The Silence of the Lambs: Payment for Carnivore Conservation and Livestock Farming Under Strategic Behavior

Abstract

During the last few decades, the number of large carnivores (wolf, bear, lynx and wolverines) has increased significantly in Scandinavia. As a result of more predation of livestock, conflicts with livestock farmers have deepened. We model this conflict using sheep farming as an example, and in instances in which farmers are given compensation for the predation loss. The compensation scheme is composed of a fixed per animal loss value (ex-post), but also a compensation just for the presence of the carnivores (ex-ante). Ex-post compensation payment is practiced in many countries where farmers are affected by killed and injured livestock, but also damages to crops. Ex-ante payment implies payment for environmental services and is also widely practiced. In the first part of the paper, the stocking decision of a group of farmers is analyzed. In a next step, the Directorate for Natural Resource Management (DNRM), managing the carnivores and compensation scheme, is introduced. The strategic interaction between the sheep farmers and DNRM is modelled as a Stackelberg game with DNRM as the leader. We find that it is not beneficial for DNRM to use ex-post, but only ex-ante compensation. The solution to the game is compared to the social planner solution, and numerical illustrations indicate that the efficiency loss of the ex-ante compensation scheme to be small.