The Welfare Impacts of an Invasive Species: Endogenous vs. Exogenous Price Models
The “fixed-prices” models used to measure damages from invasive species typically overestimate financial impacts. These fixed-price assessments do not address key behavioral modifications that lower costs as people adapt by changing their mix of inputs and outputs given new economic circumstances. Using the invasive emerald ash borer (Agrilus planipennis) in Ohio as a motivating example, we develop a computable general equilibrium model that accounts for these behavioral responses. We estimate annual damages from the beetle to be about $70 million, an order of magnitude less than the $400–$900 million in damages estimated using a fixed-price model. Damages are lower because people adapt through price and income adjustments that occur after ash trees are devastated from the emerald ash borer.
McDermott, S. M., Finnoff, D. C., & Shogren, J. F. (2013). The welfare impacts of an invasive species: Endogenous vs. exogenous price models. Ecological Economics, 85(C), 43-49. https://doi.org/10.1016/j.ecolecon.2012.08.020