
The system must end up on one of these determined by the boundary conditions (where people an-
ticipate the system must end up), and these are essentially
subpaths, A+ or A e. The next section explains
the same in both cases.
how the system will reach these paths from an
"' Technically, if Q < U(Cm), then the system can move
initial point with arbitrary values of population immediately to extinction via a cull; it does not go to
and stores (xo, so). extinction via the Ae subpath.
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224 THE AMERICAN ECONOMIC REVIEW MARCH 2000
tangenicy at (X,.,
poaching
(x,-))
must be downward sloping and pop-
along liie x + .v
ulation must be increasing so long as population
is less than one, the carrying capacity.
When poaching resumes at a point on one of
the Ai paths, price, population, and stores are all
determined. Given the end point, there is a
unique, downward-sloping no-poaching trajec-
tory leading to it. 2 In order for storing without
poaching to be rational, and for an initial point
to end up on one of the Ai, the initial point must
lie on one of these trajectories (Figure 6). To get
A, to the path leading to the high steady state, the
initial point must lie to the right of the boundary
of the set of points on trajectories leading to
popLIlation x
A+, which we denote L +, and above the curve
s = s (x). To get to the path leading to ex-
FIGURE 5. DEFINITION OF QMAX
tinction, the initial point must lie to the left of
the boundary of the set of points on trajectories
other points from which this is feasible. In par- leading to points on Ae, which we denote Le
ticular, if the curve s = se(x) has a tangent of We include a more formal treatment of this in
gradient -1, then, as illustrated in Figure 5, it is the Appendix, Proposition A3.
possible to reach the subpath from points above
the curve, but below the tangent, by culling. A C. Summary of Perfect Foresight Equilibria
quick look at equation (9) shows that the points
at which Se(X) has gradient -1 are Xu and Xs, We have now found all the possible perfect
but only the tangent at Xu can lie above the foresight equilibria of the model. As illustrated
curve, if Xmax > XU. The value of Q at thisin Figure 7, population-stores space may be
tangency, Qmax, is the maximum value Q may divided into at most three regions depending on
have (while xo > X") so that the Ae subpath whether there exist equilibria leading to extinc-
may be reached via culling. If Xmax < Xu1 then tion, the high steady state, or both. The middle
this tangency does not exist, and the Ae subpath panel in Figure 7, corresponding to the case
can be reached by culling only from points Xu < Qmax < o, illustrates a situation in which
all three regions exist. In the first, unshaded,
below Se. Note that if Qmax > XS, then even
starting from the high steady state with no region, initial population and stores are high
stores, the population will be vulnerable to co- enough that there is no equilibrium path leading
ordination on the extinction equilibrium. To get to extinction. In this region, speculators who
to the high steady-state equilibrium path by killed animals and stored their parts until the
culling, the point corresponding to initial pop- species became extinct would have to hold the
ulation and stores must lie below the curve s parts long enough that they would lose money.
s+(x), and xo > Xs. In the second, darkly shaded, region, population
be equilibria in which the starting price is below parts of the Ai trajectory. This is because the no-poaching
trajectories leading to different endpoints on the Ai trajec-
c(x), and there is no poaching for a time while tory may cross. At the points where the trajectories cross,
demand is satisfied out of stores. Eventually there will be multiple equilibria. For more technical details,
poaching must resume, at a point on Ae or A - we refer to Kremer and Morcom, 1996.
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VOL. 90 NO. 1 KREMER AND MORCOM: ELEPHANTS 225
? population X, X, x
V. Nondeterministic Equilibria
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226 THE AMERICAN ECONOMIC REVIEW MARCH 2000
/
S
L+
0 X. population X'-
s v?
O~~~~~~~ X
Q max U ~ <Qmx 0
0 Qma Xpopulation
u~~~X
FU 7 N population
QOF E X.
x
equilibria, people must assign zero weight to the While we have not fully categorized the ex-
possibility that there might be a switch from a tremely broad class of equilibria with stochastic
Poaching and Storage Subpath to a Storage rational expectations paths, we have been able
Without Poaching Subpath. to describe a subclass of such equilibria, which
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VOL. 90 NO. 1 KREMER AND MORCOM: ELEPHANTS 227
we conjecture illustrates some more general as- ernments do not value the welfare of consumers
pects of behavior. or poachers, but instead seek to avoid extinction
We consider equilibria in which agents be- at minimum cost in expenditures on game war-
lieve there is a constant hazard that a sunspot dens, helicopters, and other antipoaching ef-
will appear and that, when this happens, the forts. Section VI, subsection B, argues that
economy will switch to the extinction storage credible governments may be able to most
equilibrium, with no possibility of any further cheaply eliminate extinction equilibria by com-
switches. mitting to impose strong antipoaching policies
Here, we present some results without proof. if the species becomes endangered. Some gov-
Those interested should refer to Section III, and ernments may not be able to credibly commit to
Appendix B of National Bureau of Economic strong antipoaching policies. The cheapest way
Research Working Paper No. 5674 (Kremer and for these governments to eliminate extinction
Morcom, 1996), an earlier version of this paper, equilibria may be to maintain stockpiles, and
in which we discuss equilibria with uncertainty threaten to sell them if the population falls be-
in greater detail. low a threshold.
If the constant hazard of a switch to an ex-
tinction equilibrium is below a certain thresh- A. Expectations of Antipoaching Policy
old, 'nh, an analogue of the high steady-state
equilibrium exists before the sunspot. If the Suppose that the cost of poaching is c(x, E),
switching hazard is above this level, then a high where E is antipoaching expenditure, c(x,
steady-state equilibrium is not sustainable. ??) > Pm' and D[c(x, 0)] > B(x) for all x.
For low values of the switching hazard, there (These assumptions imply that with sufficiently
will be no stores held in steady state before the weak enforcement, the species will be driven to
sunspot, and the steady state looks exactly like extinction, and that with sufficiently strong en-
that without uncertainty: stores are zero, and forcement, nothing will be harvested.) The dy-
population, x Xs. namic analysis in this paper implies that
For moderate values of the switching hazard, expected future adoption of either very tough or
positive stores will be held in the pre-sunspot very weak antipoaching measures may reduce
steady state, as the switching hazard is high long-run supply and therefore increase current
enough that it is worth holding stores to specu- poaching and storage, as demonstrated in the
late on the price jump which occurs when there following propositions.
is a switch to the extinction equilibrium. The
pre-sunspot steady-state population is still Xs.
PROPOSITION 2: Suppose c(X, E)
The quantity of stores held in the pre-sunspot c1 (X) + c2(E). Suppose also that at date 0, the
steady state increases with the switching hazard population is at the high steady state, and both
up to Th. a survival and extinction equilibrium exist. Fi-
nally, suppose that the government announces
VI. Policy Implications and Directions that at some date T, it will eliminate antipoach-
for Future Work ing enforcement. If T is small enough, there will
be an immediate cull.
Previous sections examined the equilibrium
path of population and prices given the cost of PROOF:
poaching, and thus implicitly given the pattern See the Appendix.
of antipoaching enforcement. Section VI, sub-
section A, argues that expectations of future PROPOSITION 3: Suppose that at date 0, an-
government antipoaching enforcement will af- tipoaching expenditure is E, the population is at
fect current poaching. In most models of opti- the high steady state, and both a survival and
mal management of open-access resources, the extinction equilibrium exist. Suppose also that
government maximizes the sum of producer and the government announces that at date T it will
consumer surplus. This assumption may be ap- increase the cost of poaching above Pm, thus
propriate for fish, but it is less appropriate for eliminating poaching. Then (i) if T is small
elephants or rhinos. We will assume that gov- enough, the announcement will lead to an
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228 THE AMERICAN ECONOMIC REVIEW MARCH 2000
instantaneous cull, which will make the species tion never falls below xMIN.13) To see that this
extinct if Xs < U(cm) and (ii) if T is great policy minimizes the steady-state cost of elim-
enough, then the survival equilibrium may be inating the extinction equilibrium note first that
eliminated even if Xs > U(cm). there is no extinction equilibrium under this
policy, since the cost of poaching is above Pm
when x is below the threshold. The population
PROOF: cannot be eliminated instantaneously in a cull
See the Appendix. before the government has an opportunity to
raise the cost of poaching above Pm since
B. Policies to Eliminate the XMIN > U(cm). Note also that no policy with
Extinction Equilibrium lower expenditure is consistent with survival,
since the population cannot survive indefinitely
Just as an expected shift to an antipoaching with antipoaching expenditures of less than
policy which reduces the long-run harvest may EMIN-
lead to an immediate cull, an expected shift In general, optimal long-run policy may not
towards an antipoaching policy which increases minimize steady-state costs because moving to
the long-run harvest may lead to a temporary this policy would entail transition costs. To take
cessation of poaching as the economy switches an extreme example, if the initial population is
to a storage without poaching subpath. In par- small enough, assuring species survival will be
ticular, governments may be able to coordinate so costly that the government will allow extinc-
on survival equilibria by committing to follow tion. However, as the discount rate approaches
certain policies. It is beyond the scope of this zero, the optimal long-run policy will approach
paper to fully specify optimal antipoaching ex- the policy which minimizes steady-state costs
penditure and stockpile purchases and sales as (assuming that these costs are less than the flow
functions of x, or more generally, the history of value the government attaches to eliminating
x. However, it is possible to show that for low extinction equilibria).
enough interest rates, the optimal long-run pol- The model suggests that if a government or
icy involves committing to implement draco- international organization could credibly com-
nian antipoaching policies if the population falls mit to spend a large amount on elephant protec-
below a threshold, or if this commitment would tion if the herd fell below a certain critical size,
not be credible, building up stockpiles and it would never actually have to spend the
threatening to sell them if the population falls money. This provides a potential rationale for
below the threshold. endangered species laws that extend little pro-
As is clear from Figure 1, if one takes the tection to a species until it is endangered, and
available habitat as given, the minimum anti- then provide extensive protection with little re-
poaching expenditure such that there is a steady gard to cost.
state with positive population is EMIN such that Note that the policy which minimizes the
D(c(x, EMIN)) is tangent to B(x). Let XMIN steady-state cost of eliminating the extinction
denote the steady-state poptulation associated equilibrium may leave the population very close
with antipoaching expenditures of EMIN. Con- to extinction. Some additional margin of safety
sider the case in which XMIN > U(Cm)- would likely be optimal in a more realistic
The steady-state cost of eliminating the ex- model in which the population was subject to
tinction equilibrium is minimized by spending stochastic shocks.
EMIN on antipoaching efforts and committing Some governments with open-access re-
that if x falls below some threshold, the gov- sources may not be able to credibly commit to
ernment will temporarily implement tough an- spend heavily on antipoaching enforcement if
tipoaching measures that raise c above Pm until the population falls below a threshold, since this
the population recovers to XMIN. This threshold
can be any level of population less than XMIN.
(In this model, the population is not subject to
13 Note that XMIN would be an unstable steady state if the
stochastic shocks, and hence the exact threshold government maintained constant expenditure of EMIN, in-
is irrelevant, since in equilibrium, the popula- stead of letting expenditure depend on x.
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VOL. 90 NO. ] KREMER AND MORCOM: ELEPHANTS 229
policy will be time inconsistent if the cost of culated taking the c(x) function as exogenous,
imposing tough antipoaching enforcement is XNC is calculated based on c(x, E*(x)) where
sufficiently high. In the case of goods used to E*(x) is the government's optimal antipoach-
produce storable, nondurable goods, we argue ing expenditure, given a population x.
below that the cheapest way for such govern- Suppose that XNC is greater than XMIN, so the
ments to eliminate the extinction equilibrium possibility of a switch to the extinction equilib-
may involve maintaining a stockpile and threat- rium will exist in steady state if x5 = XMIN and
ening to sell it if the population falls below a the government does not hold stockpiles. In
threshold or becomes extinct. Promises to sell order to prevent an extinction equilibrium, the
stockpiles, unlike promises to increase anti- government could either maintain a live popu-
poaching expenditure, are likely to be time con- lation of XNC or maintain a steady-state live
sistent, since there is no reason not to sell stores population of XMIN and a stockpile of XNC -
if a species is becoming extinct anyway. (It is XMIN, which it promises to sell if the population
important to note that while stockpiles can help falls below a threshold. To see why holding
protect animals which are killed for goods XNC - XMIN either as live population or stores
which are storable but not durable, such as rhino will eliminate the extinction equilibrium, note
horn, stockpiles will not help protect species that a cull could only move the system along a
which are used to produce durable goods, i.e., 45-degree line extending "northwest" from the
goods which are not destroyed when they are initial point in population-stores space. If it is
consumed. 14) impossible to reach an extinction path along this
To see why stockpiles may be useful in elim- line, then there will be no extinction equilib-
inating extinction equilibria, note that the rium.
smaller the initial population level, the greater To compare the cost of holding XNC - XMIN
the transition costs of antipoaching enforcement as live population and stores, denote the steady-
needed to make the population survive. For a state cost of antipoaching enforcement and
small enough initial population, the government other conservation activity needed to maintain
will find it optimal to allow extinction. Denote the population at XNC as E(XNC). Note that if
this minimum population as x. There will be a XNCis beyond the carrying capacity, 1, even the
set of population levels at which poachers will complete elimination of poaching will be insuf-
find it profitable to cull immediately to x. or a ficient to maintain the population at XNC. Food
lower level, knowing that the government will will have to be brought in for the animals, and
then allow the species to go extinct.15 The upper as overcrowding increases, disease may become
boundary of this set will be a level at which more and more of a problem. We assume that, at
poachers will be just indifferent between cullingleast for large enough x, the expenditure needed
and not culling, if they believe other poachers to maintain a population of x, denoted E(x),
will cull. Denote this level of population as XNC increases at least linearly in x, i.e., E"(x) > 0.
for the no-commitment level of population. XNC Suppose that there are initially XNC animals.
is analogous to Qmax, but whereas Qmax is cal- The discounted cost of supporting the animal
population at XNC indefinitely is E(XNC)/r. De-
note the cost of culling from a population of
14 The government has no reason to store durable goods,XNC to a population of XMIN as c*(XNC, XMIN).
since private agents will store any durable goods sold on the We assume that c* increases less than linearly
market. As noted in the introduction, however, few goods with XNC, since it is presumably easier to cull
are completely durable. animals when there are more of them. The dis-
15 This discussion assumes that the poachers can conduct
counted cost of sustaining a population of XMIN
an instantaneous cull before the government can react.
However, a similar phenomenon would occur even if the and a stockpile of XNC - XMIN is thus C*(XNC,
government could raise E as soon as the population hit a XMIN) + EMIN/r. The cost advantage of stock-
threshold. If poachers believed that the government would piling is thus (W(XNC) -- EMIN)/r - C*(XNC,
eventually give up protecting the animal, they would keep
forcing the population back to the threshold, and this could
XMIN). This is positive if rc*(XNC, XMIN) <
cause the government to spend so much on antipoaching E(XNC) - EMIN. For small enough r, this will
enforcement that the government would in fact prefer to let be the case. To see this, note that XMIN (and
the species go extinct. hence EMIN) do not depend on r, since XMIN
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230 THE AMERICAN ECONOMIC REVIEW MARCH 2000
depends only on the D(p) and B(x) functions, expected profits in case of a switch to the ex-
each of which depends on current and not future tinction equilibria just offset the storage costs if
variables. As r approaches zero, XNC [and hence no sunspot appears. Government accumulation
E(XNC)] grow without bound, since x is of stores will crowd out private stores, until
bounded below by 0, and XNC - will grow private agents no longer hold any stores. Once
without bound as r falls, because as r ap- the government accumulates sufficient stores,
proaches zero poachers will become willing to the extinction equilibrium will disappear.
hold stockpiles for arbitrarily long periods prior Ted Bergstrom (1990) has suggested that con-
to selling at Pm. Under the assumptions that for fiscated contraband should be sold onto the mar-
large enough x, E"(x) ' 0, and a2c*/aX2C < ket. Many conservationists oppose selling
0, L'Hopital's rule implies that in the limit as r confiscated animal products on the market, fearing
approaches zero, rc*(xNC, XMIN) will grow less that it would legitimize the animal products trade.
quickly than E(XNC) - EMIN and, hence, stock- Using confiscated contraband to build stores helps
piling will be cheaper than maintaining the an- avoid this problem. Stores could potentially be
imal population at XNC indefinitely. held until scientists develop ways of marking or
Note that if it is optimal to hold stockpiles if the identifying "legitimately" sold animal products so
initial population is XNC, then the cheapest policy they can be distinguished from illegitimate prod-
that eliminates the risk of extinction must involve ucts. We have assumed that the only cost of hold-
holding stockpiles in the long run, no matter what ing stores is the interest cost, but if governments
the initial level of population. To see this, note that confiscate contraband, they will increase the cost
the cheapest long-run policy that eliminates the of holding stores, and this will reduce the scope
risk of extinction without stockpiles is to maintain for extinction equilibria.
a population of XNC, but that once population had Our model does not allow for stochastic
reached XNC, it would be cheaper to cull to create shocks to population, nor does it differentiate
a stockpile of XNC - XMIN and to maintain a animals by health, age, or sex, but in more
population of XMIN than to maintain the population realistic models there may be ways of building
at XNC. Hence the cheapest long-run policy that stores that do not reduce the live population one
eliminates the risk of extinction must involve for one. Stores could be built up by harvesting
holding stockpiles. sick animals, or harvesting animals during pe-
While holding sufficient stockpiles will elim- riods when population is temporarily above its
inate the extinction equilibrium, the process of steady state, due for example to a run of good
building the stockpiles changes the survival weather. In future work, we plan to explicitly
equilibrium path. In the perfect foresight model model the potential of stockpiles to smooth sto-
of Sections I-IV,16 merely holding stockpiles chastic shocks to population, for example due to
does not affect the survival steady state, since it weather and disease.
changes neither demand nor supply. It is worth noting that stockpiles could be built
Whereas under the perfect foresight model up not only by the government of the country
the survival steady state is the same with and where the species lives, but also by conservation
without stores, under the stochastic model of organizations or foreign governments. A further
Section V, government stockpiles affect the sur- analysis of this case would have to consider stra-
vival steady state, as well as the equilibrium tegic interaction between the conservation organi-
transition path. In the absence of government zation and the government.
stockpiles, private agents will hold sufficient We have assumed that the government knows
stores in the pre-sunspot steady state that the the parameters of the model, but of course this
is unlikely to be the case in practice. It is worth
noting that inferences about parameters based
16 Perfect foresight is a somewhat strange context to on the Gordon-Schaefer model may lead to a
examine stockpiles, because under perfect foresight, all false optimism if the good is storable. Under the
agents either assign probability one to extinction, in which
Gordon-Schaefer model of nonstorable open-
case it is too late for government stockpiles to prevent
extinction, or they assign probability zero to extinction, in
access resources, stability of the population
which case it is not clear why government stockpiles would could be interpreted as indicating that parame-
be necessary. ters are such that the species will survive. In
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VOL. 90 NO. 1 KREMER AND MORCOM: ELEPHANTS 231
contrast, under the model outlined here, species cause poaching will be greater for any popula-
with constant population may be vulnerable to a tion level, and hence the species will become
switch to an extinction equilibrium. One should extinct faster, so the price will reach Pm more
not become complacent even if the population is quickly. [Both the date-T and date-0 extinction
increasing, since along Storage Without Poach- trajectories will pass through [0, U(cm)], but
ing Subpaths, the population may temporarily otherwise the date-T extinction trajectory will
increase above its steady-state level, even if the lie above the date-0 extinction trajectory in s-x
ultimate steady state is extinction. space.] Since no jumps in price can be antici-
Although we have focused on how govern- pated, if T is small enough, poachers will cull
ments could coordinate on the survival equilib- immediately.
rium, and assumed that poachers are atomistic
and take prices as given, it is worth noting that PROOF OF PROPOSITION 3:
a "George Soros" of poaching who held large (i) Consider first the extreme case in which T
stores and had access to sufficient capital could is infinitesimal. Following a cull of (F < Xs at
try to coordinate on the extinction equilibrium time 0, stores will be (F and the price will be
simply by offering to buy enough of the good at c[ (Xs - (), E]. Along a rational expectations
a high enough price. (In practice such an offer equilibrium path in which some animals sur-
could provoke a government reaction.) vive, stores at time T must be U(c[(Xs - (F),
Stepping further outside the model, we spec- E]) so that the stores will be exactly consumed
ulate that if the population of live animals were during the time it takes the price to rise to Pm.
very small, poachers and storers might not take Thus the equilibrium (F = U(c[(Xs -(), El).
prices as given, and would instead take into If XS < U(c,,), there is no (F satisfying this
account that killing animals could raise prices. equation. To see this, note that c(x) is decreas-
This may help explain why rhinos in Zimbabwe ing in x and U(c) is increasing in c. Therefore,
which had been de-horned by game wardens to for Xs - (F 0, c(Xa - (I) ? cm, and
protect them from poachers were nonetheless U(c(Xs- (F)) ? U(Cm) > Xs (F. Since (F
killed by poachers. The New York Times (1994), cannot be less than Xs there will be a unique
quotes a wildlife official as explaining the equilibrium in which the entire population is
poachers' behavior by saying: "If Zimbabwe is culled at time 0 and the price rises above cm.
to lose its entire rhino population, such news (ii) Now consider the case in which T is greater
would increase the values of stockpiles interna- than the time until popul-ation and stores equal
tionally." 17 It is plausible that traders holding
zero on any path with a cull. In this case, no
even modest stores would order poachers to kill equilibrium with a cull is consistent with survival.
de-horned rhinos, since rhino populations are If there is no immediate cull, then the price must
small, and once poachers have found a rhino be continuous. If the price is continuous, then if
and realized that its horn has been removed, maximum stores along the path satisfying the dif-
killing the rhino only costs a bullet. ferential equation for equilibrium trajectories, (9),
and passing through the point (Xs, 0) are less than
APPENDIX U(cm), there can be no survival equilibrium. To
see this, note that for the animal to survive, the
PROOF OF PROPOSITION 2: price at time T must be less than cm. If the price at
After period T there will be no steady state time T is less than cm, then on a rational expecta-
with positive population and hence the system tions path, stores at timne T must be greater than
must follow an extinction equilibrium path. The U(Cm).
date-T extinction path will have a higher start-
ing price and lower starting population for any PROPOSITION Al: The path of population, x,
initial Q than the date-0 extinction path, be- stores, s, and price, p, is continuous on an
equilibrium path.
PROOF:
17 It is also possible that the poachers killed the rhinos to
obtain the stumps of their horns, or to make rhino poaching Together, the storage and poaching condi-
easier in the future. tions imply that the equilibrium price path must
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232 THE AMERICAN ECONOMIC REVIEW MARCH 2000
aselar
dQmaxldr =se(x)Iarjx=xu
s e (x) X-Qa
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VOL. 90 NO. 1 KREMER AND MORCOM: ELEPHANTS 233
PROPOSITION A3: Consider the system of cause they are possible no-poaching paths, and
differential equations (7) for the no-poaching so stores are decreasing, while population is
phase: increasing.
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234 THE AMERICAN ECONOMIC REVIEW MARCH 2000
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