Topics Today (4/11/13)  Review results of the classroom game  Economic solutions to open access allocation of a fishery  Hwk #8 posted, due next Tuesday AT THE START OF CLASS  Exam next Thursday, April 18  Office hours next week:  Monday 2:30-3:30, 4:30-5:30  Wed 2:30-4:30  Review questions with answers to be posted this weekend 1Review of the classroom game  Because price of fish in the game is $1, the growth function is also a “sustained revenue” function 05101520250 500 1000 1500 2000 2500 3000Growth and Sustained Revenue (in 10,000s) Stock (in 10,000s) 2Review of the classroom game  The diagram below shows the sustained yield total revenue, the sustained yield total cost, and the sustained yield profits associated with the game. 05101520250 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000$ (in 10,000s) Stock (in 10,000s) sustained yield totalrevenue (TR)sustained yield profitssustained yield totalcost (TC)sustained profits at SMSY sustained profits at SMSY 3Review of the classroom game  The diagram below shows the stock level where sustained yield profits are highest (S=2000) and where sustained yield profits fall to zero (S=1000)  With a zero discount rate, as in the classroom game, the stock level where sustained yield profits are highest is the efficient sustained yield stock (SESY=2000). 05101520250 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000$ (in 10,000s) Stock (in 10,000s) sustained yield totalrevenue (TR)sustained yield profitssustained yield totalcost (TC)sustained profits at SESY 4Review of the classroom game  What did the “class fleet” do? 05101520250 500 1000 1500 2000 2500 3000 3500Growth Stock growthPeriod 0Period 1Period 2Period 3Period 4Period 5Period 6Period 7Period 8Period 9Period 10Period 11Period 12Period 13Period 14Period 155Review of the classroom game  Another view of the class fleet in action: -2381318230 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000$ (in 10,000s) Stock (in 10,000s) sustained yield total revenue (TR)sustained yield profitssustained yield total cost (TC)Period 0Period 1Period 2Period 3Period 4Period 5Period 6Period 7Period 8Period 9Period 10Period 11Period 12Period 13Period 14Period 156Review of the classroom game BOTTOM LINE:  As long as there are profits to be made and fishing is nonexcludable (open access), boats will attempt to maximize catch.  As a result, the fishery is driven down to the point where profits are zero, i.e., the fishery has no net value 0.00500.001000.001500.002000.002500.003000.000 5 10 15Stock Period Stock under rational choiceStock in classroom game7Review of the classroom game  Question: What would happen to the efficient sustained yield stock level if the price of diesel fuel went up, so that running your boat cost more per month?  Question: What would happen to profits? 05101520250 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000$ (in 10,000s) Stock (in 10,000s) sustained yield totalrevenue (TR)sustained yield profitssustained yield totalcost (TC)sustained profits at SESY A=increase B=decrease C=stay the same D=NIW 8 The graph on the next slide and subsequent slides reflects the basic economics of the classroom game in the last lecture:  In the game, marginal extraction cost was constant at given stock level. This is reflected in the graph by a horizontal marginal extraction cost (MEC) curve  The game involved a maximum possible harvest reflected by the fact that no boat could fish for more than 4 months. In the figure this is reflected by the “maximum possible harvest” constraint  In the game the market price of fish is constant. This is reflected by a horizontal demand (marginal benefit) curve. Economics of the efficient sustained yield harvest level 9Economics of the efficient sustained yield harvest level $ MC(SESY)=MEC(SESY)+MUC(SESY) MEC(SESY) D=MB hESY P harvest Conditions for efficient sustained yield: P = MC(SESY)= MUC(SESY) + MEC(SESY) (econ. equil.) Growth(SESY)=hESY (biological equil.) Maximum possible harvest 10Economics of the efficient sustained yield harvest level $ MC(SESY)=MEC(SESY)+MUC(SESY) MEC(SESY) D=MB hESY P harvest Maximum possible harvest Q1: Graphically, what is the profit earned by the fishing fleet in the current period, given harvest is limited to hESY? 11Economics of the efficient sustained yield harvest level $ MC(SESY)=MEC(SESY)+MUC(SESY) MEC(SESY) D=MB hESY P harvest Maximum possible harvest Q2: Graphically, what is the social net benefit in the current period, given harvest is hESY? 12Three questions: 1. Is there a sustained yield stock level under open access? 1. Do we know the relationship between the open access sustained yield stock level and the efficient sustained yield stock level? 1. Do we know the relationship between the open access sustained yield stock level and the maximum sustained yield stock level? A=Yes B=No C=NIW 13Current state of ocean fisheries Study Sees ‘Global Collapse’ of Fish Species By CORNELIA DEAN Published: November 3, 2006 If fishing around the world continues at its present pace, more and more species will vanish, marine ecosystems will unravel and there will be “global collapse” of all species currently fished, possibly as soon as midcentury, fisheries experts and ecologists are predicting. The scientists, who report their findings today in the journal Science, say it is not too late to turn the situation around. As long as marine ecosystems are still biologically diverse, they can recover quickly once overfishing and other threats are reduced, the researchers say. But improvements must come quickly, said Boris Worm of Dalhousie University in Nova Scotia, who led the work. Otherwise, he said, “we are seeing the bottom of the barrel.” NY Times: 14Current state of ocean fisheries 15Current state of ocean fisheries 16Current state of ocean fisheries 17So what’s to be done? Reduce the harvest in a season (the blue dashed lines show “harvest rules” --the harvest allowed at each stock level –that eventually reach the efficient sustained yield stock level) Stock Harvest level hOA Harvest level hESY Growth, harvest 0 Sk SESY SOA 18Managing a fishery So two questions: 1. What is the efficient harvest rule for reaching the efficient sustained yield harvest level SESY? Not addressed here 2. How do we limit seasonal harvesting to that indicated by the efficient rule, and to