1. AGEC/FNR 406 LECTURE 27 Fisheries, Part II

2. Static-efficient sustained yield Gordon model (simplest approach) Goal: determine a catch level that provides the largest net benefit Solution: find output level where marginal cost and marginal benefit are equal (i.e. where the distance between total revenue and total cost is at a maximum)

3. Assumptions, part 1: Benefits: Benefit determined by total revenue: TR = P * Q P = Price Market price reflects value to society Price per unit of catch is constant (fishery represents small portion of the overall market) Q = Quantity Catch per unit of fishing effort is proportional to population

4. Costs: Cost determined by total cost: TC = FC + VC (But here we ignore fixed cost (FC) which is a “sunk” cost) Variable cost (VC) determined by “fishing effort” VC = labor + equipment + fuel + depreciation, etc. Total cost proportional to effort. For given amount of effort, yield (Y) is proportional to population (X) Assumptions, part 2:

5. 1. Map the effort-catch relationship 2. Convert sustainable yield function to effort- based relationship 3. Create total revenue (benefit) function by multiplying catch*price 4. Combine total revenue and total cost to find optimal level of effort (MB=MC) Four steps required:

6. Start with yield-effort relationship (Kahn, Figure 10.6) Fish population (X) Catch (C) Y E3 Y E1 Y E2 E 3 > E 2 > E 1 Catch rises with effort and pop. Step 1: map pop & effort into catch

7. Step 2: effort and sustainable yield E2E2 C2C2 Fishing effort (E) Catch (C) C1C1 E1E1 E3E3 C3C3 As effort increases…catch rises then falls. Why? Higher catch reduces pop growth.

8. Compare with Logistic Growth Function (Kahn, figure 10.1) Same shape, but x-axis is reversed K X2X2 G2G2 Fish population (X) increasing  Growth of population (G) G1G1 X1X1  Effort (E) increasing

9. Step 3: compute total revenue Total Revenue = Catch x Price Fishing effort (E) Catch (C) E2E2 C2C2 C1C1 E1E1 E3E3 C3C3 TR

10. Step 4: add total cost to find E* Total Revenue = Catch x Price Catch (C) TC Fishing effort (E) E*E* C*C* TR } TR-TC

11. Summary of static-efficient sustained yield model Efficient catch occurs where MC = MR MC is slope of cost curve MR is slope of revenue curve Observations Efficient catch less than maximum sustainable catch (exception is where MC = 0) Efficient catch leads to larger population level than maximum sustainable catch.

12. Application #1: Technology change Read “The Fish Crisis” Impact of better fishing technology? Drives down the cost of fishing. Impact on level of catch? Impact on population?

13. Cost-reducing technology effort increases, catch rises, population falls Fishing effort (E) Catch (C) E*E* C*C* TR TC E ** C **

14. Application #2: open access What does “open access” mean? Fishery open to all who “can afford to fish” Someone can afford to fish as long as TR equals or exceeds TC Maximum total effort is where TC = TR Economic rent (profit) dissipated at this point This level of effort is greater than efficient level where MC = MR (Relate “Fishy Economics” to the graph)

15. Open access As long as TR>TC, new fishermen enter fishery… Result: effort increases, catch falls, population falls Catch (C) TC Fishing effort (E) E*E* C*C* TRTR =TC E ** C **