I recently watched the excellent Netflix documentary The Ivory Game. The film directs the public attention towards the daily struggle between elephant conservationists and poachers. While the conservationists are often from developed countries and backed by western governments, the poachers are in the majority of cases local, encouraged by the high price that Ivory commands on the Chinese market.

Coincidentally, this is a topic I have been thinking about a great deal in recent times. Unfortunately, while this issue is clearly influenced (some might even say caused) by conventional economics, it is seldom discussed from that perspective. Most conversationists prefer to take the moral highground and are severely disappointed when others don't share their long-term thinking.

In short, the goal of this post is to look at it from a slightly different angle so that we can have a more nuanced discussion.

The Supply Side

Poachers Between 20 000 and 35 000 elephants are killed yearly in Africa for their tusks. At about 11 kilograms of ivory per Elephant, this corresponds to 33 - 38,5 ton per year. Incredibly, this is still dwarfed by the over 2000 tons of Ivory held in inventory worldwide. The continued slaughter of elephants has brought the number of African elephants in the wild down to the point where there are now only 470 000 in 37 countries (from an estimated 26 million elephants in 1800).

In 1973, CITES (or the Convention on International Trade in Endangered Species of Wild Fauna and Flora) passed an international ban on the trade of ivory. In line with expectations, this greatly increased the cost of gathering and selling the commodity by forcing sellers into illegality. Poachers willing to continue to supply the market had to use additional resources to outsmart (or even outgun) the government while still running the considerable risk of being caught and their tusks confiscated. But then, surprisingly, the market price of ivory went down, not up... how is this possible? Now we can say that customers were probably deterred by the newly acquired illegal status of the commodity, reducing demand as well. In hindsight, this effect was larger than the supply-effect. Overall, ivory prices decreased with a large reduction in poaching and quantity sold.

For a time, all was well and elephant populations grew again. Unfortunately, the plan didn't account for one thing. The ban also prohibited wildlife reserves from selling their stockpiles of tusks from naturally deceased and 'culled' animals. (The culling (or killing) of elephants needs to happen when the population is growing at an unsustainable rate and risks the collapse of entire ecosystems.) These reserves just resorted to stockpiling the ivory and allowing it to degrade. People argued that this was a waste and if they were allowed to sell these tusks in a controlled fashion the revenue could be used for conservation efforts.

When African elephant populations rebounded a bit in the 90s, CITES started allowing one-time sales of stockpiled ivory after increased pressure from African and Asian countries. In 1999 Botswana, Namibia, and Zimbabwe sold 50 tons to Japan. Next, in 2008, Botswana, Namibia, South Africa and Zimbabwe traded 102 tons in total with Japan and China. The logic behind these two sales was that the flooding of the Chinese and Japanese markets with cheap(er), legal ivory would depress prices and decrease the incentive to poach and trade illegal ivory. This effect was unfortunately countered by the following events:

  • The Chinese government tried to make a considerable profit with the 62 metric tons bought in 2008. It achieved this by only releasing 5 tons per year which kept the market price at high levels. This meant that the crowding out of illegal ivory by flooding the market with lower-priced ivory didn't happen (enough).
  • Encouraged by the high prices set forward by the government, illegal trade was still worthwile to pursue. Furthermore, the illegal ivory could now be laundered through legal channels (called 'masquerading'), reducing again the cost of supply.
  • The inflow of legal ivory has legitimized consumption in the eyes of consumers and given it greater visibility, in turn expanding demand.

The MIKE (Monitoring of Illegal Killing of Elephants) programme has as goal to measure levels and trends of illegal elephant hunting. In 2016, their report showed the following trend:

Poaching Trend

The dotted line at 5% represents the natural growth rate of elephant populations. Any poaching rates above this percentage are unsustainable and reduce elephant populations.

One can conclude from the graph that poaching rates quickly became unsustainable after 2008. Solomon Hsiang, a Berkeley associate professor of public policy, who has analyzed the repercussions of the 2008 sale summarized it in the following way: "We can't just assume legalization's going to have one effect. It's going to have three effects — some demand satisfied, a potential increase in the consumer base and reduced cost of smuggling. The balance of those effects is going to matter."

The Demand Side

History and use

The first evidence for ivory carvings dates back 35 000 years when wooly mammoths provided the first source of ivory. Since then, almost every human culture has used ivory (or 'white gold') throughout history. Western nations experienced a ivory boom starting in the 1800s when the material was turned into everything imaginable. There were ivory billiard balls, combs, piano keys etc. But ivory also has a long history in Asia. In China, for instance, Ivory carving peaked in the Ming (1368–1644 AD) and Qing (1644–1911 AD) dynasties.

In the last two centuries, ivory has evolved from a material for the ultrarich to a luxury item produced en masse for the middle- and upper classes.

Ivory Art

Ivory is valued in China because of a number of reasons. Ivory sellers emphasize that the product is "bao jia" (inflation-proof) and subject to "zeng zhi" (value appreciation), and as such a good investment. Also, because of the rare and expensive nature of the material, ivory has essentially become a status symbol: it gives the buyer a sense of prestige. Furthermore, there are people who admire ivory sculptures for their artistic qualities and find them relatively affordable compared to other more luxurious products. Less importantly, ivory has religious and medicinal meanings as well.

Price

Economic theory tells us that demand is essentially the quantity of Ivory that consumers are willing and able to buy for a given price. The 'ability' factor is particularly crucial at high prices, ... which they currently are.

Before 2010, prices were below $1000 :

However, between december 2013 and februari 2014, prices for raw ivory on the online black market reached levels between $1700 and $3700 per kilogram. And in a recent report, Esmond Martin and Lucy Vigne found that the price of ivory tripled from about $700 in 2011 to $2100 in 2014 before decreasing to $1100 in 2015.

In 2015, the National Geographic Society and Globescan performed a survey gauging willingness & ability:

Willingness and ability to buy Ivory

While China and the Philippines are (proportionally) the largest ivory buyers today, Vietnam seems to have a large appetite as well, it just can't afford it yet. This presents a risk for the future.

Demand factors

When discussing demand factors from an economist's point of view, an important factor is the price elasticity of demand.

The price elasticity of demand quantifies how responsive the demand is to changes in the price. Concretely, by what percentage does the quantity demanded change when the price is increased by 1%.

For example, when the price of necessities (like milk or electricity) goes up, consumers cannot afford to stop buying them because they cannot do without. Products like milk or electricity are therefore considered inelastic. When the price of mediterranean cruises goes up, people just decide to go somewhere else on holiday or postpone it. Mediterranean cruises are therefore considered elastic. However, some luxury goods are bought in part because they are so expensive: some Ferrari-buyers want to showcase their wealth with the purchase and wouldn't back down if the price increased with €50 000. This would mean that these products are actually more inelastic than elastic.

Inelastic demand

There also exist concepts like income elasticity and interest elasticity, which are the percentage change in quantity demanded when respectively incomes or interest rates rise by 1%.

These concepts are key in deciding on a policy for the ivory trade. Unfortunately, there is little or no data on the different elasticities of ivory...

  • Ivory's status as a luxury good implies that it has a low negative price elasticiy (people buy only a little less when the price increases considerably) or in same cases even a positive price elasticiy (people buy more if the price goes up, eg. "to show off").This means that a tax on ivory or an increase in the cost of supply (by making it more expensive to poach elephants) can never be successful. The only solutions are to successfully limit supply (eg. make sure poaching is virtually impossible) or decrease total demand (eg. make it uncool to buy ivory).

  • Demand for Ivory is found to be quite income-elastic. A paper from 1993 found it to be about 0.75 in Japan at the time. This means that a 1% rise in income will cause a 0.75% increase in demand for ivory products. This is consistent with a luxury good and means that we can attribute a great deal of the surge in demand to rising incomes in Asia. This would also allow us to predict ivory demand based on projected income growth rates. In this respect, the price decrease in 2014 can be attributed to lower demand because of the economic downturn in China at the time.

  • If demand is very interest-elastic, it means that ivory is mostly bought as a store of value. Similar as in the case of gold, people will buy ivory if they don't find good enough investment opportunities. One can notice that the price of ivory is closely pegged to the price of gold. In this respect, Ivory is commonly called 'white gold'. This scenario would mean that demand- or supply-control policies will barely influence trade. A dangerous, self-reinforcing phenomenon is the speculation on ivory prices. When people expect rising ivory prices, they try to buy as much ivory now before the African elephant goes extinct.

Market Failures

Before we can dive into this topic we have to tackle a sensitive topic:

"From a moral and ethical viewpoint, do we want the existence of a market that is based on the killing of living, breathing beings?"

Elephants are intelligent, sentient beings. They are known to greet each other and mourn at the death of a family member. They have incredible memories: they are capable of finding old water holes in the midst of deserts. Older family members have also been seen caressing young elephants when they displayed signs of distress.

Tragically, it is impossible to just decide to not have a market. As long as there are people demanding ivory and people capable of providing it, there will always be a market. If others outlaw the trade, a black market will just come into existence.

This brings us to the concept of market failure:

A market failure is a situation where free markets fail to allocate resources efficiently. Practically, this means that we can make somebody better-off without making somebody else worse-off.

In an ideal situation, we could first sum up all the benefits of the beneficiaries of the ivory trade: poachers, ivory traders, ivory consumers, ivory artists and farmers whose crops can be destroyed or eaten by elephants. Then, we could sum the losses of the ivory trade for the conservation groups, scientists, the tourism industry, animal lovers and future generations. If we compare both sums and find that the losses outnumber the benefits, we can decide that there is indeed a market failure: a correctly functioning market would not allow that many elephants to be killed for their ivory.

There is a lot of research going on into all kinds of market failures. The relevant ones are discussed below:

Lack of property rights

Can you think of another animal for which there is a huge demand that involves killing the animal in the process? If you are drawing a blank (I hope not), I will help you a bit: it turns out that the average person consumes more than 40 kilograms of beef per year. Last time I checked, the cow was not threatened with extinction.

How can this be? To explain this, I will first share with you the story of the tragedy of the commons.

A long time ago in England, there was a piece of land used for grazing. This land was free for the use of all farmers, it didn't belong to anybody. However, the land couldn't bare more than 50 sheep per week, else it would become depleted and nobody could use it after that. Not before long, a clever farmer thought: "If I let a couple more of my sheep graze on that, it won't be a problem." So that was exactly what he did. For a while, all was well until other farmers began to have the same idea and also put more sheep on the field. Eventually, others were seeing that their friends were getting more benefits from the land and didn't want to be taken advantage of: so they also put more sheep on the field. Dramatically, in the end there were so many sheep grazing on the field that the field became depleted and everybody lost the use of the field for grazing.

The tragedy of the commons illustrates how people tend to overuse a resource that is shared. This is the reason why we have climate change (people pollute too much because the air and climate are shared), why people litter (the streets and pavements are shared between all) etc. Basically, it explains in most cases why people are dicks. Fortunately, there exist two solutions:

  • establish property rights
  • use laws and social pressure to prevent overuse