1. The Fishery Resource: Biological and Economic Models Wednesday, April 12

2. POPULATION GROWTH (change in stock size) FISH STOCK or POPULATION The Biological Model S G S Note: This is a static model in the sense that only one stock size can exist at a time.

3. STOCK or POPULATION GROWTH or CATCH RATE To maintain a particular population, catch rate (C) cannot exceed growth rate (G). S C S

4. STOCK or POPULATION GROWTH or CATCH RATE Maximum Sustainable Yield – the largest catch rate that can be sustained without reducing fish stock. S ss Steady-state population – with no human impact MSY S msy

5. Impact of fishing effort on the fish stock: FISH STOCK or POPULATION GROWTH or CATCH RATE FISH YIELD FISHING EFFORT Zero fishing effort means maximum (steady-state) population

6. Fishing Effort Population Relationship between population, effort and catch 0 Catch per unit of effort is proportional to population Growth/Catch YE 1 e1e1 C1C1

7. Fishing Effort Population Relationship between population, effort and catch 0 Catch per unit of effort is proportional to population Growth/Catch C1C1 YE 1 e1e1 YE 2 e2e2 C2C2

8. Fishing Effort Population Relationship between population, effort and catch 0 Catch per unit of effort is proportional to population Growth/Catch YE 2 C2C2 C1C1 YE 1 e1e1 e2e2 YE 3 e3e3 C3C3

9. Fishing Effort Population Relationship between population, effort and catch 0 Catch per unit of effort is proportional to population Growth/Catch YE 2 C2C2 C1C1 YE 1 e1e1 e2e2 YE 3 e3e3 C3C3 Sustainable Yield Function

10. Fish Yield Fishing Effort (e.g. number of boats) Sustainable Yield Function MSY

11. Fish Yield x Price Fishing Effort (e.g. number of boats) Total Revenue = PRICE x YIELD = P x Q TR Sustainable Total Revenue Function

12. Fishing Effort (e.g. number of boats) Total cost = cost per boat x number of boats $ TR TC

13. Fishing Effort (e.g. number of boats) $ TR TC The Economic Model – what is the economically efficient level of effort? Where TR – TC is the greatest.

14. Review: What does maximum net returns (TR-TC) say about MR and MC? MC is the slope of the TC curve. MR is the slope of the TR curve

15. Fishing Effort (e.g. number of boats) $ TR TC Point of Tangency – where MC=MB The Economic Model – what is the economically efficient level of effort? EeEe

16. Static Efficiency MB=MC MB=MC TR exceeds TC by the largest amount TR exceeds TC by the largest amount Resource owner earns rent Resource owner earns rent Each year is independent Each year is independent Yield is sustainable Yield is sustainable Discount rate=0 Discount rate=0

17. Fishing Effort $ Growth/Catch Population 0 TR TC e* Equilibrium Population

18. Dynamic Efficiency If discount rate is greater than zero (e.g. opportunity cost of capital invested in boats and equipment) If discount rate is greater than zero (e.g. opportunity cost of capital invested in boats and equipment) –Will want to increase effort and catch in current period –Higher catch rate leads to lower population, lower future catch rates Future equilibrium possible at lower population and lower catch rate Future equilibrium possible at lower population and lower catch rate

19. Fishing Effort $ Growth Population 0 TC TR r=0r>0

20. What if discount rate is infinitely large? Future is totally discounted (there may be no future) Future is totally discounted (there may be no future) This is the open access situation This is the open access situation –No limits to access –Other fishers observe rents being earned and enter the fishery –Catch continues until TR=TC (zero rent)

21. Fishing Effort (e.g. number of boats) $ TR TC Technological change – lowers cost of fishing effort, increases pressure on fishery, further reduces population

22. Fishing Effort $ Growth Population TR TC 0

23. Policies to limit fishing effort Territorial use rights in fisheries (TURF) Territorial use rights in fisheries (TURF) Limited entry Limited entry Limited effort Limited effort Catch limits – total allowable catch (TAC) Catch limits – total allowable catch (TAC) Individual fishing quotas (IFQ) Individual fishing quotas (IFQ) Individual transferable quotas (ITQ) Individual transferable quotas (ITQ) Marine Reserves Marine Reserves Demand reduction/price signals Demand reduction/price signals

24. TURF Creates ability to exclude use Creates ability to exclude use Common property management rules Common property management rules –Have existed for centuries –Migratory species an issue 200 mile Exclusive Economic Zone (EEZ) 200 mile Exclusive Economic Zone (EEZ)

25. Limited Entry A limited number of “fishing licenses” is issued A limited number of “fishing licenses” is issued –May have problem of “capital stuffing” Making licenses tradable improves efficiency Making licenses tradable improves efficiency –Transferability of property rights

26. Limited Effort Season restrictions Season restrictions Gear restrictions Gear restrictions Limited number of boats Limited number of boats All of these raise the costs of fishing All of these raise the costs of fishing Fishing Effort $ TR TC Limiting one kind of effort doesn’t eliminate incentives to increase effort elsewhere

27. Total Allowable Catch Allowable catch is established and monitored Allowable catch is established and monitored When allowable catch is reached, fishery is closed When allowable catch is reached, fishery is closed Goal is sustainability, not efficiency Goal is sustainability, not efficiency Derby fishery Derby fishery –No quotas for individual fishers –Bigger boats, crews, nets, etc.

28. Individual Fishing Quotas Desired total catch is allocated among fishers, with each fisher given a quota Desired total catch is allocated among fishers, with each fisher given a quota Will solve the race for fish problems Will solve the race for fish problems Will not reach efficiency Will not reach efficiency

29. Individual Transferable Quotas Individual fishing quotas are transferable Individual fishing quotas are transferable –Fishing “rights” go to highest value –Modeled after tradable permits or cap and trade programs in environmental policy Harvest permits vs. property rights Harvest permits vs. property rights Issues: Issues: –How to allocate quota shares –Community impacts –Concentration of permits –Political opposition

30. Summary Most fishery policy has sought to limit harvest in order to prevent collapse of the fish stock Most fishery policy has sought to limit harvest in order to prevent collapse of the fish stock Economics helps understand how different policies affect behavior (incentives) Economics helps understand how different policies affect behavior (incentives) ITQs begin to address efficiency issue ITQs begin to address efficiency issue