ERE7: Renewable Resources Fisheries Growth rates in biological resources Steady-state harvest –Perfect market –Open access Dynamic harvesting Policy intervention

Last week Resources and Reserves Social optimum and a model for a perfectly competitive market Sensitivity analysis –Increase in interest rate and resource stock –Change in demand and extraction costs Market failure –Monopoly Taxes and subsidies Reality

Renewable Resources Renewable flow resources Such as solar, wave, wind and geothermal energy These energy flow resources are non-depletable Renewable stock resources living organisms: fish, cattle and forests, with a natural capacity for growth inanimate systems (such as water and atmospheric systems): reproduced through time by physical or chemical processes arable and grazing lands as renewable resources: reproduction by biological processes (such as the recycling of organic nutrients) and physical processes (irrigation, exposure to wind etc.). They are capable of being fully exhausted.

Fish catch

Catches, , cf Sea fish: 73 mln t, +7% Freshwater fish: 6 mln t, +19% Mollusc: 11 mln t, +38% Aquaculture: 34 mln t, +166% (mostly Asia) Fish provides 16% of animal protein, 6% of total protein

Source: Garcia and de Leiva Moreno (2001) State of world stocks in 1999

Biological growth processes Change of population: –g is the intrinsic growth rate (birth rate minus mortality rate) of the population With an upper bound it becomes: –An example: (simple) logistic growth curve or ?

Logistic growth curve Stock (S) Time S MAX S MIN S ZERO

S max Steady state harvest S0S0 G(S) MSY Stock In steady state: Rate of change: G, H

A Simple Harvesting Model

Exploitation eE 0 S eE 1 S eE 2 S eE 3 S SS0S0 h3h3 h2h2 h1h1 h0h0 E 3 > E 2 > E 1 > E 0 Effort: Harvest: G, H

Exploitation (2) E H E0E0 E1E1 E2E2 E3E3 E 3 > E 2 > E 1 > E 0 h3h3 h2h2 h1h1 h0h0

Profit Maximisation C=wE EE0E0 Total costs: Total revenue: V=PH V-C=MAX E Prof C Prof V Prof V, C

Open Access, Steady State Net growth of stock in steady state: Harvest: Cost: Revenue: For open access: Equilibria: and

Costs H Prof H OA E E Prof E OA Emax Profit maximisation and open access equilibrium Revenue

Open access vs Restricted access fisheries Consequences of open access: entry continues until all rents are dissipated (profit per boat = zero). Stock sizes will tend to be lower, and harvest rates will tend to be higher (but may not always be) compared with a restricted access fishery. Extinction is more likely, but will not necessarily happen.

Introducing time Necessary conditions: Equations of motion: Objective function: Hamiltonian: Social optimum is market outcome iff:

Interpretation

Interpretation (2)

Profit maximisation and stock effect (1) In steady state: Add units to the stock if: Harvest additional units if: Stock effects if: Fundamental equation: and

Profit maximisation and stock effect (2) If harvesting costs do not depend on stock size: If harvesting costs depend on stock size: For a given i: –Stock size is higher –dG/dS is lower since (dC/dS)/p is negative –i> dG/dS

Slope = i - [-(  C/  S)/P] Slope = i S S PV * S PV G(S) Harvest Costs and Stock Effect

Sum up Equilibrium conditions: –Dynamic –Static Static profit maximisation equilibrium only if i=0 Open access equilibrium is independent of discount rate

Fisheries If H>G, fish stocks fall, perhaps to (local) extinction Reasons –Open access, little incentive to preserve –It may be profitable... –Ignorance and uncertainty –Variability, shocks, disturbances Contributing factors –High market price, high elasticity –Low harvesting costs –Low stock growth –High discount rate

Renewable Resource Policy End open access Information Create forward or future markets Taxes Tradeable permits Technical restrictions Time restrictions

Fishery Policy in the EU Early 1970s first common fishery policy (CFP) Equal access to waters of the member states to all EU fisherman Principal instrument: species-specific total allowable catch (TAC) –Set annually based on scientific advise –Divided into quotas –Discarding and black fish make TAC difficult to determine

Why did the CFP fail? Principle of equal access is not shared by the fisherman Political interference with the TAC to protect fisherman Centralised structures Fishing fleet is far too large „Flag“ ships Tension between support for ship building industry and economic efficiency

What could be done? Individual tradable quotas –A large number of fisherman will exist the industry –Does nothing to stop cheating –Political interference –Might lead to buy out Vessel licensing –No pretence for monitoring –Difficult to determine total killing power –Conflicts with social objectives Abandoning the principle of equal access