Critical habitat for threatened and endangered species: how should the economic costs be evaluated?

The designation of critical habitat is a feature of endangered species protection laws in many countries. Under the U.S. Endangered Species Act, economics cannot enter into decisions to list species as threatened or endangered, but can be considered when critical habitat is designated. Areas can be excluded from proposed critical habitat if the economic cost of including them is determined to exceed the benefits of inclusion, and exclusion would not result in extinction of the species. The economic analysis done to support critical habitat exclusions has been controversial, and the focus of much litigation. We evaluate a sample of these analyses, and discuss the exclusions that were made in each case. We discuss how the methodology used to measure economic costs of critical habitat has changed over time and provide a critique of these alternative methods. We find that the approach currently in use is sound from an economic perspective. Nevertheless, quantification of the costs of critical habitat faces numerous challenges, including great uncertainty about future events, questions about the appropriate scale for the analysis, and the need to account for complex market feedbacks and values of non-market goods. For the studies we reviewed, there was no evidence that the results of the economic analyses provided information that was useful for making decisions about exemptions from critical habitat designations. If economics is to play a meaningful role in determining endangered species protections, an alternative would be to allow listing decisions to be based on economic as well as biological factors, as is typical for species conservation laws in other countries.