Renewable Common-Pool Resources: Fisheries and Other Commercially Valuable Species

Too Small/Low Stock Size◦ Lower growth rate as fish can’t hook up and

reproduce◦ Birth (replacement) less than death/harvest

Growth rate declines; species becomes extinct Too Large Stock Size

◦ Food sources (plankton, biomass, other fish) too small to support large # of fish Growth rate declines

Growth rate (replacement) and size of the fish stock/pool

Schaffer model: Relationship between the Fish Population and Growth

Current Stock(t) = Previous Year Stock(t-1) + Births(t) – Deaths(t) – Harvest(t)

More succinctly◦ S(t) = S(t-1) + B(t) – D(t) – H(t)◦ But Growth (G) of the stock (excluding Harvest)

G(t) = B(t) – D(t) S(t) = S(t-1) + G(t) – H(t)

An Equation for Current Stock Size

Current Stock ◦ Depends on past year’s stock + net growth of the

stock – fish harvested S(t) = S(t-1) + G(t) – H(t)

Sustainability◦ Means keeping the stock size constant over the

time (from one year to the next)◦ S(t) = S(t-1) = S(t-2) = S(t-3) = … = S(t-n)◦ Can do this as long as G(t) = H(t)

Harvest (or catch quota = replacement (growth) rate

An Equation for Sustainability

It’s the Fish Biologists goal Maximize H(t)

Given that S(t) = S(t-1) = S(t-2) = … = S(t-n) That is find the largest size of the stock that can be

harvested/caught without reducing the size of the stock over time

Maximum Sustainable Yield

Max Sustainable Yield

Open Access Fishery◦ Let each fisherman/boat make the decision on

whether or not to “go out” Boat will “go out” if it’s revenues exceed costs

Economist Approach (tradable permits)1. Determine profit maximizing level of the

harvest/catch (H*)2. Determine the efficient number of boats for the

fishery, issue that number of licenses (L*)3. Calculate the quota per license

1. Q* = H*/L*4. Allow license holders to use or sell the license

What Else Could We Do?

The Open Access SolutionProfitable to fish as long as Tot Rev > Tot CostH(t) > G(t) so in the long-run S(t) < S(t-1) -> stock will decrease

Zero profits

Open Access Harvest

Suppose that there was a single owner of the fishery and he did not have any market power (ability to set price)◦ What would be the economically efficient level of

harvest/catch? The one that maximizes profits (marginal benefits of

consuming fish = marginal costs of catching fish)

The Economist Solution

Suppose that there was a single owner of the fishery and he did not have any market power (ability to set price)◦ What would be the economically efficient level of

harvest/catch? The one that maximizes profits (marginal benefits of

consuming fish = marginal costs of catching fish)

The Economist Solution

Comparing All 3 Options

Zero profits

Open Access Harvest

MSYEconomist

Compare◦ Open Access Fishery (Tragedy of the Commons)

Everyone who has a boat can harvest as many fish as they can catch profitably (individual)

◦ Maximum Sustainable Yield (MSY) What is the largest stock of fish that can be

sustained from one year to the next◦ Economically Efficient

Given costs/benefits – what is the efficient harvest

How do we use this to manage the fisheries (prevent extinction)

1. Open (unregulated) Fisheries (Ec)◦ Catch until total costs exceed revenues (up to

zero profits) => ATC(Q) = TotRev(Q) = P*Q 2. Maximum Sustainable Yield(MSY) (Em)

◦ Largest “harvest” that can be sustained every year (harvest = replacement rate)

◦ Biologist solution 3. Economically Efficient (Eo)

◦ Maximize Economic Value (MC(Q) = MR(Q)

3 Possible Solutions

Economist Solution

Command and Control (Regulation)◦ Set Quota for number of fish that can be caught

Ignores differences in costs/efficiency of fishermen Can lead to over capacity (too many boats, too big) Discarded catch/by-catch issues

Tradable permits (ITQs)◦ Determine optimal “harvest” and number of licenses to be issued◦ Divide quota/target by number of license = #fish caught per license◦ Auction or grandfather licenses◦ Allow owners to trade (one-year, or multi-year)◦ Multi-species/by-catch

Taxes◦ Per unit tax on the #fish caught

Policy Options

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.

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.

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.

FIGURE 14.7 Effect of Regulation

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.

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.