resource economics 2

Question 1

sustainable harvest

Answer 1

harvest that does not exceed natural growth so that the renewable resource stock increases or remains the same

Question 2

renewable resources growth function

Answer 2

expresses growth in new units per period as a function of the size of the existing resource stock
 That growth function is ‘density dependent’ – that is the growth (= regeneration) rate will depend on the stock level.

Question 3

danger of renewable resources

Answer 3

excessive exploitation

Question 4

golden rule of harvesting

Answer 4

 When the resource stock is at S , harvest could be MSY
set at maximum sustainable yield, shown as HMSY
 BUT, profit-maximizing firms sometimes reduce stock below SMSY
 The golden rule tells the resource manager to keep increasing the harvest until the growth rate of the stock is driven down to r, the discount rate
 If the discount rate is zero, the golden rule and the maximum sustainable yield will result in the same harvest

Question 5

factors that could prevent stocks being driven to extinction when the discount rate is really high or resource is very slow growing

Answer 5

1. as a species gets rarer and harvests decline,
   its price will tend to rise
2. species often have value independent of harvest (existence value).

Question 6

The actual (not optimal) harvest rate

Answer 6

 Actual harvesting often occurs in situations of open-access.
 Likely leads to over-exploitation

 The harvest rate depends on the stock
and effort expended
 The greater the stock, the greater the harvest, for any given level of effort
 Similarly, the greater the effort, the greater the harvest for any given stock

Question 7

harvest as a function of effort - optimal effort

Answer 7

 Suppose profit-maximising extractors
 Profits given by total revenue – total costs
 Assume a constant cost per unit of effort (W)
 Hence total costs = WE

Question 8

observations of harvest as a function of effort

Answer 8

 Give open access, effort levels will be inefficiently high
 Potential exhaustion of stocks
○ Whales, Newfoundland Cod, North Sea Cod,
Peruvian Anchovies,…
 Example Icelandic fisheries Vs the EU
 Given uncertainty (e.g. over the growth function) and other arguments relating to the value of biodiversity and ecological resilience it is arguably best to manage the resource stock at a level greater than that associated with the MSY and exploit less than the MSY.

Question 9

a solution for tragedy of the commons

Answer 9

set some type of limit on harvest

Question 10

individual transferable quota (ITQ)

Answer 10

 individual transferable quota (ITQ) is a cap-and-trade system for fisheries
 a fisheries board sets a total allowable catch (TAC) below the maximum sustained yield
○ (But how is the TAC determined?)
 Permits are issued that can be bought and sold
○ Initial Allocation: Grandfathering vs Auction?

Question 11

Aquaculture

Answer 11

 No (immediate) commons problem
 But often comes with other significant negative externalities – waste, chemical (growth hormones + pesticides etc), exploitation of open-access fisheries down the food chain (smaller species such as krill etc), and reduced biodiversity

Question 12

Regulation & technological restrictions

Answer 12

 Banning drag nets; restrictions on mesh size
 European data – cod case discussed in the FT
 EU CFP – note country-level quotas (& unintended consequence( & non-compliance problems.

Question 13

Ecosystem management

Answer 13

 Ecosystem management involves joint production of multiple ecosystem services
 Since ecosystems are complex and interconnected ecosystem management can cause unintended consequences

Question 14

Ecological production functions

Answer 14

useful for predicting how ecosystem service provision will change if the ecosystem is altered

Question 15

Payment for ecosystem services (PES)

Answer 15

landowners who agree to certain land use or management practices that generate ecosystem services are paid for doing so.