Your exams: graded, yes, but I forgot them at home. Did you all get the readings? Yes?

Thursday: 12-30, Fares Hall

Fisheries and other Chapter 14

What is meant by an ‘efficient sustainable level of harvest’? Biological populations: a class of renewable resources called interactive resources: the size of the resource stock (population) is determined jointly by biological considerations and by actions taken by society Postharvest size of pop – determines the availability of resources for the future Rate of harvest has intertemporal effects What is meant by an ‘efficient sustainable level of harvest’? Is efficiency a sufficiently strong criterion to avoid extinction? How well do our institutions fulfill those criteria?

Biological dimension A particular relationship between growth of fish pop and size of fish population; abstract from environmental influences and age structure of population Natural equilibrium (Ś): population size that would persist in the absence of outside influences Stable equilibrium: movements away from this population level set forces in motion to restore it How? K

Biological dimension Minimum Viable Population (S): level of population below which growth in population is negative; unstable Sustainable yield: catch level equals the growth rate of the population As long as the population size remains constant, growth rate (catch level) will remain constant as well Maximum sustainable yield population (S*): pop size that yields max growth; largest catch that can be perpetually sustained

Efficient Allocations Biological Dimension—The Schaefer model The Schaefer model posits an average relationship between the growth of the fish population and the size of the fish population. The shape of the graph (Figure 14.1) 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: Biological Dimension—The Schaefer model S*: maximum sustainable yield pop Why is G(S*) the MSY for S* pop?

Is the MSY synonymous with efficiency? Why? Efficiency: maximizing the net benefit from the use of resource; need to include the “costs of harvesting” plus benefits Let’s start by defining the efficient SY w/o discounting

Static Efficient Sustainable Yield The static-efficient sustainable yield = 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.

Efficient Sustainable Yield for a Fishery Em = further efforts reduce catch and revenue; corresponds with MSY Ee = efficient level of effort: MB=MC

Since marginal costs are assumed constant, total cost is a straight line from the origin. Net benefit is the vertical distance between benefits and costs. Maximum net benefit is at point Ee where the vertical distance is maximized and where the marginal benefit (slope of the total benefit function) equals marginal cost (slope of the total cost function). The maximum sustainable yield is not equal to the static efficient yield unless the marginal cost of additional effort is zero. The efficient level of effort is less than that necessary to harvest the maximum sustainable yield and thus is associated with higher population sizes. A change in the marginal cost of effort (due to a change in technology, or a regulation, for example) would cause the total cost curve to rotate. Lower marginal costs would cause a rotation to the right. Higher marginal costs would cause a rotation to the left.

Efficient Sustainable Yield for a Fishery Ec = infinite r; net benefits equal zero; no value is received from future allocations Ee = efficient level of effort: MB=MC

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. Why? Static efficient sustained yield: allocation that maximizes the identical 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.

Efficient Sustainable Yield for a Fishery Ec = infinite r; net benefits equal zero; no value is received from future allocations Ee = efficient level of effort: MB=MC

Would a dynamically efficient management scheme lead to extinction of the fishery? Benefit from extracting the very last unit would have to exceed the cost of extracting that unit (including the costs on future generations) As long as the population growth rate exceeds the discount rate, this will not be the case. If the growth rate is lower than the discount rate, extinction can occur – if costs of extracting the last unit are sufficiently low

Biomass rate of growth … Why does the biomass rate of growth have anything to do with whether or not an efficient catch profile leads to extinction? Rates of growth determine the productivity of conservation efforts With high rates of growth, future generations can be easily satisfied; when the rate of growth is very low, it takes a large sacrifice by current generations to produce more fish for future generations

Actual fisheries differ from the standard model… 1) – harvesting marginal costs are typically not constant; rather they increase as the remaining stock decreases 2) - since prices are not constant, the size of the harvest can – and does - affect prices

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.

FIGURE 14.3 Market Allocation in a Fishery (1 of 2)

FIGURE 14.3 Market Allocation in a Fishery (2 of 2)

FIGURE 14.3 Market Allocation in a Fishery

Open-access creates two kinds of external costs: Contemporaneous external costs are the costs imposed on the current generation from overfishing. Too many resources (boats, fishermen, etc.) are committed to fishing. Intergenerational external costs are the costs imposed on the future generation from the exploitation of the stock today. Overfishing reduces stocks and thus future profits. Unlimited access creates property rights that are not well- defined. With free-access, individual fishermen have no incentive to “save” the resource. Open-access and common-pool resources are not synonymous.

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.

FIGURE 14.4 Global Capture and Aquaculture Production

FIGURE 14.5 Chinese Capture and Aquaculture Production

FIGURE 14.6 China’s Rising Share of Aquaculture

Raising the real cost of fishing through regulation is another policy option. 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. Technological innovations have lowered the cost of fishing, offsetting the increases imposed by regulations.

FIGURE 14.7 Effect of Regulation

Taxes also raise the real cost of fishing, but do so in an efficient manner. 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.

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.

TABLE 14.1 Countries with Individual Transferable Quota Systems

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.

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.

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.