ERE7: Renewable Resources

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ERE7 Renewable Resources

• Fisheries
• Growth rates in biological resources
• Steady-state harvest
• Perfect market
• Open access
• Dynamic harvesting
• Policy intervention

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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

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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.

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Fish catch
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Catches, 1995-97, cf 85-87

• 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

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State of world stocks in 1999
Source Garcia and de Leiva Moreno (2001)
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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
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Logistic growth curve
Stock (S)
SMAX
SMIN
SZERO
Time
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Steady state harvest

G, H
Rate of change
In steady state

MSY

G(S)





Smax
S0
Stock
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A Simple Harvesting Model
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Exploitation
Effort
Harvest
G, H
eE3S
eE2S
E3gt E2 gt E1gt E0
eE1S
h3
h2
h1
eE0S
h0
S
S0
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Exploitation (2)
H
E3gt E2 gt E1gt E0
h2
h1
h3
h0
E
E0
E1
E2
E3
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Profit Maximisation
Total costs
V, C
Total revenue
CwE
VProf
V-CMAX
VPH
CProf
E
E0
EProf
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Open Access, Steady State
Net growth of stock in steady state
Harvest
Cost
Revenue
For open access
Equilibria
and
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Profit maximisation and open access equilibrium
Revenue
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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.

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Introducing time
Objective function
Equations of motion
Hamiltonian
Necessary conditions
Social optimum is market outcome iff
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Interpretation
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Interpretation (2)
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Profit maximisation and stock effect (1)
and
In steady state
Fundamental equation
Stock effects if
Add units to the stock if
Harvest additional units if
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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
• igt dG/dS

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Harvest Costs and Stock Effect
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Sum up

• Equilibrium conditions
• Dynamic
• Static
• Static profit maximisation equilibrium only if
  i0
• Open access equilibrium is independent of
  discount rate

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Fisheries

• If HgtG, 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

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Renewable Resource Policy

• End open access
• Information
• Create forward or future markets
• Taxes
• Tradeable permits
• Technical restrictions
• Time restrictions

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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

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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

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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