Download - Economics of Biotic Resources
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Economics of Biotic Economics of Biotic ResourcesResources
Ecosystem Structure and FunctionEcosystem Structure and Function
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Econ of Ecosystem Structure: Econ of Ecosystem Structure: Renewable stock-flowsRenewable stock-flows
• Material flow from a stock over time– Can use stock as fast as we want
– Level of stock affects future flow
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Sustainable Yield CurveSustainable Yield Curve
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Carrying capacity, MSY and minimum viable Carrying capacity, MSY and minimum viable population (point of critical depensation)population (point of critical depensation)
• Uncertainty and dependence on exogenous variables
• Variation in Critical depensation: Passenger pigeons and Mauritius Kestrel
• Critical depensation for ecosystems
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Sustainable harvests and effortSustainable harvests and effort
What is the relationship to scale?
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Harvest effort and costHarvest effort and cost
• Yield=catchability quotient x Stock x effortY=qXE
• Stable equilibrium
• Unstable equilibrium
• Where did historical harvests take place?
• Where are they taking place now?
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Maximizing annual profit (static):Maximizing annual profit (static):
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Profit maximizationProfit maximization
• π = TR-TC• maximum π occurs when MR = MC
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Open access fisheryOpen access fishery
• Non-excludable, rival • π = 0
– This is what happens in any competitive market
• What happens when harvest costs are very low?
• What actually happens to harvest costs relative to price over time?
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Can you find the tacit assumption responsible for the happy result that profit maximizing exploitation does not require much sock depletion?
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Profit maximization (dynamic)Profit maximization (dynamic)
• To move from one point on the sustainable harvest curve to one at a lower stock, we must reduce the stock.
• What happens to the profit made by selling that stock?
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Opportunity Costs of Opportunity Costs of Renewable resourcesRenewable resources
• The opportunity cost of not harvesting is equal to the foregone earnings from not investing the profits of that harvest.
• What’s more profitable, letting your redwoods grow at 1% per year, or cutting them down and investing the profits in the stock market at 7% per year?
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Opportunity Cost of Renewable Opportunity Cost of Renewable resourcesresources
• The opportunity cost of harvesting another unit of resource– Resource values should increase
• Increasing demand• Decreasing supply
– Renewable resources grow, but a unit harvested today cannot grow
– More stock means cheaper harvest
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Dynamic profit MaxDynamic profit Max
• Marginal opportunity costs of harvesting the resource should equal marginal opportunity costs of not harvesting the resource, i.e. MR=MC
• Think about repaying a loan with the profits from reducing the stock
• What if the discount rate is very high?
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Dynamic profit MaxDynamic profit Max
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When is Extinction Optimal?When is Extinction Optimal?
• Open access• Private ownership, but resource cheap to
harvest, and grows more slowly than investments
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Including the fund-serviceIncluding the fund-service
•Passenger pigeons•Sardines•Cassowaries
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Characteristics of optimal Characteristics of optimal harvestharvest
• Must account for stock-flow and fund service• Discounting probably not appropriate, and
particularly inappropriate for fund-service component
• Higher stocks, lower harvests than static profit maximizing stock and harvest
• Must account for uncertainty
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SummarySummary
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What is the relationship to What is the relationship to distribution?distribution?
• Who benefits from ecosystem fund-services?
• Who benefits from the harvest of stock-flows?
• Who deserves profits from harvest of stock-flows?
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Natural dividend from renewable Natural dividend from renewable resourcesresources