Quiz 3

Question 1

What are central assumptions of the Gordon model?

Answer 1

• 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).

Question 2

How could creating ownership of a fisheries solve the open acces problem?

Answer 2

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 unsustainably because all future profits/rents accrue to the owner and are therefore included in deciding how much to fish.

Question 3

Describe the central problem of open access in terms of reaching the social optimum in a fisheries.

Answer 3

Central problem is that under open access of a fisheries (or a common pool in general) total profit/rent is larger than zero in the social optimum, implying there is an incentive to enter the market by new comapnies until profit in the fisheries is zero.

Question 4

In your assessment, what can be causes of overshoot & collapse? In your answer:

discuss biophysical issues/factors!
discuss economic issues/factors!
discuss governance issues/factors!

Answer 4

Biophysical knowledge

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

Economic

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

Governance

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 (perhaps compare Norway & Canada)
Long delays in deciding, responding, and actually dealing with the problem

Question 5

Copy the figure below on paper. Draw in the figure the effect of a capacity-enhancing subsidy ton (open access) effort level? Explain in words the process that leads to this effect.

Answer 5

Intuition behind downward shift in total costs

1.Initial equilibrium is E1, and now a capacity-enhancing subsidy is introduced.

2.Subsidy makes that same effort can be achieved at lower costs, e.g. replacing two smaller boats by one large one with less total labour required.

5.Because costs for each effort level have decreased, the total and marginal cost curves shift downward, and E1 is no longer profit optimising. New open access equilibrium effort level is E2, with profit again equal to 0, a smaller fish population, and smaller fish growth/catch and revenues.

Question 6

In the Gordon model, how can positive (e.g. MPA) and negative (e.g. oil spill) shocks in supply be represented (you may draw or explain in text)?

Answer 6

Such shocks affect the carrying capacity, hence they cause not a shift ON the revenue curve but a shift OF the revenue curve (such as in the figure above)! Oil spill downward shift, MPA upward shift

Question 7

What elements should Individual Transferable Quota systems have (from economic point of view) to be effective and efficient?

Answer 7

Similar to other permit systems, quota (a property right to fish) in an ITQ-system should be exclusive, transferable, secure and durable (see figure below for more detail. The value of that property right is equal to zero if any exclusivity and/or durability and/or security do not hold. Clearly, economic efficiency is positively related to the quality of property rights, including transferability.