Unintended Consequences of Government Policies: The Depletion of America’s Wetlands

Private land-use decisions can be affected dramatically by public investments in highways, waterways, flood control, or other infrastructure.  The large movement of jobs from central cities to suburbs in the postwar United States and the ongoing destruction of Amazon rain forests have occurred with major public investment in supporting infrastructure.  As these examples suggest, private land-use decisions can generate major environmental and social externalities – or, in common language, unintended consequences.

In an analysis that appeared in 1990 in the American Economic Review, Adam Jaffe of Brandeis University and I demonstrated that the depletion of forested wetlands in the Mississippi Valley – an important environmental problem and a North American precursor to the loss of South American rain forests – was exacerbated by Federal water-project investments, despite explicit Federal policy to protect wetlands.

Wetland Losses

Forested wetlands are among the world’s most productive ecosystems, providing improved water quality, erosion control, floodwater storage, timber, wildlife habitat, and recreational opportunities.  Their depletion globally is a serious problem; and preservation and protection of wetlands have been major Federal environmental policy goals for forty years.

From the 1950s through the mid-1970s, over one-half million acres of U.S. wetlands were lost each year.  This rate slowed greatly in subsequent years, averaging approximately 60 thousand acres lost per year in the lower 48 states from 1986 through 1997.  And by 2006, the Bush administration’s Secretary of the Interior, Gale Norton, was able to announce a net gain in wetland acreage in the United Sates, due to restoration and creation activities surpassing wetland losses.

What Caused the Observed Losses?

What were the causes of the huge annual losses of wetlands in the earlier years?  That question and our analysis are as germane today as in 1990, because of lessons that have emerged about the unintended consequences of public investments.

The largest remaining wetland habitat in the continental United States is the bottomland hardwood forest of the Lower Mississippi Alluvial Plain.  Originally covering 26 million acres in seven states, this resource was reduced to about 12 million acres by 1937.  By 1990, another 7 million acres had been cleared, primarily for conversion to cropland.

The owner of a wetland parcel faces an economic decision involving revenues from the parcel in its natural state (primarily from timber), costs of conversion (the cost of clearing the land minus the resulting forestry windfall), and expected revenues from agriculture.  Agricultural revenues depend on prices, yields, and, significantly, the drainage and flooding frequency of the land.  Needless to say, landowners typically do not consider the positive environmental externalities generated by wetlands; thus conversion may occur more often than is socially optimal.

Such externalities are the motivation for Federal policy aimed at protecting wetlands, as embodied in the Clean Water Act.  Nevertheless, the Federal government engaged in major public investment activities, in the form of U.S. Army Corps of Engineers and U.S. Soil Conservation Service flood-control and drainage projects, which appeared to make agriculture more attractive and thereby encourage wetland depletion.  The significance of this effect had long been disputed by the agencies which construct and maintain these projects; they attributed the extensive conversion exclusively to rising agricultural prices.

In an econometric (statistical) analysis of data from Arkansas, Mississippi, and Louisiana, from 1935 to 1984, Jaffe and I sought to sort out the effects of Federal projects and other economic forces.  We discovered that these public investments were a very substantial factor causing conversion of wetlands to agriculture, with between 30 and 50 percent of the total wetland depletion over those five decades due to the Federal projects.

More broadly, four conclusions emerged from our analysis.  First, landowners had responded to economic incentives in their land-use decisions.  Second, construction of Federal flood-control and drainage projects caused a higher rate of conversion of forested wetlands to croplands than would have occurred in the absence of projects, leading to the depletion of an additional 1.25 million acres of wetlands.  Third, Federal projects had this impact because they made agriculture feasible on land where it had previously been infeasible, and because, on average, they improved the quality of feasible land.  Fourth, adjustment of land use to economic conditions was gradual.

Government Working at Cross-Purposes

The analysis highlighted a striking inconsistency in the Federal government’s approach to wetlands.  In articulated policies, laws, and regulations, the government recognized the positive externalities associated with some wetlands, with the George H.W. Bush administration first enunciating a “no net loss of wetlands” policy.  But public investments in wetlands – in the form of flood-control and drainage projects – had created major incentives to convert these areas to alternative uses.  The government had been working at cross-purposes.

The conclusion that major public infrastructure investments affect private land-use decisions (thereby often generating negative externalities) may not be a surprise to some readers, but it was the 1990 analysis described here that first provided rigorous evidence which contrasted sharply with the accepted wisdom among policy makers.

The Ongoing Importance of Induced Land-Use Changes

As wetlands, tropical rain forests, barrier islands, and other sensitive environmental areas become more scarce, their marginal social value rises.  In general, if induced land-use changes are not considered, the country will engage in more public investment programs whose net social benefits are negative.

About Robert Stavins

Robert N. Stavins is the Albert Pratt Professor of Business and Government at the Harvard Kennedy School, Director of the Harvard Environmental Economics Program, Chairman of the Environment and Natural Resources Faculty Group at the Kennedy School, Director of Graduate Studies for the Doctoral Programs in Public Policy and Political Economy and Government, Co Chair of the Harvard Business School Kennedy School Joint Degree Programs, and Director of the Harvard Project on International Climate Agreements. He is a University Fellow of Resources for the Future, a Research Associate of the National Bureau of Economic Research, the Editor of the Review of Environmental Economics and Policy, and a Member of: the Board of Directors of Resources for the Future, the Board of Academic Advisors of the AEI Brookings Joint Center for Regulatory Studies, the Editorial Boards of Resource and Energy Economics, Environmental Economics Abstracts, B.E. Journals of Economic Analysis & Policy, and Economic Issues. He is also an editor of the Journal of Wine Economics. He was formerly a member of the Editorial Board of Land Economics, The Journal of Environmental Economics and Management, the Board of Directors of the Association of Environmental and Resource Economists, a member and Chairman of the Environmental Economics Advisory Committee of the U.S. Environmental Protection Agency's (EPA) Science Advisory Board, the Chair of the Scientific Advisory Board of the Massachusetts Executive Office of Environmental Affairs, a Lead Author of the Second and Third Assessment Reports of the Intergovernmental Panel on Climate Change, and a contributing editor of Environment. He holds a B.A. in philosophy from Northwestern University, an M.S. in agricultural economics from Cornell, and a Ph.D. in economics from Harvard. Professor Stavins' research has focused on diverse areas of environmental economics and policy, including examinations of: market based policy instruments; regulatory impact analysis; innovation and diffusion of pollution control technologies; environmental benefit valuation; policy instrument choice under uncertainty; competitiveness effects of regulation; depletion of forested wetlands; political economy of policy instrument choice; and costs of carbon sequestration. His research has appeared in the American Economic Review, Journal of Economic Perspectives, Quarterly Journal of Economics, Journal of Economic Literature, Science, Nature, Journal of Environmental Economics and Management, Ecology Law Quarterly, Journal of Regulatory Economics, Journal of Urban Economics, Journal of Risk and Uncertainty, Resource and Energy Economics, The Energy Journal, Energy Policy, Annual Review of Energy and the Environment, Explorations in Economic History, Brookings Papers on Economic Activity, other scholarly and popular periodicals, and several books. He is the co-editor of Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World (Cambridge University Press, 2007), editor of the fifth edition of Economics of the Environment (W. W. Norton, 2005), co editor of Environmental Protection and the Social Responsibility of Firms (Resources for the Future, 2005), editor of The Political Economy of Environmental Regulation (Edward Elgar, 2004), co editor of the second edition of Public Policies for Environmental Protection (Resources for the Future, 2000), and the author of Environmental Economics and Public Policy: Selected Papers of Robert N. Stavins, 1988 1999 (Edward Elgar, 2000). Professor Stavins directed Project 88, a bi partisan effort co chaired by former Senator Timothy Wirth and the late Senator John Heinz, to develop innovative approaches to environmental and resource problems. He continues to work closely with public officials on matters of national and international environmental policy. He has been a consultant to the National Academy of Sciences, several Administrations, Members of Congress, environmental advocacy groups, the World Bank, the United Nations, the U.S. Agency for International Development, state and national governments, and private foundations and firms. Prior to coming to Harvard, Stavins was a staff economist at the Environmental Defense Fund; and before that, he managed irrigation development in the middle east, and spent four years working in agricultural extension in West Africa as a Peace Corps volunteer.
This entry was posted in Environmental Economics, Environmental Policy, Forest Policy, Natural Resource Economics, Natural Resource Policy, Water Policy and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *