The Cost of Endangered Species Protection: Evidence from Auctions for Natural Resources

Abstract

This paper examines the effect that endangered species regulation has on natural re- source development. Specifically, we use data from competitive auctions to estimate the effect that land-use regulation protecting endangered caribou in the Canadian province of Alberta has on the price producers pay for the right to extract oil. We exploit a re- gression discontinuity design to evaluate how prices differ along regulation boundaries that constrain resource development. The auction format and the regulation discon- tinuity allow use to measure the total cost of the regulation. We find that producers pay 24% less on average for oil leases that are regulated and that the total net present value cost of the regulation exceeds $1.15 billion for leases sold between 2003-2012, all of which is borne by the government. In spite of these costs, the populations of endangered caribou remain in widespread decline.