1. Steve Newbold U.S. Environmental Protection Agency National Center for Environmental Economics October 2011 1 National Center for Environmental Economics CHESAPEAKE BAY COMMERCIAL FISHING BENEFITS ANALYSIS

2. OUTLINE 1.Key economic concepts for fishery benefits estimation – Consumer and producer surplus, common pool resources, rent dissipation 2.Major Chesapeake Bay fisheries 3.Proposed modeling approach – Bioeconomic framework: EwE/Atlantis + harvester response functions for each stock – Deacon et al. (2011), illustrative example 4.Data needs and modeling challenges 2 National Center for Environmental Economics

3. KEY CONCEPTS Producers of commercially harvested fish will benefit from the TMDL to the degree that the fish stocks they target become more abundant and therefore easier to catch. Consumers of commercially harvested fish will benefit from the TMDL to the degree that the lower harvesting costs are passed on in the form of lower prices of fish at the market. To estimate benefits in the commercial fishing sector, we need data on prices and quantities of harvested fish with and without the TMDL. 3 National Center for Environmental Economics

4. KEY CONCEPTS Economic benefits = WTP = consumer + producer surplus change 4 National Center for Environmental Economics

5. KEY CONCEPTS Fish stocks are common pool resources “Tragedy of the commons”: with no restrictions on harvesting the stock will be over-exploited and all rents dissipated (Gordon 1954, Scott 1955) Large literature on fishery economics that examine alternative management approaches (Wilen 1999) Fisheries managed by catch shares less likely to collapse (Costello et al. 2008) Slope of supply curve, and therefore benefits of water quality improvements, will depend on the nature of the management regime (Freeman 1991) 5 National Center for Environmental Economics

6. MAJOR FISHERIES IN CHES. BAY 6 National Center for Environmental Economics CHESAPEAKE BAY Avg. landings and revenues 200-2009 "Fisheries Ecosystem Planning for Chesapeake Bay," 2006 MT$/MTRevenueCum. % % of Atl. rev. Relative abundance Relative exploitation Blue crab 241282085505425124954lowover Atlantic menhaden 178591139248241497485mediumfull Striped bass 1965384975632858156highlimited Atlantic croaker 542587547468758655highmedium Eastern oyster 3671166542810559022lowover Summer flounder 1324307740739489417mediumover Blue crab (peelers) 650.74887.5533874229757lowover Black sea bass 299573717153639925lowover Weakfish 29018085243209926highlow Horseshoe crab 2389672301469927not est.unknown Bluefish 2936391872271007lowover Spanish mackerel 5120291034791004moderatefull Blue crab (soft) 1279801009831003lowover Black drum 3223687577610056not est.unknown American shad 391467572131007low Spotted sea trout 133155410151009not est.unknown Tautog 7.13182225921004lowover Red drum 2.5274768681003not est.over

7. PREVIOUS STUDIES - GENERAL Clark (1990)—“Bible” of bioeconomic modeling Homans and Wilen (1997)—estimated a model of a regulated open access fishery Lipton and Hicks (2003)—DO and striped bass recreational fishery in the Chesapeake Bay Massey et al. (2006)—water quality and summer flounder recreational fishery in MD coastal bays Finnoff and Tschirhart (2008)—general equilibrium bioeconomic model of an 8-species ecosystem Smith and Crowder (2011)—transitional rents from N reductions in open access blue crab fishery Deacon et al. (2011)—calibrated model of capacity constrained fishery 7 National Center for Environmental Economics

8. PREVIOUS STUDIES – CHES. BAY Kahn and Kemp (1985)—fishery support by SAV in Chesapeake Bay Anderson (1989)—seagrass and blue crabs in VA Lipton and Hicks – DO and recreational catch of striped bass in the Chesapeake Bay Mistiaen et al. (2003)—low DO and blue crabs in tributaries of Chesapeake Bay Sanchirico et al. (2006)—ecosystem management of Chesapeake Bay fisheries Kar and Chakraborty (2009)—bioeconomic model of Chesapeake Bay oyster fishery 8 National Center for Environmental Economics

9. OUR TASK We want to develop a general but relatively simple framework that can be applied to multiple species parameterized using readily available fishery statistics and results from previous studies Must represent management constraints and the incentive structure these constraints provide to the harvesters Integrate harvester and manager response functions with biological production functions to form a multi- species bioeconomic model 9 National Center for Environmental Economics

10. PROPOSED APPROACH Estimate (as in Homans and Wilen 1997) or calibrate (as in Deacon et al. (2011) a fishing effort production function for each stock for integration with EwE and/or Atlantis: Fishing mortality rate: Harvest: Profits (rents): Biological dynamics: ( EwE / Atlantis ) 10 National Center for Environmental Economics

11. PROPOSED APPROACH Can represent a range of management regimes: Open access: K increases until profits = 0 Regulated open access (e.g., TAC): regulator closes season ( limits T ) to ensure, but with no limit on entry K still increases until profits = 0. Capacity constrained: K restricted to ensure s. Other inputs may expand but unless they are perfect substitutes for K then profits > 0 Optimal management: K and L chosen to maximize profits 11 National Center for Environmental Economics

12. DEMAND MODEL Multistage Demand Model – Allocates household income to expenditure categories – Captures substitution between different commodities and harvests from different estuaries Changes in consumer welfare – Demand is a function of Income (total expenditures) Prices of Chesapeake harvest Prices for harvest from other regions Price indices for other commodities – Expenditure function is used with projections of income and prices to estimate changes in consumer surplus 12 National Center for Environmental Economics

13. ILLUSTRATIVE EXAMPLE Consider the mythological fish “Atlantic henmaden” (similar to Atlantic menhaden, but not quite the same) 2 life stages, B-H stock-recruitment function Take α and M from pervious fisheries biology studies Set H, F, p to match recent levels for Atl. menhaden Calibrate β assuming steady-state conditions Assume w =$40K /yr, K = 20, L = 1000, assume open access to calibrate r, guess b = -2, and calibrate a assuming cost minimization, price elasticity = -0.3 Suppose TMDL will increase α and β by 10%, decrease M by 5% (increase eq. A by 27%) 13 National Center for Environmental Economics

14. ILLUSTRATIVE EXAMPLE Benefits depend on the management regime: ≈ $25-75 million / yr 14 National Center for Environmental Economics Open Access Optimal management Regulated open access Capacity constrained BaseTMDLBaseTMDLBaseTMDLBaseTMDL A [10 9 fish]2.782.994.214.944.325.063.804.29 K [vessels]2836111324351418 L [laborers]11961466536654156823737831017 F [yr -1 ]0.740.940.300.360.701.020.390.51 T [yr/yr]11110.390.3311 H [10 - fish]11.915.18.712.29.413.510.014.0 [10 7 $/yr]007.912.8007.311.7 PS [10 7 $/yr]04.9404.33 CS [10 7 $/yr]2.42.73.23.1

15. THE MOST IMPORTANT SLIDE 1.Data on H and p from NOAA’s comm. fishery stats 2.K and L (& w?) from vessel observer programs ( ? ) 3.w from BLS (by state, possibly county, probably not by stock) 4.How to obtain data on r? (calibrate if open access) 5.How to estimate, calibrate, or transfer b? 6.How to characterize existing and future management regimes in each fishery? 7.How to handle spillover effects due to fish migrations? (Massey et al. 2006) 15 National Center for Environmental Economics Data needs & modeling challenges