fishing economy ramon franquesa. fishing is an economic activity the society exploited the fisheries...
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Fishing EconomyRamon Franquesa
Fishing is an Economic Activity
The society exploited the Fisheries to obtain goods as minimal cost as possible, as in other activities
The estimation of the Profit is the same: Profit = Incomes - Cost, but:
• Is based in a Natural Renewable Resource• Under an intensive use this Resource can be
extinguished• This resource can produce Rent• This Rent incentive additional activity
The biological dynamic is under the economic dinamic
• Unlike the industrial production can not increase indefinitely inputs: the capacity of fish reproduction is limited
• It is known from s. XVII quite well the biological behavior.
• Natural resources can not be detached from biology economy, but has been ignored until the mid-century XX
Verhoulst function 1804-49Verhulst's Law states that at some point the growth rate per capita of a population is directly and immediately limited by its own density, through the process of intra-specific competition
2. BK
rBr
dt
dB
Stabilization BiomassGrowth of a forest from a seed
Zero Population
Maximumload
Biomass destruction Exhaustion of a living resource stock
Exhaustion
Initial Situation
Biomass
Extraction level (logging, hunting, fishing)
The Verhulst y Pearl reproductive function
Growth Volume
Biomass
Effects of Changes in r
2. BK
rBr
dt
dB
r is the Growth rate
The static equilibrium points of the extraction of biomass
Effort
Cat
ch
MSY
EMSY
Extraction Possibility frontier
From the biology to the economy
• The Biology measures Biomass in (kilos), the economy, cash
• The biological curve extraction border, is the border economic curve of production (Potential Gross Income), simply multiply the weight by its market price
• We must select a currency (€). But remember that the processes subject to inflation and is not universal
From the biology to the economy
• For the economy the objective is not to maximize the product (the amount of biomass removed) but profit.
• If Profit = Revenue - Costs, then we must also consider the costs.
• We consider that the costs are proportional to the effort: the more ships or more days, more expensive is fishing.
• We can assume an economic cost curve of production (costs) linear, simply by multiplying the effort, the unit cost in the market (money that does a boat or go fishing one day.)
• We must select a currency (€) but remember that the processes subject to inflation and is not universal
The economics of fisheries exploitation. Incentives and possible equilibria (theory)
Gordon Sheafer Model: From Kg to €
ESFUERZO
VALOR
Beneficio
Costes Totales
Ingresos Totales
The economic equilibrium
• A company with revenues and costs, in theoretical economics is considered to be in balance the benefit should be zero
• The costs are considered within the cost, the normal business benefit and is called opportunity cost plus a risk premium
• If the benefit is negative, the company abandoned the activity and if higher, the sector attracts investment and joint until it approaches zero
Gordon-Scheafer Model Equations
• IT: Total Income CT: Total Costs• pe: price per unit of fishing effort pc: price per unit of the catch• a,b: structural parameters of the equation . E: Fishing effort
• a) Open Acces Equilibrium, in the figure. CT=IT• pe.E = pc.(a.E.(b-E))• pe.E = E.(pc.a.(b-E))• pe = pc.a.(b-E)• • b) Biological maximum sustainable or Maximum Sustainable Income, in the figure. IT'=0• IT = pc.a.E.(b-E)• IT = E.pc.a.b - pc.a.E2• (E.pc.a.b - pc.a.E2)' = 0• pc.a.b - 2.pc.a.E = 0• pc.a. (b - 2.E) = 0
• c) Equilibrium under controlled access or property assigned, in the figure.• CT' = IT'• pc.a.(b-2.E) = pe
Optimal point versus equilibrium
MSY - π Biological Optimal
No equilibrium
Some Rent
ß Economic Optimal
Equilibrium with regulated acces
Maximal Rent
α Not optimal Equilibrium in
Open acces
Rent Disappear
The Rent problem
• In certain conditions can produce income overfishing
• These rents are not assigned to one initially, but they are often appropriated by fishermen or fish traders.
Policy measures and effects
1. Limiting the Effort
• Effective
• Pressure to entry in the business
$
Esfuerzo
CT1
CT 0
IT
2. Reduce Production
• Effective, but difficult to control
• Aging investment
$
Esfuerzo
CT
ITTAC
1
ITo
3. Technical limitations
• Effective on the most profitable• If not for biological reasons, it becomes less
able to compete
$
Esfuerzo
CT1
CT 0IT
IT
1
o
01
4. Permanent withdrawal of vessels
• Effective, but less because they come out the worst
• Pressure to come
5. Subsidizing capital costs
• Retrieves returns in the short, but increases overfishing
$
Esfuerzo
CT
1CT
0
IT
6. Subsidizing variable costs
• Retrieves returns in the short, but increases overfishing
$
Esfuerzo
CT
1CT
0
IT
7. Subsidizing sale prices
• Retrieves returns in the short, but increases overfishing
$
Esfuerzo
CT1
IT
IT1
o
*1
0
A solution is possible
• Derive income to the owner of the resource: State
ESFUERZO
VALOR
Beneficio
Costes Totales
Ingresos Totales
tax
Skip to Dynamic
• So far we have seen final equilibrium situations
• But the path from one point to another is more complicated than was initially sensed
• Surprisingly, it is possible to catch more than mark the boundary of possibilities
Effects of economic growth: visualization by a model (MECON)
• One thing are the points of balance and other ways to balance
• In practical life is this way longer in balance
• Given the speed of technological change would normally be permanently out of balance
MECON demostration
The perverse incentives
• If you put your hand in the fire, it hurts us and the retired -> Pain is a right incentive to help them survive
• If we take an addictive and destructive drug, we feel pleasure and encouragement to consume more -> are incorrect stimuli that lead us into a spiral of self-destruction.
Incentives for increasing fisheries exploitation
• Are diverse (cultural, political, economic, etc.) Only consider the economic.
• A virgin estoc time offers the possibility of exceeding the boundary of the Verhulst equation
• The reason is that the thrust of biomass is not reduced automatically, operating a single operation
Example: Heir wasteful
• He receives an inheritance of € 1 million• Suppose it is possible to obtain a 5%
interest, so that the saver can charge € 50,000 a year, permanently leaving the Capital and therefore "eternal" that income
• But it may also conduct "wasteful" and reach out € 100,000 per year in the short term
Evolution of the capital of an estate with a sustainable or wasteful consumption
Year Saver Wasteful
1 1000000 1000000
2 1000000 950000
3 1000000 897500
4 1000000 842375
5 1000000 784494
6 1000000 723718
7 1000000 659904
8 1000000 592900
9 1000000 522545
10 1000000 448672
11 1000000 371105
12 1000000 289661
13 1000000 204144
14 1000000 114351
15 1000000 20068
16 1000000 -78928
In 16 years away the legacy of wasteful
During that time he will have consumed twice
The saver gets 50,000 a year, waste out 100 000
Expansion and contraction
ESFUERZO
VALOR
Beneficio
Costes Totales
Ingresos Totales
Expansion
While biomass is greater than the equilibrium:
• It extracts more fish than will ultimately be possible
• The yield is higher• The investments are recovered in less
time• Wages are higher• The incentive to invest is high
Contraction
• While biomass is below the equilibrium:It draws less fish than will ultimately be possible:– The yield is lower than normal– The investments do not recover– Wages and employment fall
Added problems
• The administration period is much shorter than the biological
• The period of execution of the investment is long: can you order a boat at a time of high expectations and time receive a decline of biomass
• The incentive to over-exploit the resource is high to keep profits and wages
The management options
• Free access (theoretical concept that does not happen in practice)
• Territorial Use Rights in Fisheries (TURF)
• Technical Limits (TL)
• Market Rights (MR): – Effort (licenses)– Catch (ITQ)
Territorial Use Rights in Fisheries (TURF). Their efficiency depend as
• The character of the resources. Efficient if sedentary, no efficient if resources are migratory.
• The number of users. If number is reduced more efficient is the system.
• The spatial distribution of the fishing grounds• The Unemployment rate. If the Unemployment is high, the
social pressure to fish can be difficult to avoid. Without employment alternatives appears difficulties to assure the effectiveness of the system.
• The degree of association (cooperative, association, guild, etc.)
• The pace of technological progress.
Technical Limits (TL)
• Comprises: Protected areas, mesh dimensions, temporary closures, gears exclusion, etc.
• Introduced when TURF not running well. • Their efficiency depend as
– The capacity of control – The economic incentives– The pace of technological progress.
Potential & limits of each option
• TURF is adequated only in littoral fisheries
• TL: expensive, but efficient in short term. Not solve the existence of economic incentives to overexploitation
• MR: efficient, but:– Tendencies to privatization of public resource– Social inequality– Coherent with Common Market, but without
subsidies
The role of the Administration• Solutions need a intelligent combination of tree options• From the local level to Europe• Preserve the public property of resources: the fishermen
can manage or pay the use of the resources, not are the owners of the resources
• Introduce the pay for use, to reduce the economic pressure and to contribute to maintain the cost of control
• Any solution must be periodically reviewed (adaptive management)
Reference
• Immediate maximum economic yield; a realistic fisheries economic reference point
Jordi Lleonart & Gorka Merino, ICES 2009, Oxford Journals