Economic Analysis of Indemnity Payments for Wolf Depredation on Cattle in a Wolf Reintroduction Area

Aaron Anderson, Karen Gebhardt, and Katy N. Kirkpatrick

USDA APHIS Wildlife Services, National Wildlife Research Center, Fort Collins, Colorado

David L. Bergman

USDA Wildlife Services, Phoenix, Arizona

Stephanie A. Shwiff

USDA APHIS Wildlife Services, National Wildlife Research Center, Fort Collins, Colorado

ABSTRACT: Mexican gray wolves were reintroduced into New Mexico and Arizona in 1998. When wolves kill a producing cow, ranchers in the region are eligible to receive an indemnity payment equal to the market value of the lost animal. We developed a model that allows estimation of the present value of the revenue stream that a cow or herd provides and find that if a producing cow is killed, the decrease in the present value of the rancher’s revenue stream is about $1,230. Mean indemnity payments are currently

$1,000, implying ranchers are not being sufficiently compensated.

KEY WORDS: Arizona, Canis lupus baileyi, cow-calf operations, economic valuation, indemnity, livestock predation, Mexican gray wolf, New Mexico, predation, wolf

Proc. 26th Vertebr. Pest Conf. (R. M. Timm and J. M. O’Brien, Eds.)

Published at Univ. of Calif., Davis.  2014.  Pp. 413-418.


The native range of the Mexican gray wolf (Canis lupus baileyi) extended from central Mexico north through Arizona and New Mexico and south of Interstate

40. By the mid-1900s most Mexican gray wolf (hence- forth “wolf”) populations had been eliminated through federal, state, and private control campaigns in response to wolf impacts on the livestock industry. Following the passage of the Endangered Species Act in 1973 and the subsequent inclusion of the wolf as an endangered species in 1976, recovery efforts to save the species from extinction in the United States were enacted (USFWS 2007).

For more than 30 years in Arizona and New Mexico, the threat that wolves posed to cattle (Bos primigenius) was nonexistent. This changed in 1998, when the first group of wolves was reintroduced into the Blue Range Wolf Reintroduction Area (BRWRA) in eastern Arizona (Figure 1). Reintroduction was conducted by the United States Fish and Wildlife Service (USFWS) and the Arizona Game and Fish Department under the Mexican Gray Wolf Recovery Program (USFWS 2007).

Cattle ranches are common within the BRWRA and surrounding areas, and wolf reintroduction and increasing wolf populations have led to increased wolf-livestock interactions. According to the U.S. Department of Agriculture’s Wildlife Services (WS) records from 1998- 2006, wolf predation of livestock in the BRWRA occurred mainly to cattle (cows and calves) and most often during late spring and summer months. In 1998, there were only 2 confirmed or probable cattle depredation incidences by wolves. This  number  increased to 11 in 2002, 38 in 2005, and during the 2- week period of June 5-18, 2006 there were 9 cattle depredation incidences (USFWS 2007).

Clearly, the change in government policy from wolf eradication to reintroduction has had an impact on the

economic returns for ranchers within the reintroduction area. However, despite the harm to ranchers, the policy shift may be socially desirable. A common criterion used to evaluate the social desirability of a change in public policy is economic efficiency: Pareto efficiency is  defined as an allocation in which it is impossible to make someone better off without making anyone worse off (Varian 1992). Thus, a Pareto improvement is a change  in which someone has been made better off without making anyone else worse off. The policy change in question could not be considered a Pareto improvement since ranchers were arguably made worse off.

However, another economic efficiency known as Kaldor-Hicks efficiency defines efficiency differently. The Kaldor-Hicks concept defines an outcome as more efficient if it is possible to create a Pareto improvement through those made better off compensating those made worse off (Varian 1992). Thus, an outcome is deemed efficient if the winners could make a payment to the losers such that no one is worse off. However, it should be emphasized that if a policy is judged efficient according to this definition, it does not require that a compensating payment actually be made; it only requires that it could be made. Therefore, a policy is judged efficient if the benefits outweigh the costs, regardless of who those benefits and costs fall on.

It is unknown if the shift in policy from wolf eradication to reintroduction is efficient according to the Kaldor-Hicks definition. If the benefits to those who support reintroduction exceed the costs incurred by ranchers, then it is. In this study, no attempt is made to judge the efficiency of the policy shift. Rather, the focus is on estimating the minimum size of the payment that would have to be made to ranchers such that they are not worse off. While Kaldor-Hicks efficiency does not require the compensating payment be made, political acceptability and societal notions of fairness may . . . 

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