Decisions Have An Opportunity Cost That Require Tradeoffs

A Conservation Dilemma

Sep 21, 2011 • Businesses, Economic Debates, Environment, Regulation, Thinking Economically • 158 Views    No Comments

Should the Dunes Sagebrush Lizard (aka the Sand Dune Lizard), a 3-inch striped reptile, be listed under the Endangered Species Act?

Here is the problem. The home of the Sand Dune Lizard is also the home of the Permian Basin which, according to Forbes, provides close to one-fifth of U.S. oil production. To survive, the lizard needs the shinnery oak. Pipelines, road building, and drilling destroy the shinnery oak. So, if this lizard is added to the endangered species list, then oil drilling will be affected, the US oil supply would be impacted, and the price of domestic oil could rise.

How to make a decision? For cost/benefit analysis, knowing the money that is involved would help. We probably could estimate how much the oil loss would cost us. But what about a lizard?

After the oil spill, BP faced a similar question. To assess its dollar damages, a value had to be placed on wildlife. USA Today told us that 2263 “visibly oiled dead birds” were counted. An NPR Planet Money podcast suggested that the $500 price tag for rehabilitating a pelican after the spill could indicate the price of a bird or maybe regulators could use the rate sheet for animal actors. Flying birds command $4500 a day (non-flying $1500).

The Economic Lesson

The lesson here is not to take prices for granted. Market prices provide crucial information. They tell us about value and efficiency and affordability. They let consumers and businesses and government decide what to do, what not to do, and what we can do better. Yes, “Absence makes the heart grow fonder.” Maybe we care more about prices when we cannot have them.

Here is a past econlife post about pricing the “unpriceable.”

An Economic Question: The oil or the lizard? How would you decide?

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