An article for today Reminder: Homework 2 (due May 6) 6-1

an article for todayReminder: Homework 2 (due May 6)

6-1

Reminder: project deadlines

• By May 8: define your subject.

• To do this, you should read 4-5 newspapers articles about the topic. Among others, you can look inside The Economist and The GDAE (http://ase.tufts.edu/gdae/).

• Then you have to write one page (maximum) where you explain your subject and the basic points that you think should be treated based on your readings.

• E-mail me your discussion and submit a copy of the articles.

Copyright © 2009 Pearson Addison-Wesley. All rights

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Chapter 13

Renewable Common-Pool Resources: Fisheries and Other Commercially Valuable

Species

More readings.. 1. Tragedy of the commons – original

2. Tragedy of the commons – revisited

-- read (1) and (2) by today – (April 29)

1. The economics of the coming spaceship Earth

2. Spaceship Earth revisited

3. Using economic incentives to maintain our environment

-- read by May 15 --

• All 5 articles are in the book “Valuing the Earth” edited by Daly and Townsend


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• How are commercially valuable species like a double-edged sword?

• What sustainable level of harvest is appropriate?

• Biological populations: a class of renewable resources called interactive resources: the size of the resource stock (population) is determined jointly by the biological considerations and by actions taken by society


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Biological resources

• Renewable, if degradable

• Valuable for the goods derived from them

• Valuable for the services they provide

Renewable resource stocks and flows

• Without taking future generations into account, economic incentives encourage us to do what?

• What is the goal of economists?

• Note: (1) PEE and (2) substitutability of resources

• For simplification, assume a linear relationship between effort, stock, and harvest catch-per-unit-effort hypothesis

Copyright © 2009 Pearson Addison-Wesley. All rights reserved.

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Efficient AllocationsBiological Dimension—The Schaefer model

• The Schaefer model assumes an average relationship between the growth of the fish population and the size of the fish population. • The average relationship is drawn from influences as

water temperature and age structure of the population

• The shape of the graph (Figure 13.1) shows the range of population sizes where population growth leads to population increases and a range where population growth will lead to stock decreases.

Relationship between the Fish Population and Growth

• Size of the population: horizontal axis

• Growth of the population: vertical axis

• Graph -> range of population sizes (S to S*) where population growth increases as the population increases and a range (S* to S [line above]) where initial increases in population lead to declines in growth


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Efficient allocation: important points in the graph

• Smax (S line above) is a stable equilibrium. If the fish stock exceeds Smax, it would be exceeding its carrying capacity. (too many fish)

• Smin (S) is the minimum viable population. Below this level, rate of growth is negative and the population will disappear

• Catch level = sustainable yield when it equals the growth rate of the population

• S* = maximum sustainable yield (MSY) population defined as the population yielding maximum growth


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So: let’s look at the graph and ask these

questions• Is it efficient to catch G(S*)?• Benefits = ?• Benefits = Qfish * Pfish• Costs = effort spent in fishing

• Is it efficient to catch G(S0) and not G(S*)?• Resulting fish population is larger but?


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Relationship between the Fish Population and Growth


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Static Efficient Sustainable Yield

• The static-efficient sustainable yield is the catch level that, if maintained perpetually, would produce the largest annual net benefit.

• Assumptions of the economic model are:• The price of fish is constant and does not depend on

the amount sold.• The marginal cost of a unit of fishing effort is constant.• The amount of fish caught per unit of effort expended

is proportional to the size of the fish population.

• The static-efficient sustainable yield allocation maximizes the constant net benefit.

Maximizing annual profits

• need to convert the yield to profit by multiplying by an assumed constant (eg: price of fish) – thus yield curve becomes total revenue (TR) curve

• Profit = TR – TC

• Effort = all the equipment, labor, other resources that go into fishing, TC = effort (price of effort)

• TC – increases as more fish are caught. Why?

• Stock depletion & harvesting a larger sustainable yield (up to MSY) & harder to find

• Assumption: single captalist


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Dynamic Efficient Sustainable Yield

• The dynamic-efficient sustainable yield incorporates discounting. • The dynamic efficient sustainable yield will equal the

static efficient sustainable yield if the discount rate equals zero.

• Higher discount rates mean higher costs (foregone current income) to the resource owner of maintaining the stock.

• With an infinite discount rate, net benefits equal zero. • Extinction could occur if the growth rate is lower than

the discount rate and if the costs of extracting the last unit are sufficiently low.


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Appropriability and Market Solutions

• A sole owner of a fishery would have a well-defined property right to the fish and would want to maximize his or her profits. • Profit maximization will lead to the static-

efficient sustainable yield.

• Ocean fisheries are typically open-access resources. Thus, no single fisherman can keep others from exploiting the fishery.

What problems arise when access to fishery is completely

unrestricted?• You tell me.

Open-access resources create two kinds of external costs: • a contemporaneous (existing in the same time period)

external cost• Borne by the current generation the overcommitment of

resources (eg?) thus current fishermen earn a lower rate of return on their efforts

• An intergenerational external cost• Borne by future generations over-fishing reduces the stock

lowers future profits from fishing (fewer fish for future generations and smaller profits if the resulting effort level exceeds that associated with MSY)

• ..


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Open-access…

• Unlimited access creates property rights that are not well-defined.

• With free-access, individual fishermen have no incentive to “save” the resource.

• When access to the fishery is unrestricted, a decision to expend effort beyond the most efficient reduces profits to the fishery but not to that individual fisherman. Most of the decline in profits falls on the other fishermen


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Assuming open access regime…

• Resource is nonexcludable

• New fishermen fishing so long as there is profit to be made

• New fishermen – will • Push the stock down• Invest more resources going into fishing• Lead to a lower sustainable catch• Reduction in profit

Consequences in real-life

• Significant overfishing throughout the seas and oceans• Examples 13.1 and 13.2• Somali Pirates


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04/19/23 21

Difficulty of establishing property rights in open access

resources

• Oceans: international waters over which there is little or no institutional control

Countries choose whether or not to sign treaties

Little enforcement upon signature

200-mile (321-km) zone of exclusion in national coastal waters but…

… fish don’t respect borders and fish migrate (eg: salmon pop. between Canada and the US)


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Public Policy Toward Fisheries

• Aquaculture is the controlled raising and harvesting of fish.• Fish farming involves cultivating fish over their

lifetime.• Fish ranching involves holding fish in captivity for

the first few years of their lives.


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Global Capture and Aquaculture Production


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Chinese Capture and Aquaculture Production


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China’s Rising Share of Aquaculture

The other side to aquaculture

• Fish farming can create environmental problems• Pollution caused by the fish wastes• Destruction of ecologically valuable sites to develop

fish farms• However, the farming of shrimp and salmon has

been found to have a negative impact on the environment. Example: Growing a pond of salmon may require three to five pounds of wild fis

• Butcatfish, tilapia, and freshwater carp can convert

harmful organic wastes into edible fish meat.


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More information

• FAO report: Impacts of aquaculture on environment http://www.fao.org/fishery/topic/14894/en -


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Another policy option

• Raising the real cost of fishing through regulation• How? Pacific salmon fishery in the US - example• Preventing the use of any barricades on the rivers• Prohibiting the use of traps (most efficient catching

devices) in the most productive areas• Close designated fishing areas• Suspend fishing in other areas for certain periods of

time

• Where these policies efficient?Copyright © 2009 Pearson Addison-Wesley. All rights

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Efficiency?

• Raising the marginal cost of effort results in a lower harvest and higher stock sizes.

• While the policies may result in an efficient catch, they are inefficient because the efficient level of catch is not caught at the lowest possible cost.

• Is the objective efficiency?

• Did it work in reducing fish catch?


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Reduction in fish catch?

• Example:• Limitations on fishing times. Fishermen

bought bigger boats to harvest as much as possible during shorter seasons.

• Result: overfishing

• Plus: Technological innovations lowered the cost of fishing, offsetting the increases imposed by regulations.


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Note: open access regimes

• Alaska barred gill netters in Bristol Bay from using engines (until the 1950s)

• So they used sailboats

• But

• Japan and the USSR were modernizing their fishing fleet


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The difficulty• Concern for fisheries – why?

• Concern for income of fishermen – why?• Costs are an important dimension of the problem.

If regulations are imposed that increase costs and the costs are significantly borne by the fishermen, then their incomes suffer

• When their incomes suffer, further conservation measures become more difficult to implement, and incentives to violate the regulations increase

• Another problem: technological advances can offset the cost of regulation


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• What would happen to optimal harvest levels if we were to treat the destruction of ecosystem services as a negative externality of aggregate economic production?• How? Add all external costs to total private harvest

costs• Marginal external costs are likely to increase at a

greater-than-linear rate as we near an ecological threshold

• Optimal harvest is where marginal social costs = marginal revenue

• Our activities typically characterized by uncertainty and/or by ignorance

• Green Golden Rule: maximize well-being from renewable natural resources for the current generation w/o diminishing the capacity of future generations to benefit from those resources

Another policy option: taxes

Taxes also raise the real cost of fishing, but do so in an efficient manner. Note: a tax on effort, rather than a real-resource cost

• Unlike regulations, the tax can lead to the static-efficient sustainable yield allocation because the tax revenues represent transfer costs and not real-resource costs.

• Transfer costs involve the transfer of resources from one part of society to another.

• For the individual fisherman, however, a tax still represents an increase in costs.


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Individual Transferable Quotas (ITQs)

• An efficient quota system will have the following characteristics:• The quotas entitle the holder to catch a

specified volume of a specified type of fish.• The total amount of fish authorized by the

quotas should be equal to the efficient catch level for that fishery.

• The quotas should be freely transferable among fishermen.


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Countries with Individual Transferable Quota Systems


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Subsidies and Buy Backs

• One of management options to reduce overcapacity.• Payments used to buy out excess fishing

capacity are useful subsidies, but if additional capacity seeps in over time, they are not as effective as other management measures.


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• Marine protected areas and marine reserves are areas that prohibit harvesting and are protected from other threats such as pollution.• Marine protected areas are designated ocean

areas within which human activity is restricted.

• Marine reserves protect individual species by preventing harvests within the reserve boundaries.


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The 200-Mile Limit

• The 200-Mile Exclusion Zone is an international policy solution that has been implemented. • Countries bordering the sea now have

ownership rights that extend 200 miles offshore. Within the 200-mile limit, the countries have exclusive jurisdiction.

• This ruling protects coastal fisheries, but not the open ocean.

fungible

• Something is fungible if one unit of it substitutes indifferently for another unit

• Two buckets of water?

• But two buckets of water from different quality-sources?

• Money is fungible.

• Beware of misplaced concreteness


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Is our world fungible?

“Suppose an economy consists only of renewable resources. The interest rate is = to some weighted average of the growth rates of all renewable resource populations. Everything that grows more slowly than the average (the interest rate) is a candidate for extinction (unless at some stock its growth rate rises above the interest rate). But something is always below average. When the below average is eliminated, what happens to the average in the next period? It goes up. The tendency would be to end up with only the fastest-growing species. Biodiversity would entirely disappear. In a world in which everything is fungible, that would not matter.” But – is our world fungible?

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An article for today Reminder: Homework 2 (due May 6) 6-1