Markets and Market Failure
Objectives of this Chapter
Psychologists study individual behavior.
Sociologists study group behavior.
While that statement is an over-generalization, markets – where individuals
interact to exchange goods and services – are the distinguishing topic of economic analysis.
Understanding how effective markets are when they work well, and how dangerous they can be
when they fail, is critical for anybody interested in public policy issues.
In this chapter, we will
How markets can be used to protect scarce resources.
That environmental goods are economic goods.
The advantages markets provide.
What happens when markets don’t work well.
PROTECTING WOLVES THROUGH MARKETS
Wolves have long been an object of fear and hatred to many humans.
Stories such as
Little Red Riding Hood and the Three Little Pigs portray the wolf as evil incarnate, and its
destruction as meritorious. Within what is now the United States, it is estimated that about
400,000 wolves roamed freely at the time of European settlement.
European settlers colonizing
North America viewed the wolf, like much of the natural landscape, as a symbol of the wild
America that had to be subdued and conquered in the name of civilization. The opening of the
American West by settlers of European origin, and settlers’ subsequent vigorous hunting of
populations of bison, deer, elk, and moose, led to a decline in wolves’ sources of food.
consequence, wolves began to hunt homesteaders’ sheep, cattle, and other livestock. Whether
caused by wolves or not, ranchers blamed most missing or killed livestock on wolf predation,
and they sought revenge against the predator.
In response to the perceived threat to their livestock, personal safety, and way of life,
ranchers and government agencies initiated aggressive campaigns to eliminate wolf populations.
Bounty programs began in the 18th century and continued until 1965, offering $20-$50 per wolf.
By 1925, it appeared that wolves were virtually extinct in the lower 48 states, and that no viable
wolf population remained anywhere in the greater Yellowstone National Park area.
The Endangered Species Preservation Act
The Endangered Species Preservation Act of 1966, later amended to the Endangered
Species Act of 1973 (ESA)
, brought protection to the gray wolf in 1967.
The ESA requires the
Defenders of Wildlife. “Wolves of North America.”
(last visited September 30, 2004); and U.S. Fish and Wildlife Service. “Gray Wolf.” July 1998.
Steven H. et al. 1997. Planning and Implementing a Reintroduction of Wolves to Yellowstone National
Park and Central Idaho.
Restoration Ecology 5
3 7 U.S.C. 136; 16 U.S.C. 460 et seq. (1973)