Economics of Biotic Resources

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Economics of Biotic Resources

• Ecosystem Structure and Function

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Important points to cover

• What is the relationship between a species stock
  and its ability to reproduce?
• Maximum sustainable yield (MSY)
• Minimum viable population, or critical
  depensation, CD
• What is a sustainable harvest from a given stock?
• What is profit maximizing harvest?
• From a static perspective (no investing of
  profits)
• From a dynamic perspective (we can invest
  profits)
• What is an optimal harvest?
• From an ecosystem perspective, when we account
  for both the stock-flow and fund-service nature
  of ecosystems
• What is the impact of profound uncertainty on all
  of this?

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Econ of Ecosystem Structure Renewable stock-flows

• Material flow from a stock over time
• Can use stock as fast as we want
• Level of stock affects future flow

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Sustainable Yield Curve
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Carrying capacity, MSY and minimum viable
population (point of critical depensation)

• Uncertainty and dependence on exogenous variables
• Variation in Critical depensation Passenger
  pigeons and Mauritius Kestrel
• Critical depensation for ecosystems

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Sustainable harvests and effort
What is the relationship to scale?
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Harvest effort and cost

• Yieldcatchability quotient x Stock x
  effortYqXE
• Stable equilibrium
• Unstable equilibrium
• Where did historical harvests take place?
• Where are they taking place now?

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The Total Revenue Curve

• Yield price Total revenue
• Multiplying every point on curve by same number
  does not change shape of curve

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Total cost for sustainable yields

• TPC total private costs
• As harvest goes up and stock goes down, what
  happens to costs?
• Rough transformation of YqXE for every level of
  E
• TPC represents the cost for the corresponding
  sustainable yield

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Profit maximization

• p TR-TC
• maximum p occurs when MR MC

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Maximizing annual profit (static)
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Open access fishery

• Non-excludable (no barriers to entry), non-rival
• What will happen if some fishermen are maximizing
  profit?

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Open access fishery

• Non-excludable, non-rival
• p 0
• This is what happens in any competitive market
• What happens when harvest costs are very low?
• What actually happens to harvest costs relative
  to price over time?

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Decrease in harvest costs
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(No Transcript)
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Profit maximization (dynamic)

• To move from one point on the sustainable
  harvest curve to one at a lower stock, we must
  reduce the stock.
• What happens to the profit made by selling that
  stock?

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Opportunity Costs of Renewable resources

• The opportunity cost of not harvesting is equal
  to the foregone earnings from not investing the
  profits of that harvest.
• In practical terms, we give less weight to the
  future than to the present (discounting)

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Whats more profitable, letting your redwoods
grow at 1 per year, or cutting them down and
investing the profits in the stock market at 7
per year?
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Dynamic profit Max
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Dynamic profit Max

• MRMC, but MR includes interest on revenue from
  unsustainable harvest
• Think about repaying a loan with the profits from
  reducing the stock
• What if the interest (discount) rate is very high?

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Whats missing?

• Ecosystem services

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Announcements

• Most of the assignments handed in had no names.
  No name no assignment.
• If you turned in an assignment with your names on
  it and I was slow in getting it back, you have
  until Monday to address my comments on your
  final.
• Work study position USSEE conference

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Including the fund-service
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Characteristics of optimal harvest

• Must account for stock-flow and fund service
• Discounting probably not appropriate, and
  particularly inappropriate for fund-service
  component
• Higher stocks, lower harvests than static profit
  maximizing stock and harvest
• Must account for uncertainty

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Summary
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So how do we get there?

• Direct regulations
• Net size, roadless areas, etc.
• Seasons, protected areas
• Taxes (shift TC curve upwards)
• Tradable quotas

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What is the relationship to distribution?

• Who benefits from ecosystem fund-services?
• Who benefits from the harvest of stock-flows?
• Who deserves profits from harvest of stock-flows?

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Natural dividend from renewable resources