Renewable Common-Pool Resources: Fisheries and Other Commercially Valuable Species

 Too Small/Low Stock Size ◦ Lower growth rate as fish can’t hook up and reproduce ◦ Birth (replacement) less than death/harvest  Growth rate declines; species becomes extinct  Too Large Stock Size ◦ Food sources (plankton, biomass, other fish) too small to support large # of fish  Growth rate declines

 Current Stock(t) = Previous Year Stock(t-1) + Births(t) – Deaths(t) – Harvest(t)  More succinctly ◦ S(t) = S(t-1) + B(t) – D(t) – H(t) ◦ But Growth (G) of the stock (excluding Harvest)  G(t) = B(t) – D(t)  S(t) = S(t-1) + G(t) – H(t)

 Current Stock ◦ Depends on past year’s stock + net growth of the stock – fish harvested  S(t) = S(t-1) + G(t) – H(t)  Sustainability ◦ Means keeping the stock size constant over the time (from one year to the next) ◦ S(t) = S(t-1) = S(t-2) = S(t-3) = … = S(t-n) ◦ Can do this as long as G(t) = H(t)  Harvest (or catch quota = replacement (growth) rate

 It’s the Fish Biologists goal  Maximize H(t)  Given that S(t) = S(t-1) = S(t-2) = … = S(t-n)  That is find the largest size of the stock that can be harvested/caught without reducing the size of the stock over time Max Sustainable Yield

 Open Access Fishery ◦ Let each fisherman/boat make the decision on whether or not to “go out”  Boat will “go out” if it’s revenues exceed costs  Economist Approach (tradable permits) 1.Determine profit maximizing level of the harvest/catch (H*) 2.Determine the efficient number of boats for the fishery, issue that number of licenses (L*) 3.Calculate the quota per license 1.Q* = H*/L* 4.Allow license holders to use or sell the license

Profitable to fish as long as Tot Rev > Tot Cost H(t) > G(t) so in the long-run S(t) stock will decrease Zero profits Open Access Harvest

 Suppose that there was a single owner of the fishery and he did not have any market power (ability to set price) ◦ What would be the economically efficient level of harvest/catch?  The one that maximizes profits (marginal benefits of consuming fish = marginal costs of catching fish)

 Suppose that there was a single owner of the fishery and he did not have any market power (ability to set price) ◦ What would be the economically efficient level of harvest/catch?  The one that maximizes profits (marginal benefits of consuming fish = marginal costs of catching fish)

Zero profits Open Access Harvest MSY Economist

 Compare ◦ Open Access Fishery (Tragedy of the Commons)  Everyone who has a boat can harvest as many fish as they can catch profitably (individual) ◦ Maximum Sustainable Yield (MSY)  What is the largest stock of fish that can be sustained from one year to the next ◦ Economically Efficient  Given costs/benefits – what is the efficient harvest

 1.Open (unregulated) Fisheries (E c ) ◦ Catch until total costs exceed revenues (up to zero profits) => ATC(Q) = TotRev(Q) = P*Q  2.Maximum Sustainable Yield(MSY) (E m ) ◦ Largest “harvest” that can be sustained every year (harvest = replacement rate) ◦ Biologist solution  3. Economically Efficient (E o ) ◦ Maximize Economic Value (MC(Q) = MR(Q)

 Command and Control (Regulation) ◦ Set Quota for number of fish that can be caught  Ignores differences in costs/efficiency of fishermen  Can lead to over capacity (too many boats, too big)  Discarded catch/by-catch issues  Tradable permits (ITQs) ◦ Determine optimal “harvest” and number of licenses to be issued ◦ Divide quota/target by number of license = #fish caught per license ◦ Auction or grandfather licenses ◦ Allow owners to trade (one-year, or multi-year) ◦ Multi-species/by-catch  Taxes ◦ Per unit tax on the #fish caught

Individual Transferable Quotas (ITQs)  An efficient quota system will have the following characteristics: ◦ The quotas entitle the holder to catch a specified volume of a specified type of fish. ◦ The total amount of fish authorized by the quotas should be equal to the efficient catch level for that fishery. ◦ The quotas should be freely transferable among fishermen.

 Taxes also raise the real cost of fishing, but do so in an efficient manner. ◦ Unlike regulations, the tax can lead to the static- efficient sustainable yield allocation because the tax revenues represent transfer costs and not real- resource costs. ◦ Transfer costs involve the transfer of resources from one part of society to another. ◦ For the individual fisherman, however, a tax still represents an increase in costs.

 Taxes also raise the real cost of fishing, but do so in an efficient manner. ◦ Unlike regulations, the tax can lead to the static- efficient sustainable yield allocation because the tax revenues represent transfer costs and not real- resource costs. ◦ Transfer costs involve the transfer of resources from one part of society to another. ◦ For the individual fisherman, however, a tax still represents an increase in costs.

Individual Transferable Quotas (ITQs)  An efficient quota system will have the following characteristics: ◦ The quotas entitle the holder to catch a specified volume of a specified type of fish. ◦ The total amount of fish authorized by the quotas should be equal to the efficient catch level for that fishery. ◦ The quotas should be freely transferable among fishermen.

Subsidies and Buy Backs  One of management options to reduce overcapacity. ◦ Payments used to buy out excess fishing capacity are useful subsidies, but if additional capacity seeps in over time, they are not as effective as other management measures.

 Marine protected areas and marine reserves are areas that prohibit harvesting and are protected from other threats such as pollution. ◦ Marine protected areas are designated ocean areas within which human activity is restricted. ◦ Marine reserves protect individual species by preventing harvests within the reserve boundaries.