Environmental Economics (ECO: 324) Homework #5, Due Monday, October 29th Use our understanding of environmental economics and how policy can act to make markets either more efficient or inefficient. Identify how policies will affect efficiency. 1. Garrett Hardin’s Tragedy of the Commons relates a problem society faces with the use of natural resources. Describe the problem Hardin raises and how it affects natural resources or common pool stocks of resources. List several different types of common pool resources discussed and further address why a “technical solution” to his initial problem is not a possible (One page answer). 2. Describe factors influencing decisions on optimal forest harvesting. What factors in the decision making process lead to inefficiencies and what policies could be used or are being used to address these inefficiencies? The Tragedy of the Commons Author(s): Garrett Hardin Source: Science, New Series, Vol. 162, No. 3859 (Dec. 13, 1968), pp. 1243-1248 Published by: American Association for the Advancement of Science Stable URL: http://www.jstor.org/stable/1724745 Accessed: 12/09/2010 14:53 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=aaas. 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American Association for the Advancement of Science is collaborating with JSTOR to digitize, preserve and extend access to Science. http://www.jstor.org Common-Pool Resources • Interactive Resources: Size of the resource stock (population) is determined by biological considerations and the actions taken by society • Size of population determines the availability of resources for the future • Society’s actions determine resource stock over time Efficient Harvests • Schaefer Model: demonstrates the relationship between the growth of the interactive resource (fish) population relative to the size of the interactive resources’ population • S to S* • Growth of stock increases as population increases • S* to Sത • Growth of stock decreases as population increases Efficient Harvests • Sത is the Natural Equilibrium • Mortality or out-migration would be exactly offset by increases in the stock by births, growth or in-migration • Stable equilibrium: population moves towards this point • S is the Minimum Viable Population • Level of population below which growth in population is negative • Unstable: as population grows we move towards the stable equilibrium or if it shrinks we move towards extinction Efficient Harvests • Sustainable Yield: Catch level or harvest is equal to the growth rate of the population • Maximum Sustainable Yield: Population size that yields the maximum growth (S*) • Largest harvest that can be perpetually sustained • Efficient Sustainable Yield: Harvest level that if maintained perpetually would produce the largest annual net benefit Assumptions for Analysis 1. Price of resource (fish) is constant and does not depend on the amount sold 2. Marginal cost of a unit of harvesting (fishing) effort is constant 3. Amount of fish caught per unit of harvest (fishing) expended is proportional to the size of the fish population Problems from Open-Access 1. Contemporaneous External Cost: Over commitment of resources to harvesting (fishing) • Current fishermen earn a lower rate of return on their effort 2. Intergenerational External Cost: Over harvesting (fishing) reduces the stock and lowers future profits from effort • Effects future generations Problems from Open-Access • With open access, scarcity rent goes to zero and fishermen extract where net benefits go to zero • Total costs equal total benefits • Only consider use value and not scarcity rent How to Regulate • How can we shift the cost curve? • Raise the cost of fishing • How could we do this? • Limit technology • Limit seasons • Limit areas that can be fished • Are these types of regulations efficient? How to Regulate • Real resource costs vs transfer costs • Real resource costs – Increasing the costs associated with the used of resources • Previous examples • Transfer costs – Transfer resources from one group to another • Taxes • Quotas Quotas • Individual Transferable Quotas 1. Quotas set the catch limit size for each holder of the permit 2. Summation of all quotas equals the efficient allocation for the fishery 3. Quotas are freely transferable • Quotas could be auctioned by the government or gifted to the fishermen (fisher-people?) • Who gets the benefits in each of these circumstances?
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