Ranching, Invasive Annual Grasses, and the External Costs of Wildfire in the Great Basin: A Stochastic Dynamic Programming Approach

The spread of invasive annual grasses and resulting escalation of wildfire frequency and severity pose a significant and growing threat to the economic and ecological viability of the rangelands in the Great Basin. While private ranchers have the option to limit the severity of wildfires through fuels removal treatments, few ranchers engage in such land treatments. Without internalizing the public cost of wildfire suppression in the decision problem, private ranchers likely to under-invest in fuels treatments. In this article, using a bio-economic model of rancher decision making, we analyze the private incentives for engaging in land treatments. We find that the downside shocks on available grazing land due to wildfires are proportionately smaller for larger ranches and that for that reason larger ranches exhibit a greater ability to adjust production in response to wildfires, thus implying a potential source of increasing returns to scale in ranch operation in presence of wildfire risks. We also find that valuation of fuels treatment is substantially different between a private rancher and a “social planner” that internalizes wildfire suppression costs in the decision problem.