1. Spatial management of renewable resources under uncertainty Preliminary results on the economics of coupled Flow, Fish and Fishing Christopher Costello* and Steve Polasky October 22, 2004

2. Specific research questions 1.How to optimally manage a fishery subject to spatial heterogeneity in economics and biology? 2.How does optimal spatial management change under uncertainty and variability?

3. More research questions 3.Are permanent reserves ever optimal? Under what conditions? How should they be designed? 4.Are temporary reserves ever optimal? Under what conditions? 5.If a reserve is implemented, what is the optimal spatial management outside the reserve? (a)If reserve is optimally placed? (b)If reserve is arbitrarily placed?

4. More research questions 6.What is the economic value of an optimally designed reserve? What is the economic cost of an arbitrarily placed reserve? 7.What information is required to implement the recommended management? How should management proceed with less information?

5. Timing of production & harvest Adult population in a location Settlement and survival to adulthood Larval production Spawning population (Escapement) Harvest zfzf Random dispersal “K ij ” zSzS zmzm (Note here that harvest is location-specific) shock to adult survival shocks to settlement and larval survival shock to fecundity

6. Uncertainty and variability Adult population in a location Settlement and survival to adulthood Larval production Spawning population (Escapement) Harvest zfzf Random dispersal “K ij ” zSzS zmzm (Note here that harvest is location-specific) shock to adult survival shocks to settlement and larval survival shock to fecundity

7. Conceptual approach Instead of asking: What are the economic implications of implementing a reserve? We ask: What is the optimal spatial management of this resource over time? –Patches without harvest are “reserves” (permanent vs. temporary) –Determine optimal management outside any given reserve –Derive “cost” of reserve.

8. General assumptions Finite set of discrete “patches” –Adult population in each patch is known Harvest is perfectly implemented 4 random variables each period –Random shocks independent of time, distributions known, may be correlated across space. Fishery manager seeks to: choose patch-specific harvest each period to maximize expected discounted profit over T year planning horizon.

9. Economic assumptions Price exogenously given (may be random) Cost of harvesting in patch i depends on: –How much is harvested and –The population in that patch (stock effect) But MC of harvest depends only on stock size (in that patch) at time of harvest.

10. The marginal conditions p c(x) Population, x The cost of catching one more fish The benefit of catching one more fish The net benefit of catching one more fish AY Total profit from harvesting H fish (from initial population of A to an escapement of Y) H MR, MC

11. Uncertainty & Non-linearities Idea is to derive optimal escapement as a function of adult population in every patch: Y i *(A 1,A 2,…,A I ). How Y* is affected by uncertainty depends on non-linearities in the problem –If objective is linear in uncertain parameters, uncertainty has no effect on optimal sol’n. –If non-linear, shape will determine whether more uncertainty leads to higher or lower Y*

12. What are the non-linearities? Biology –Larval production = f(escapement) –Adult survival = M(escapement) –Larval survival to adulthood = S(successful settlement) Economics –Harvest cost = c(harvest, adult population) TODAY: focus on deterministic environment

13. Problem setup Maximize E{NPV} of profits from harvest. Find optimal harvest strategy: Equation of motion: Dynamic Programming Equation:

14. Solution procedure Discrete-time stochastic dynamic programming. –Start at period T (end of planning horizon) –Work backwards analytically State variables: A 1t,A 2t,…,A it Control variables: Y 1t,Y 2t,…,Y it Each control is a function of the state vector. From this, can find –Value of the resource (when used optimally) –Optimal spatial harvest policy as function of the state.

15. Solution Can we get any traction analytically on this problem? Turns out to have a simple solution: “Constant Patch-Specific Escapement” –There is a Y* for each patch. Every year, harvest down to Y*.

16. Answers to the research questions 1.[optimal management] Constant patch- specific escapement. If interior everywhere then can disregard larval transport – extra production in highly productive patches, extra harvest where not highly productive. If some closures, may be more difficult

17. Answers to the research questions 2.[under uncertainty and variability] Same general approach, different y* level. Under reasonable conditions, spikiness doesn’t matter. If high variability, might affect answer because may want closure in future

18. Answers to the research questions 3.[permanent reserves] Yes. Since base escapement on productivity, close areas with adult pops that are low relative to productivity. Suggests closure of high productivity areas that have low adult populations.

19. Answers to the research questions 4.[temporary reserves] Yes. Bad shock (e.g. low larval dispersal to a site) can cause stock to be lower than that path’s y*. Optimal rule is to close that area until it rebounds above y*.

20. Answers to the research questions 5.[optimal management outside reserve] If reserve is optimal, then harvest less outside reserve (because growth is high in reserve, so want to send extra larvae there) If reserve is not optimal, then harvest more outside reserve (because growth in reserve is low)

21. Answers to the research questions 6.[Economic value of reserves, economic cost of reserves]…?? 7.[Information]…??