Ashok Rao discusses the economics of poaching. He laments that anti-poaching laws are generally not very effective, and that enforcing these laws is too costly, for too little bang. He has a creative market solution, applying one of the arguments George Akerlof makes in “The Market for Lemons.” Essentially, Rao calls for governments to supply “bad” ivory, and other poaching products, to create uncertainty about the market’s output’s average quality. Unfortunately, this proposal probably wouldn’t work, and for reasons hinted at in the very same Akerlof piece.
What’s Rao’s rationale? For those who haven’t read “The Market for Lemons,” I summarize it and its implications, here. But, in a nutshell, Akerlof assumes that some markets can be characterized by an informational asymmetry, where buyers and sellers hold different information on the average quality of output — sellers know the quality of what they’re selling, but buyers don’t. The used car market is his example of choice. Those supplying low quality products will try to pass them off as high quality; buyers, being rational, figure this out and, now being uncertain about the actual quality, ask sellers to lower their prices (a risk premium). Sellers of good quality output, at some margin, will be unwilling to sell their goods at these lower prices, lowering the average quality of output further. This can continue until the market is extinguished. Sounds like the perfect strategy, if you want to eliminate black markets in poaching!
Not so fast! The used car market is one beset by informational asymmetry — even despite increases in consumer knowledge —, yet it has survived. How? Akerlof gives us some hints, but the general answer is institutions. Instead of lowering the price, the seller might instead offer a guarantee, money back or otherwise. Alternatively, brand names are a way to allow consumers to differentiate between different sellers, where some are more reputable than others. The options are bound by the limits to human creativity. There may be institutions that are more proper of black markets, such as exclusive auctions, that deal only with certain sellers (of high repute).
What makes government such a poor regulator of market activity is that it’s hard for an uncompetitive bureaucracy to keep up with market innovation. Markets outsmart governments. We’ve seen it throughout history in the banking sector. We’ve seen it in illicit drug markets. We saw it in alcohol markets, during the Prohibition era. We see it with the internet. My guess is that we’d see it in illicit poaching markets, too. They would develop rules, institutions, that protect consumers and high quality sellers. Or, in any case, they would protect sellers’ profits.
Poaching is a difficult nut to crack. I’m not sure there is a satisfactory market solution. The solution most frequently suggested is privatization; maybe we could breed elephants and other exotic animals in farms, and butcher them. While acceptable to the apathetic — not everyone is an animal-lover —, it’s probably not acceptable to those who rather allow some animals to live without being turned into commodities (including Robert Nozick?). But, the government solution is even less appealing. In well-off countries, where government accrues relatively large tax revenues, enforcing anti-poaching laws can probably drive poaching down to near-zero. But, enforcement is very costly, especially effective enforcement, and the cost — the opportunity cost — may just be too high to sacrifice.
Update: To guard against the reservation that maybe black markets aren’t able to develop the necessary institutions, the empirical evidence suggests otherwise. Informational asymmetries beset various black markets: drugs, luxury items (including poaching product), firearms, et cetera. These markets have already developed ways of coping with information asymmetries on average quality — because this “market failure” is already endemic to the black market..