Dept. of Economics U NIVERSITY of A LASKA A NCHORAGE Fisheries and Experimental Economics aka “The Beans Game” Gunnar Knapp Jim Murphy

Rent Dissipation  Economic Rent Net value from the use of a resource Earnings or profits = (Quantity harvested x Price received) – Cost of harvest  Dissipation Waste by misuse, squander  Rent Dissipation Loss of earnings due to inefficient choices Due to the rules or policies governing the fishery

Sources of rent dissipation  RENT = (Quantity harvested x Price received) – Cost of harvest Demo #1 Resource Driven Demo #2 Cost Driven Demo #3 Value Driven

Demo #1 – Resource-driven rent dissipation  3 periods  At the end of each period, amount in bowl 2x Up to capacity of the bowl  Efficient outcome Periods 1 & 2: harvest ½ Period 3: take it all (no future)  View results….

Tragedy of the Commons  Conditions for successful self- governance of shared resources Hundreds of experiments “local” fisheries can avoid tragedy, but may also overharvest.  Competitive, commercial fisheries likely to over-harvest Why?  Resource-driven Rent Dissipation Elinor Ostrom 2009 Nobel Prize Rent = Quantity harvested x Price received – Cost of harvest Overharvesting reduces biomass

Evolution of fisheries management institutions  Open access / Common-pool resource Over-fishing  Tragedy of the Commons  Regulated Restricted Access (“competitive fishery”) Aggregate Quota (addresses CPR problem) Vessels compete for share of Aggregate Quota Restricted access to fishery (harvesting permit) Limits on use of some inputs, but not all Derby-style “race for fish”

Demo #2 – Cost Driven Rent Dissipation  Choose a spoon Larger spoons cost more, but can also harvest more  What is the efficient outcome?  Your results…  Excessive use of inputs (“over-capitalization”) Race for fish or “derby”  Spoons are bigger & more costly than necessary Getting in each other’s way, spills Rent = Quantity harvested x Price received – Cost of harvest Excessive use of inputs increases costs

Harvesting experiment  8 subjects per group  20 cups of beans in large bowl  Revenue is $1/cup.  Subjects need to purchase “gear” to harvest the beans. Select a measuring cup Larger gear costs more.

Gear (measuring cups)

Nonlinear social dilemma payoff table

Concerns about payoff tables  We don’t live in a world of payoff tables  Frames how a person should think about the game  A lot of numbers, hard to read  Too abstract??

We’re not interested in cooperative behavior

20 cups of pinto beans Pitcher on floor

Treatments  Derby Subjects compete for a share of total harvest  Individual Quota Subjects guaranteed a fixed share

Derby video

T1. Derby Results

Percent of beans that are spilled in Derby Mean = 27% $5.40 per period spilled (= $0.68/person)

Derby Earnings – Rents are almost fully dissipated Mean = $ % were < 0

Salmon Fishing in Bristol Bay, Alaska  Competing for limited space in the best place to catch fish—getting in each other’s way.

In Bristol Bay, although boats are restricted to 32’ in length, over time fishermen have built wider and taller boats in an effort to catch a larger share of the available fish. Boat costs have increased without any corresponding increase in catch. Old 32’ boat (1970s)New 32’ boat (1990s) (Photograph by Norm Van Vactor)

Inefficient use of gear!

Sitka herring fishery

Quota video

 Near – Far Beans Game

Experimental design...  All subjects use the same size scoops and have no costs.  Subjects can choose between delivering to a “near” pitcher or a “far” pitcher  They get paid a higher price for beans delivered to the far pitcher  But because it takes longer they may not harvest as much if they deliver to the “far” pitcher This subject’s “far pitcher” “near pitchers”

Three short video clips of the experiment  CLIP #1: A “choice” round with a low price for the “far” pitcher. Most subjects deliver to their “near” pitcher. Note that subjects fish as they can and spill a lot of beans.  CLIP #2: A “choice” round with a high price for the “far” pitcher. Some subjects deliver to their “far” pitcher. Note that subjects fish as they can and spill a lot of beans.  CLIP #3: A “quota” round. Most subjects deliver to the “far” pitcher. Note that subjects fish more slowly and carefully and spill fewer beans.