Renewable, open-access resources: fisheries

1. Renewable, open-access resources: fisheries Econ 1661 Review Section March 4th, 2011 Robyn Meeks

2. Plan • Review renewable resources • If there’s time, we will review a few concepts from first half of course. • Please note that an exam review will be held on Saturday 5th March from 12 to 130 pm in Room L382. • If you have questions you want addressed in review, email Liz.

3. Renewable, open-access resources outline • Renewable resources • Open-access • Biological aspects of fisheries • Efficient allocations: fisheries • Issues of open-access in fisheries • Public policies available

4. Renewable resources • Open-access vs. common property • We are looking at open-access fisheries

5. Biological dimension of fisheries Logistic Growth Curve with Harvest • natural equilibrium (Scc) • the population size that would persist in the absence of outside influences • stable • “carrying capacity” • minimum viable population (SMVP) • level of the population below which growth is negative • unstable • below this population the species could become extinct • critical depensation Population growth increases as population increases Population increases lead to eventual decline in growth

6. Biological dimension of fisheries Logistic Growth Curve with Harvest • sustainable yield • Population for which catch level = growth rate of population • This can be maintained • maximum sustainable yield (SM) • population size that yields the largest catch that can be perpetually sustained • maximum sustainable yield = maximum growth Population growth increases as population increases Population increases lead to eventual decline in growth 6

7. Few additional points on biological dimension • Very small and very large populations generate small rates of growth • One population will have the greatest possible annual growth rate (maximum sustainable yield) • Except for at the stock maximum, equilibrium at any desired yield can be achieved through 2 different levels of fishing effort (high and low)

8. Recall : Static Efficiency • To achieve static efficiency (single time period), undertake policy to the point at which marginal benefits equal marginal costs Marginal Benefits and Marginal Costs Total Benefits and Total Costs Marginal Benefits Total Benefits Net Benefits Marginal Costs Total Costs Q* Q* 8

9. Efficient sustainable yield • We use three assumptions to simplify analysis/graphs: • price/fish constant over all catch levels • ConstantMC of fishing effort • Quantity of fish caught proportional to existing stock of fish • Static vs. dynamic • For details on impact of discount rate, see Tietenberg. Slope=MB Efficient level of effort

10. Efficient sustainable yield • Efficient sustainable yield occurs where • MB=MC • Net benefits are maximized Slope=MB Efficient level of effort 10

11. Market exploitation under open access • In an open-access fishery, the rent is a stimulus for new fishermen to enter • As long as TB > TC competitors will enter the market • Under open-access, there will be an inefficient level of effort: • Effort will increase until TB=TC • Overexploitation, overcapitalization, depleted stocks • Rents dissipate entirely Total cost Total benefits (total revenues) Under open access

12. Reasons for Ec:OPEN ACCESS • Contemporaneous external cost: one fisher affects another (if I catch, you can’t and vice versa) • Intertemporal external costs: take today, less for tomorrow • Does not take into account future value MUC (this is why hotelling rule for non-renewables required secure property rights) • Market on its own cannot achieve efficient result.

13. Effect of a subsidy on open-access level of effort Total cost Total cost after subsidy Total benefits (total revenues) Competitive equilibrium under open access Level of effort under open access with a subsidy

14. What can be done? • Privatization (e.g. aquaculture) • If resource is not very mobile, can contain with barriers • If species instinctively returns to identifiable location • Is efficient • In cases of open-access, regulation is possible • Traditional command-and-control • Market-based instruments • Taxes • ITQs

15. Traditional command-and-control • Examples of command-and-control regulations • Restrict # of fishers (through licensing) • Restrict amount of gear or size of fishing vessel • Limiting time periods or areas in which fishing is allowed • Restricting use of specific technologies • Imposing restrictions on types (e.g. size or gender) of fish caught • Problems • Effort can change or expand to re-capture rents • Difficult to monitor and enforce

16. Market-based instruments: tax • Goal of an efficient tax • Try to increase total cost of fishing effort • Thereby decreasing level of effort we see if the fishery • Implications • May result in the efficient level of effort • Not always equitable • Not typically liked by fishers, not commonly used in fishing sector Effect of an efficient tax on fishing effort

17. Market-based instruments: ITQs • Individual transferable quotas (ITQs) • Tradeable right • Different ways they can be allocated, for example • Given based on historical catch • Auctioned • Quotas entitle the holder to catch a specified share of total authorized catch • Total amount of individual quotas equals the efficient level of harvest for the fishery • Fishers can freely buy and sell quotas • Net sellers are the high-cost fishers • Net buyers are the low-cost fishers

18. Comparison of taxes vs. ITQs

19. Additional information • I will have office hours immediately following this section (2:30-3:30) in Taubman, carrel 3. • If you haven’t yet collected your graded problem set #1, please collect it now. • Extra Office Hours: • Dominic will Hold Office Hours on Saturday from 2 to 3 pm • Liz and Gabe will hold Office Hours in Taubman Carrel 2 from 2:00-4:00pm on Sunday, March 6th.