Animal Welfare Economics

If animals can choose one outcome over another, the choice reveals an underlying preference. Experiments of just this sort have been carried out by animal scientists and the results reveal, for example, that hens prefer outdoor access to cages and hogs prefer social contact to isolation (Dawkins 1977; Kirkden and Pajor 2006; Matthews and Ladewig 1994). Moreover, recall the arguments of the agricultural producers – that profitable animals are happy animals. Is this not an implicit recognition of animal preferences? If an animal can be “happy” it must prefer some outcomes to others.

The basic idea in the article (Lusk and Norwood; Applied Economic Perspectives and Policy, 2011) is that the level of production that maximizes profits might not necessarily maximize animal welfare.

Regarding egg production, the authors say:

. . . [T]he choice for the producer is fewer happy hens producing a total of 116.5 million eggs/year, or many more relatively sad hens producing a total of 212.8 million eggs/year. 

What are the implications, the authors say:

Consider, for example, the question of whether it is more ethical (and by ethical we mean produces a higher level of total “utils” in a non-speciest utilitarian analysis) to eat eggs laid by hens in a cage-free production system or eggs laid by hens in a battery cage system.

The authors propose:

If the main source of market failure is the lack of a price to steer production and allocation decisions, then one solution would be to create a market for animal welfare that is separate from the market for meat or eggs (see Lusk, forthcoming, for a more complete discussion on this issue). Livestock producers can be conceptualized as producing two outputs that have value for potentially different consumers: meat and animal well-being. Whereas labeling requires a consumer buying meat (or eggs or dairy) to also buy higher levels of animal care, Lusk (forthcoming) proposes a “market for animal welfare” in which units of animal well-being can be bought and sold independent of one's proclivity for eating meat, eggs, or dairy. 

The basic idea is that livestock producers are given property rights over the animal welfare produced on their farm. Producers can earn “credits” based on the number of “animal well-being units” produced using the animal welfare production functions of the sort discussed in the preceding sections (for example, Bracke et al. 2002). These credits can then be sold on an exchange to willing buyers such as retailers, animal activist groups, or individual consumers. 

See one of Tyler Cowen's posts on animal welfare.