Betting on Extinction: Endangered Species and Speculation

Abstract

For a number of animal species, speculators are betting on future price increases by holding large stockpiles of commodities from the animal. We develop a model to explain this behavior. We derive conditions where it can be optimal for a speculator to induce poachers to harvest so rapidly as to make extinction of the species inevitable. Results from a simulation based on the black rhino indicate that “betting on extinction” may be pro. table for reasonable parameter values. We also find that extinction is favored by low discount rates or high growth rates. (Q22)