6. Lecture 4 - Common Pool Resources theory Flashcards
What are the assumption of the Gordon model? Name 3.
- Model assumes non-migratory species
- Model assumes there is no minimum viable population
- Model ignores population’s age structure
- No uncertainty in model (no random events)
How can creating ownership of a fisheries solve the open access problem?
Under ownership there is an incentive to fish in the optimum because profit is maximal in that point, assuming sustainable fishing.
Also there is no or much less incentive to fish unsustainable because all future profits accrue to the owner.
What is the central problem of open access in terms of reaching the social optimum in a fisheries?
The central problem is that under open access of a fisheries total profit/rent is larger than zero in the social optimum, implying there is an incentive to enter the market by new companies until profit of the fisheries is zero.
Name a biophysical factor of overshoot and collapse.
- Knowledge about growth rates of fish and total fish catch is incomplete
- Poor understanding of the level and the causes of the limit (i.e. tipping point)
- Dynamics in and network effects between fish populations
Name an economic factor of overshoot and collapse.
- Property rights are often not well established or enforced
- There is an incentive to over-invest in effort (boats)
- Short term profitable actions lead to long-term losses
- More effort needed when stock and growth decrease: vicious cycle
Name a governance factor of overshoot and collapse.
- Coordination between fishermen is difficult, and a small group of environmentally minded fishermen will hardly affect the outcome
- It takes strong leadership and cohesion to avoid collapse
- Long delays in deciding, responding, and actually dealing with the problem
How can positive or negative shocks in the supply affect the Gordon model?
Such shocks affect the carrying capacity and cause a shift of the revenue curve.
What is the efficient price of a license fee determined by?
The difference between average revenue and marginal cost.
Define “common property resource”.
A resource that is available to everyone (nonexcludable), but use of the resource may diminish the quantity or quality available to others (rival).
What is an open-access resource?
A resource that offers unrestricted and unregulated access such as an ocean fishery or the atmosphere.
What is “constant returns to scale”?
A proportional increase (or decrease) in one or more inputs results in the same proportional increase (or decrease) in output.
What is “diminishing returns”?
A proportional increase (or decrease) in one or more inputs results in a smaller proportional increase (or decrease) in output.
What is “absolutely diminishing returns”?
An increase in one or more inputs results in a decrease in output.
How do you calculate average costs?
Total cost divided by the quantity produced.
How do you calculate average revnue?
Total revenue divided by the quantity produced.
What is “open-access equilibrium”?
The level of use of an open-access resource that results from a market with unrestricted entry; this level of use may lead to depletion of the resource.
True or false: when the open-access equilibrium is in the region of absolutely diminishing
returns, eventual collapse of the fishery is a likely outcome.
True.
True or false: economic logic tells us that an underpriced resource will be overused, and a resource priced at zero will be squandered.
True.
What is the “tragedy of the commons”?
The tendency for common property resources to be overexploited because no one has an incentive to conserve the resource while individual financial incentives promote expanded exploitation.
True or false: when the marginal revenue of a boat exceeds the marginal cost, it is more efficient to decrease the number of boats.
False. If the marginal revenue of a boat exceeds the marginal cost, it is efficient to increase the number of boats, which will have the effect of increasing total industry profits.
In a fisheries, where does the economically efficient outcome occur?
Where marginal revenue equals marginal cost.
What is license fee?
The fee paid for access to a resource, such as a fishing license.
What is the correct license fee level?
The difference between average revenue and average cost at the efficient level of effort.
Name 2 ways to prevent a tragedy of the commons.
1) License fee
2) Quota system
3) Tax on fish harvest
4) Partition the sea
6) Remove subsidies
7) Limit fleet size or technology
8) Improve enforcement
What is a quota system?
A system of limiting access to a resource through restrictions on the permissible harvest of the resource.
What are individual transferable quotas?
Tradable rights to harvest a resource, such as a permit to harvest a particular quantity of fish.
Name 2 conditions under which cooperative local management of a common property resource can be effective, according to Elinor Ostrom.
- Most users of a resource should be involved in devising rules for managing the resource.
- There should be monitors of the resource, accountable to the resource users, who periodically evaluate conditions.
- There should be mechanisms to resolve conflicts that are responsive and low-cost.
- Rules for managing the resource should be adapted to local conditions.
- There should be graduated sanctions for resource users who violate the rules.
