Key Points' so far

1
Key Points. so far

• Static efficiency requires MB MC.
• Dynamic efficiency requires PVMNB be the same in
  all periods.
• The examples in chapter 5 in Tietenberg had
  constant costs of extraction. In such cases it is
  the user cost that has to be balanced from period
  to period (see page 91-92).

2
Definition

• Marginal User Cost
• When resources are scarce, greater current use
  diminishes future opportunities. The cost of
  those lost opportunities in the future is the
  user cost associated with consumption today.
• Formally Marginal user cost is the present value
  of the future opportunity costs at the margin.
• Question why must the marginal user cost
  increase over time at a rate equal to the
  discount rate?

3
Key Points Questions related to Fisheries

• User costs and intertemporal externalities.
• Might the amount of harvest we desire today
  exceed a relevant biological limit?
• What happens when we skew consumption towards the
  present by discounting the future (having a
  positive discount rate)?
• What happens if the resource is held in common or
  is open access?

4
You should be able to

• Outline dynamic efficiency in the case of the
  fishery.
• Explain why it can, theoretically, make sense to
  drive a fish stock below the MSY level.
• Describe the various management problems and
  outline the costs and benefits of different
  strategies.

5
Growth
Figure 13.1
G(Smsy)
Fish Stock
Smsy

Figure 13.2 Each level of fishing effort
corresponds to a particular stock level
R(Emsy)
Costs
Benefits
Fishing Effort
Emsy
6
Growth
Setting r 0 for the moment The maximum
sustainable yield is not the profit maximizing
level of harvest unless the cost of harvest is
zero.
Fish Stock
Smsy

Costs
Benefits
Fishing Effort
Emsy
E
7
Growth
When considering just the cost of harvest today,
the optimal level of fish is greater than what is
needed to support the MSY
Fish Stock
Smsy

Costs
Benefits
Fishing Effort
Emsy
E
8
Growth
With an infinite discount rate (no concern for
the future) the efficient harvest rate is where
total cost total benefit which is the same
in this example as the level of harvest where
average costs equal average benefits.
Fish Stock
Smsy

Costs
Benefits
Emsy
Ec
Fishing Effort
9
With a positive discount rate ( r gt 0)

• If you skew consumption (harvest) towards the
  present, you drive down the stock moving E
  towards Emsy.
• If you simultaneously lower the cost of harvest,
  then you could have E gt Emsy.
• So, with low harvest costs and a positive
  discount rate it is easy to imagine S lt Smsy. At
  issue is whether the low stock size is a problem
  or whether the stock growth rate is large enough
  to counter the effects of r gt 0 and technological
  advances.

10
Related Topics

• Are we considering all relevant costs?
• (May 1)
• What about the cost of extinction?
• (May 15)

11
Why Might r Be Large ?

• Open access
• Tragedy of the commons
• Opportunity costs
• Cultural/societal issues?
• Not willing to make sacrifices?

12
Management Strategies

• Seasons and quotas
• Restrictions that increase the cost of fishing
• (See pg. 295 296)

TC2

TC1
Benefits
Fishing Effort
Ec
E
13
Management Strategies (cont)

• Taxes
• Individually transferable quotas (pg. 297-302)
• By-catch regulations
• Non fishing strategies
• Habitat restoration and protection
• realizing that takings are a problem and
  incentives may be necessary