Open access resource economics Why the free market fails to protect resources 1 Motivation Group Project Otters eating lots of shellfish south of Pt Conception Marine Fisheries Service considering removing otters and you are doing a CBA on the policy What is the damage the otters are causing and thus the value of restricting them to the north of Pt Conception See http www bren ucsb edu research 2001Group Projects Final D ocs otters final pdf Value of reforming management of spiny lobster fishery Abalone fishery Value of rationalizing open access fisheries in Mexico 2 Examples Worm et al Science 2006 All fisheries could collapse by 2048 Costello et al Science 2008 Fisheries that use market based regulation don t collapse 3 Some terms we will use Stock total amount of critters biomass Intrinsic growth rate recruitment biologic term Harvest how many are extracted flow Effort how hard fisherman try to harvest economic term 4 Simple Model of Fish Biology Exponential growth Stock x With constant growth rate r rx x aert t Crowding congestion food limits drag Carrying capacity point k where stock cannot grow anymore x k As we approach k drag on system keeps us from going further Resource limitations spawning location limitations k x t 5 Put growth and drag together Biomass x x Growth Rate time x 6 Put growth and drag together Biomass x x Growth Rate time Carrying Capacity k x 7 Put growth and drag together Biomass x x Growth Rate time xMSY x Stock that gives maximum sustainable yield 8 Put growth and drag together Should we want MSY Biomass x x Growth Rate time xMSY x Stock that gives maximum sustainable yield 9 Interpreting the growth stock curve AKA recruitment stock yield biomass curves x GR Growth rate of population depends on stock size low stock slow growth high stock slow growth dx dt g x x 10 Introduce harvesting GR H1 x H2 H3 xc xb xa x H1 nonsustainable extinction H2 MSY consistent with stock size Xb H3 consistent with two stock sizes xa and xc 11 Introduce humans Harvest depends on How hard you try effort stock size technology H E x k H k technology catchability E effort e g fishing days x biomass or stock Harvest for high effort kEHx kELx Harvest for low effort x 12 Will stock grow or shrink with harvest If more fish are harvested than grow population shrinks If more fish grow than are harvested population grows For any given E and k what harvest level is just sustainable k E x g x 1 H E g x 2 This can be solved for the sustainable harvest level as a function of E H E Solve 1 first for x E Substitute into 2 to get H E x 13 Yield effort curve H E Gives sustainable harvest as a function of effort level Notice that this looks like recruitment stock graph This is different though it comes from recruitment stock relation E 14 Introduce economics Costs of harvesting effort TC w E w is the cost per unit effort Revenues from harvesting TR p H E p is the price per unit harvest Draw the picture 15 Two outcomes Open Access vs Efficient TC w E TR p H E E E MR AR w MC AC EMSY EOA E 16 Two outcomes Open Access vs Efficient Rents to the fishery TC w E TR p H E E E MR AR w MC AC E EMSY E 17 Two outcomes Open Access vs Efficient Rents to the fishery TC w E TR p H E E E Value of fishery maximized at E Profits attract entry to EOA open access MR AR w MC AC E EMSY EOA E 18 Open access resource Economic profit when revenues exceed costs not accounting profit Open access creates externality of entry I m making profit that attracts you you harvest fish stock declines profits decline Entrants pay AC get AR should get MR AR So fishers enter until AR AC TR TC But even open access is sustainable Though not socially desirable What is social value of fish caught in open access fishery Zero total value of fish total cost of catching them 19 Illustration of steady state outcomes Maximum Sustainable Yield Effort EMSY Sustainable Catch Open Access Catch Effort EOA Efficient Catch Effort E Note efficient catch lets biology stock do some of the work X 20 Mechanics of solving fishery pblms with solutions for specific functions Start with biological mechanics G X aX bX2 G growth X stock Harvest depends on effort H qEX Sustainable harvest when G X H First compute X as a function of E Then substitute for X in harvest equation to yield H E which will depend on E only Costs TC c E Total Revenue TR p H E where p is price of fish Open access find E where TC TR Efficient access find E where Marginal revenue from effort dTR dE equals Marginal cost cost per unit of effort 21 Example NE Lobster Fishery Bell 1972 used data to determine catch lb lobsters per unit of effort traps using 1966 data H E 49 4 E 0 000024E2 Price is perfectly elastic at 0 762 lb Average cost of effort 21 43 per trap Open access equilibrium TC TR E 891 000 traps H 25 million lbs Compare to actual data E 947 000 H 25 6 million lbs Maximum Sustainable Yield E 1 000 000 traps H 25 5 million lbs Efficient equilibrium E 443 000 traps H 17 2 million lbs 22