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Basic Bioeconomics Model of Fishing

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Objectives of lecture

• Introduce you to basic bioeconomic analysis;

• Introduce you to game theoretic applications to the study of shared fish stocks.

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The Fishery

Natural Component

Human Component

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• Catch per unit of fishing effort (CPUE) is the total catch divided by the total amount of effort used to harvest the catch.

• CPUE = c/E

Catch per unit effort

Global catch and effort

*Effective effort indexed on 2000 based on average 2.42% increase annually

Effor

t (G

W o

r watt

s x

109 )

Catc

h (m

illio

n to

nnes

)

Year

5

10

15

20

25

10

20

30

40

50

60

70

80

90

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Catch

FAO Fisheries Statistics

Global catch and effort

*Effective effort indexed on 2000 based on average 2.42% increase annually

Effor

t (G

W o

r watt

s x

109 )

Catc

h (m

illio

n to

nnes

)

Year

5

10

15

20

25

10

20

30

40

50

60

70

80

90

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Catch

Effective effort*

Watson et al. (2012)

Classical Management Problems

• Overfishing;• Overcapacity;• Low or negative profits.

• Can you predict the above using only cpue and/or fishing mortality models? Nope!

• Bioeconomic models needed to predict these results!

These undesirable outcomes are the result of Individually Rational, but

Non-cooperative Behavior

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Issues in fisheries economics

• Fish as natural capital in a broad sense;

• Fish as common property resource;

• Externalities Tragedy of the commons Private property;

• Need for regulation;

• Decision making over time.

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Fish as natural capital in a broad sense

• The natural environment contains the natural resources essential to life on earth;

• Natural resources provide inputs to our economic system;

• By and large economists see natural resources as similar to human made capital.

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Economic efficiency and

Bioeconomics

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Economic efficiency

• Maximum profit subject to sustainability;

• Profit = Total Revenue – Total Cost;

• With economic efficiency, profit is maximized.

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A static single species model

• Fisheries biology – the logistic model;

• The optimal harvest – equilibrium catch;

• The maximum sustainable yield;

• Sustainable yield as a function of effort;

• Max Profit= max(TR-TC):=Maximum Economic Yield;

• Profit=TR-TC=0:=Bionomic equilibrium.

The Basic Bioeconomic model

MEY

MSYBionomic equilibrium (BE)

Total cost of fishing effort (TC)

Total Revenue (TR)

Fishing effort (E)

TR & TC ( $)

E1 E2 E3

Max. rent

Gordon Schaefer bioeconomic model

Bioeconomic Models

• (1) Biological Model:

Net annual change of biomass =Growth + Recruitment – Nat. Mortality – Catch

(2) Economic Model:

Net annual revenue =Sales income - Cost

R = pH – cE

Schaefer Catch Equation: H = qEx (Highly Dubious!)

Therefore R = (pqx – c) E

Bionomic Equilibrium:

Under open access, fishery reduces the stocklevel x until R = 0, i.e.,

x = c/pq

Predictions: Zero rents; overfishing ( if c/p low).

Numerical example:

Bo = 1,000,000 tq = .001 / vessel yrc = $ 500,000 / vessel yr

Price p ($/tonne) x (Bionomic Eq.)

500 1,000,000 t1,000 500,000 t5,000 100,000 t

What is Bionomic Equilibrium?

How to Fix It?

• TACs?• Gear Regulations?• Limited Entry?• Vessel Buy-backs?• Quasi-property rights through individualized (or

community) quotas;• MPAs;• Taxes.

Bioeconomic modeling

• The objective of fisheries management:

– Conservation of resources through time;– Economic viability and profitability;– Social objectives.

Economic rent/profit

• Total revenue = price*harvest (V).

• Total cost = unit cost of effort* effort (C).

• Economic rent = V – C.

Dynamic bioeconomic model

• Discounted economic rent (V-C) through time to obtain the discounted value of the economic benefits from the fishery. rateiscount

)1(

1

)(0

d

dwhere

CVdNPVT

ttt

t

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Decision making over time

• Natural resource (NR) use involves decision making over time:– How much oil or gold should be extracted from a mine

this year, how much next year, etc?

– Should salmon on the west coast of Canada be harvested intensively this year or not at all?

• Time is important because the supply curve of NRs are always shifting due to:– Depletion of non-renewable resources and

– biological and physical changes in renewable resources.

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• Hence, a dynamic rather than a static analysis is required to analyze natural resource use in most cases;

• Interest or discount rates are a crucial link between periods in dynamic models of NR use;

• Discount rate vs. discount factor;

• Present value vs. current value.– Introduce your quiz!

Thank for your attention