Friday 6 June 2014

Ivory cycles

Brendan Moyle explains the surge in elephant poaching.

All else equal, we should expect that poaching increases with political instability that makes it harder to enforce an optimal permitting system. We should also expect that poaching increases where shipping costs drop, as the returns to poaching then increase. Finally, where interest rates drop substantially, we should expect greater investment in lower orders of ivory production rather than higher orders: the poaching, rather than the carving. Building a stockpile of ivory for later carving makes more sense than ramping up carving at increased cost but getting little return on the proceeds of those sales.

And that's what Brendan finds.
The recent and rapid increase in elephant poaching has caused international alarm. A panel-data regression model was employed to identify possible causes of this upsurge. The large decline in shipping costs after the GFC is strongly correlated to the rise in large shipments interdicted in recent years. Other factors include the decline in global interest rates, which motivates increased stockpiling by criminal organisations. A sharp decline in stability in Africa, especially Central Africa can also be linked to the raw ivory seizures. This evidence also indicates that the recent upsurge is more supply-driven than it is demand-driven. Criminal organisations appear to be taking advantage of current conditions to transfer and store ivory in stockpiles out of Arica. This raises doubt that the upsurge is demand-driven event related to the current markets for ivory. 
I love this kind of rich institutional story paired with empirical analysis. Brendan spends a lot of time in China figuring out just what's there going on. 

He also warns that things could easily get worse: the greater the poaching, the more risky is the option to store tusks on live elephants for later poaching. Worse, some of the recent supply-side measures may be reinforcing poachers' expectations that future price increases mean they should poach more now for stockpiling.

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