WEAI/AERE 2009 - Individual Paper Abstract
Title: Grazing Fees versus Stewardship on Federal Lands
Author(s): Myles J. Watts, Montana State University; Jay P. Shimshack, Tulane University; Jeffrey T. LAFRANCE, Washington State University
Abstract: Livestock grazing on public lands continues to be a source of intense conflict and debate. We analyze this problem using a dynamic resource use game. The optimal monitoring rate on public lands grazing allotments is positively and convexly related to grazing fees. Low monitoring rates reduce the cost of monitoring and enforcement, which are not directly productive activities. However, either zero monitoring or predictable monitoring that is incomplete or imperfect, is incompatible with a stationary, sustainable, subgame perfect Nash equilibrium. Low grazing fees allow ranchers to capture a larger share of the quasi-rents from grazing public lands along a socially desired use path. This increases incentives to comply with regulations. The result is that optimal grazing contracts include grazing fees that are lower than competitive private rates, random monitoring to prevent strategic learning or cheating by ranchers, avoids wasteful efforts to disguise noncompliant behavior, and must include a penalty for cheating beyond permanent termination of the public lands grazing lease. In the absence of a political cap on the penalty function for noncompliant ranchers who are caught and punished, the optimal penalty must be large enough to discourage rancher types who profit most from cheating to experience non-positive expected net returns from doing so.