Economic incentives for managing infectious animal disease: discussion.

Concern for animal disease is as old as humans' domestication of animals to provide food and power for farming and transportation. For most of human history, this concern arose largely from the impacts of disease on the productivity of animal-dependent economic activities. This concern remains powerful today. The scope and depth of concern for domestic animal disease has expanded in the last century and especially in recent years with the discovery and increasing understanding that animals, both domestic and wild, are the origin of established and emerging human diseases, and that domestic animals can transmit diseases to wildlife, including endangered and important game species. Increased disease risks from expanded trade and global environmental change create a need for greater vigilance, protections, and research to guide management and control. Economic research needed to inform policy is especially lacking.

The articles in this session identify critical questions relevant to distinctly different aspects of the problem, and address them from innovative, but distinctly different, analytical perspectives. Gramig and Wolf (GW) are concerned with the structure of internal incentives for producers to adopt disease management practices when facing multiple disease risks, and they empirically test for the existence and adoption effects of within-herd management spillovers. Hennessy is also interested in internal incentives but within the context of spatial externalities of farms' biosecurity measures. He develops a conceptual biosecurity game to examine the implications of such spillovers for the efficiency of producers' biosecurity decisions. Horan and Fenichel (HF) are interested in the structure of incentives to manage multiple-host problems. They tackle this issue within the context of a critique of influential management recommendations from the ecology literature as they apply to livestock-wildlife-pathogen problems and offer up elements of economically based alternatives.

I would like to highlight three themes that emerge from this set of papers. The first is the importance of economic research to the development of effective and efficient management strategies for infectious animal diseases by individual producers as well as public agencies. This point is emphasized at the producer level by GW. The backdrop for their analysis is a dominant veterinary paradigm to disease management in which recommendations are based on disease-specific costs and benefits. Yet producers face, and manage, multiple diseases in their herds. GW find that within-herd preventive spillovers exist, but do not appear to influence disease management practices. The negative finding about spillovers affecting management is consistent with a paradigm of expert recommendations being disease-specific. Thus, their study would suggest gains from additional research on spillovers, and to the extent that they exist, the need to recognize those spillovers in disease prevention and management recommendations to producers.

The results of Hennessy and HF apply more to the design of public policies for disease management. In Hennessy's article, biosecurity expenditures by one producer reduce disease risks to others. Free-riding occurs, with the result that equilibrium private expenditures on biosecurity are less than socially optimal. This conjecture is not new. The interesting contributions are demonstrations that economic structure (e.g., aggregate and relative farm income) and spatial relations in the transmission of infections will influence the extent of free-riding that occurs, and thus the extent to which the private equilibrium is socially suboptimal, and the effectiveness of certain types of policy actions.

Like GW, HF tackle limitations in a dominant paradigm for disease management when disease is transmitted between livestock and game species. HF demonstrates fundamental flaws in the dominant paradigm, resulting from failure to recognize intertemporal economic and ecological trade-offs and the endogeneity of disease risks. HF demonstrate how policies that implement this paradigm will result in spending too much rather than too little on emerging infectious disease management. Taken together, Hennessy, and HF demonstrate that we must be concerned not only with private market failures that result in too little investment in disease prevention, but also with public policies that result in excessive expenditures due to failure to recognize that policies can distort private incentives or because they are based on paradigms that do not recognize economic trade-offs.

A second theme is the importance of developing economic models that build on the biology and ecology of disease management. Both GW and HF explicitly build on the results of biological research on disease management. The HF article is particularly noteworthy in this regard, coupling an economic model with an ecological model based on recent innovations in the biology of multiple-host disease management. Hennessy's article does not build on prior biological research, but the spatial externalities that are central to the analysis are governed in part by biological mechanisms of disease transmission, thus implying the importance of understanding those processes in economic analysis.

The third theme is the importance of understanding the co-evolution of economic and ecological systems relevant to infectious disease, and indeed, other issues in which spatial externalities exist. While this issue is not addressed explicitly in any of the three papers, its salience is manifest in the Hennessy and HF articles. The point can be made most cogently by reference to Hennessy's article. Hennessy takes the economic structure and geography of agriculture, and the resulting spatial externalities, as exogenous. But in fact, they are endogenous and co-evolve, leading to questions about how spatial externalities influence the evolving observed spatial pattern and the economic and institutional structure of agriculture. These are not simple questions, but they are essential for an assessment of the costs of market failure and the optimal design of policy.

James Shortle is Professor of Agricultural and Environmental Economics, Pennsylvania State University, University Park, PA.

This article was presented in a principal paper session at the AAEA annual meeting (Portland, OR, July 2007). The articles in these sessions are not subjected to the journal's standard refereeing process.