Open access resources

1
Open access resources

• No owner
• No one controls access to or use of the resource
• First come, first serve or other, non-legal based
  means for allocating resource
• Will resource be used efficiently?

2
Open access experiment
3
Scenario

• Each of you owns a fishing boat. The cost of a
  days fishing effort is 1. Each of you has
  received one chip worth 1 to pay this cost of
  entry.

4
Scenario

• The first boat in, the first entrant, receives a
  return from fish caught and sold of 19, average
  revenue product, ARP TR/boats.
• TR Priceboats
• so that ARP Price
• Each additional boat owner receives 1 less than
  the one before. (See ARP schedule)
• Why?

5
(No Transcript)
6

• Each time another boat enters however, all
  current entrants lose 1 because of the reduction
  in the number of fish available to all.
• Lets see how many boats will enter the fishery.

7

• On what basis did each boat owner decide whether
  or not to enter the fishery?
• Note that each boat owner only gets the average
  for all boat owners, thus the entry of one boat
  leads to a loss to all previous entrants.
• E.g. with the 14th boat the ARP 6 so that even
  if the first entrant now only gets 6.

8
Open Access results

• So long as ARP cost per unit for each new
  entrant, the new entrant gains a net benefit.
• 19 boats enter the fishery
• What is the net benefit per boat?
• ARP cost per boat 1 1 0
• What then is the value for social net benefits,
  rent, derived from the fishery?

9
Open Access results
10
Sole owner experiment

• Now lets just have one owner of the fishery.
• The owner receives all the revenue generated with
  the addition of each boat and bears all the
  costs.
• We need one person to be the owner and a team to
  help the owner keep track of revenue, total costs
  and remaining rent.

11
Sole owner experiment

• On what basis will the sole owner decide whether
  or not to add another boat?
• Lets see how many boats will enter the fishery.

12
(No Transcript)
13
Sole owner results

• So long as total revenue total cost is
  increasing the owner adds boats.
• Since total revenue total cost rent, rent is
  maximized.
• This occurs with the entry of only 10 boats.
• Rent accruing to the owner 90 net social
  benefits
• Note that under open access new entrants do not
  care about the decline in rent to the fishery as
  a whole but the sole owner does

14
(No Transcript)
15
(No Transcript)
16
Marginal approach

• Another view of this is to compare cost per boat
  to marginal revenue product, the increase in
  total revenue with each additional boat.
• Marginal revenue product change TR/change
  number of boats
• So long as MRP cost per unit both total revenue
  and rent increase

17
(No Transcript)
18
(No Transcript)
19
Comparison of results
20
Open access resources- summary

• When a resource is open to all entrants
• The resource is overexploited
• Too many resources are allocated to harvest,
  capture, extraction of the resource
• Resource rent is dissipated

21
Open access resources

• Terms used to describe the overexploitation of an
  open access resource
• Tragedy of the Commons
• Everyones property is no ones property