Applying Economic Principles to Other Studies

Question

I was recently reading this article about some research that was done concerning the illegal killing of elephants. There were two quotes that caught my attention:

...illegal killing [of the elephants] increased markedly after 2008 and was correlated strongly with the local black market ivory price and increased seizures of ivory destined for China...

and

...Illegal killing rates were strongly correlated with black market ivory prices in the Samburu ecosystem...

In the article, the correlation is treated as a previously unknown fact that was "discovered" by the research team and appears to be one of the major finds of the study.

However, it does not seem like the researchers can take credit for this "discovery." It seems that an economist can reach the same conclusion by a much simpler method:

1. Increased seizures of ivory reduce the supply of ivory on the market.
2. Since the supply of ivory has decreased and the demand has remained constant, the price of ivory will increase.
3. The higher price will motivate individuals to enter the ivory market as suppliers (which, therefore, will lead to more elephants being killed).

Is there a particluar reason as to why the economic principles of supply and demand were not applied to this study in order to more rapidly reach this result?

Answer 1

This paper seems to be about practical policy. It seeks to understand what drives the killing of elephants. While what you write makes sense in theory, there might be some hidden factor that we do not perceive that has a much bigger effect (for example the actors of the market may not be rational) so looking at the data is always welcome.

I would also say that your economic reasoning is not the only possible one. I could also provide a line of reasoning reverses causality

1. More elephants are killed (this may be random, or it may be a result of unemployment in other sectors).
2. Because demand is unchanged, prices fall.
3. Since authorities always seize half of the ivory contraband, more contraband is seized.

If this is true then the seizures and the price change is a result, implying a different market dynamic. Unfortunately the paper only tested correlation, not causality, but this highlights that there can be more than one explanation to a phenomenon. In fact it is even possible to argue that the price of ivory and the number of elephants killed is negatively correlated:

1. More elephants are killed (this may be random, or it may be a result of unemployment in other sectors).
   
2. The authorities, who until now looked the other way, notice this and start seizing ivory, leaving almost none on the market.
   
3. The price of ivory rises.

Which of these explanations you find logical is somewhat subjective. Because there can more than one, a logical explanation may not be the right one. That is why econometric papers (could) provide useful insights.

Answer 2

This case can be used as a fine example of factual research, economic theory and applied econometrics.

FACTUAL RESEARCH
Since the authors examine a specific real-world case, the actual facts can help to establish a plausible causal sequence.

For example: was there a rush in the numbers of elephants killed, in response to which authorities announced and implemented a more aggressive and effective seizure policy?

Or, although the numbers of elephants killed remained relatively stable per period, but, the authorities, eventually yielded to political pressure and implemented this more aggressive and effective seizure policy?

Presumably, there are data and information to conclude on the above. Assume that it is the second situation. Then...

ECONOMIC THEORY
Argue that "Economic Theory tells us that..." and lay out the theoretical argument that the OP described in his question. Then

APPLIED ECONOMETRICS
Estimate the relationship between the magnitudes of interest, in order to check whether the theoretical argument is consistent with the available data. Here, one should control for other factors, for example as @denesp writes, was there a rush of unemployment in other sectors of the economy that could have contributed to labor turning for work to the black market for ivory?

Illegal goods are very interesting, because supply deviates from production by the amount of goods confiscated prior to reaching the market. As long as the demand is there, increased confiscations will tend to increase production also, which tends in turn to offset the intended result of the seizure policy.

VARIANT
Assume now that the record shows that first we had an increase in the numbers of elephants killed, and then the authorities responded with increased seizures. Then one should establish first the likely reasons for the initial increase in production/supply. Are there indications that demand shifted? Are there indications that supply increased because of unemployment in other sectors? Assume that it was unemployment that pushed people to this activity, and that there is no indications that demand shifted. Then economic theory would predict that price should tend to initially fall. Then the authorities stepped in harder, and mitigated the increased supply, pushing the price back up.

But if it was demand that originally shifted, then we should observe an initial rise in price, then an increase in production and a tendency for the price to fall, and then the effect from the harder seizure policy.

Hopefully, since things in the real world do not happen all at once, there could be indications in the data on these price movements.