Can Biotech Companies Save The Rhinos?

08/25/2016 05:58 pm ET Updated Aug 26, 2017

To help stem the tide of rhino poaching, some biotech companies such as Pembient are seeking to develop and manufacture synthetic horns that are biologically identical to the real thing. The thinking behind this is that the availability of bio-identical fake horns at a substantially lower price than wild horns would cause demand to shift towards the synthetic substitutes, which would reduce people's incentives to poach rhinos.

I have argued previously that--from the perspective of what would be most effective in curbing poaching--the synthetic horns should not be made to be perfect fakes, i.e., bio-identical. Instead, the synthetic horns should be engineered to be (i) difficult to distinguish from wild horns but (ii) undesirable or unappealing in some respect so that buyers would place little value on them. This proposal makes use of a phenomenon in economics known as adverse selection, which occurs when buyers in a market are unable to distinguish between high- and low-quality products, and their lack of information drives down demand--and, hence, prices--enough that high-quality products (which would be wild horns in the context of rhino horns) cease to be supplied by sellers.

For conservationists and others who are concerned about the fate of the rhinos, it is critical to understand why biotech companies would prefer making bio-identical synthetic horns--rather than undesirable fakes--because of the implications this has for conservation policies. Simply put, it would be more profitable to produce and sell perfect fakes rather than synthetic horns that would be considered undesirable. All else being equal, putting out undesirable fakes that buyers cannot distinguish from the real ones, by reducing demand for horns, would lead to lower prices in the horn market compared to the case with bio-identical synthetic horns. This, of course, would generate less revenue for the producers of synthetic horns.

Proponents of making perfect fakes could argue that bio-identical synthetics would be no less effective than undesirable fakes in bringing about adverse selection in the horn market and driving out sellers of wild horns. This is true if buyers view bio-identical synthetic horns to be significantly inferior to wild horns. However, as reported in The Guardian last year, Pembient's market research in Vietnam--one of the biggest markets for rhino horn trading--found that nearly half of the survey respondents who consume rhino horn for medicinal purposes would consider bio-identical synthetic horns to be suitable substitutes for wild horns. Moreover, a co-founder of Pembient suggested in the same article that perfect fakes could actually be better than wild horns due to their lack of contaminants. Therefore, bio-identical synthetic horns may not be undesirable or unappealing enough to drive out wild horn suppliers through adverse selection. In fact, if buyers consider perfect fakes to be more desirable than wild horns, the availability of synthetic horns could actually encourage more rhino poaching by driving up horn prices.

Advocates of making perfect fakes could also point out that--even if buyers do not consider bio-identical synthetics to be substantially inferior to wild horns--as long as there are enough bio-identical synthetic horns in the market, horn prices would be driven down to the point where wild horn sellers would be forced from the market. A rigorous theoretical analysis of this issue shows that it is not necessarily in the financial interest of synthetic horn producers to drive out all wild horn sellers; instead, they may prefer to prop up horn prices by keeping the production of synthetic horns at a relatively low level.

Rhino poaching numbers are climbing, and rising income levels in China and Southeast Asia--where demand for rhino horns is strongest--will almost certainly make matters worse in the near future if no significant changes occur. Economic principles tell us the availability of synthetic horns can decrease the supply of wild horns and reduce the amount of poaching. Since the development of undesirable fake horns or flooding the market with perfect fakes is incongruent with the profit motive, the real issue is just how big the effect of synthetic horns on poaching would be if the companies developing them are interested in profiting off of their products.

What policies can governments or conservation groups implement to ensure that the impact on poaching numbers is maximized when the biotech industry is ready to roll out bio-identical substitutes? To drive out wild horn suppliers using synthetic horns, the key would be to depress horn prices sufficiently. Here are a few suggestions for doing that. One is to subsidize the companies that produce synthetic horns--this would incentivize them to increase production and thereby drive down prices. Another option is to promote competition on the production side of synthetic horns. Financial incentives or policies that encourage more firms to enter the synthetic horn market would also put downward pressure on prices by raising the market supply. A third possibility is to make it easier or less costly for a non-profit organization to invest in or acquire the technology for producing synthetic horns since the non-profit entity could try to shut down the rhino horn market through adverse selection by making undesirable fakes.

The science and technology to produce high quality synthetic horns are within our grasp. Let us not, however, assume that the biotech companies with these capabilities, in pursuit of their own interests, would necessarily solve the rhino poaching problem. Let us keep in mind that steps may need to be taken to structure the market for rhino horns so as to fully realize the potential of synthetic horns to save the rhinos.