Renewable Resources Renewable stock resources

1. Renewable Resources • Renewable stock resources • living organisms: fish, cattle and forests, with a natural capacity for growth • inanimate systems (such as water and atmospheric systems): reproduced through time by physical or chemical processes • arable and grazing lands as renewable resources: reproduction by biological processes (such as the recycling of organic nutrients) and physical processes (irrigation, exposure to wind etc.). • Like non-renewable resources, are capable of being fully exhausted.

2. Renewable Resources Renewable flow resources Such as solar, wave, wind and geothermal energy. These energy flow resources are non-depletable.

3. Renewable Resources • Key points of interest • private property rights do not exist for many forms of renewable resource • the resource stocks are often subject to open access; tend to be overexploited • policy instruments: relative merits

4. Renewable Resources Biological growth processes Gt = St+1 - St where S = stock size and G is amount of growth This is called density dependent growth. In continuous time notation: G = G(S)

5. Renewable Resources Biological growth processes G = G(S) An example: (simple) logistic growth – Where g is the intrinsic growth rate (birth rate minus mortality rate) of the population. Now turn to the Excel file logistic.xls

6. MSY SMAX SMSY

7. Commercial fisheries Open access vs Restricted access fisheries What is an open access fishery? Consequences of open access: entry continues until all rents are dissipated (profit per boat = zero). Stock sizes will tend to be lower, and harvest rates will tend to be higher (but may not always be) compared with a restricted access fishery. Extinction is more likely, but will not necessarily happen.

8. Steady-state harvests Let H = harvest and G = net natural growth (G) In steady-state harvesting G = H and so = dS/dt = 0 (the resource stock size remains constant over time). There are many possible steady states or sustainable yields. There is one particular stock size at which the quantity of net natural growth is at a maximum. This is a maximum sustainable yield (MSY) steady state. Many people believe that a renewable resource should be managed to produce its maximum sustainable yield. Economists do not agree that this is always sensible (but it may be in some circumstances).

9. Note that in the textbook (chapter 9), a slightly different diagrammatic exposition is used. We have V = PH where V is revenue from fish sold But H = f(S) so V = PH(S) and

10. C,V Open access fishing equilibrium C V SOA S

11. Private property (restricted access) fishing equilibrium C,V C V Profit SOA SPP S

12. DYNAMIC FISHING MODELS See derivation in Perman et al, chapter 9. Take account of opportunity cost of leaving fish unharvested. This depends on the rate of interest (or discount rate), r.

13. EXCESSIVE HARVESTING AND SPECIES EXTINCTION • There are many reasons why human behaviour may cause population levels to fall dramatically or, in extreme cases, cause species extinction. These include: • Even under restricted private ownership, it may be ‘optimal’ to the owner to harvest a resource to extinction. Clark (1990) demonstrates, however, that this is highly improbable. • Ignorance of or uncertainty about current and/or future conditions results in unintended collapse or extinction of the population. • Shocks or disturbances to the system push populations below minimum threshold population survival levels.

14. OPEN ACCESS AND SPECIES EXTINCTION • The extinction of renewable resource stocks is a possibility in conditions of open access, but open access does not necessarily result in extinction of species. • Open access enhances the likelihood of catastrophic outcomes because: • Incentives to conserve stocks for the future are very weak. • Free riding once a bargain has been struck • Crowding diseconomy effects

15. WHATEVER THE REGIME, SPECIES EXTINCTION IS MORE LIKELY: • the higher is the market (gross) resource price of the resource • the lower is the cost of harvesting a given quantity of the resource • the more that market price rises as the catch costs rise or as harvest quantities fall • the lower the natural growth rate of the stock, and the lower the extent to which marginal extraction costs rise as the stock size diminishes • the higher is the discount rate • the larger is the critical minimum threshold population size relative to the maximum population size.

16. Renewable resources policy • Command-and-control: • Quantity restrictions on catches (EU Total Allowable Catches) • Fishing season regulations • Technical restrictions on the equipment used - for example, restrictions on fishing gear, mesh or net size, or boat size. • Incentive-based policies: • Restrictions on open access/property rights • Fiscal incentives • Establishment of forward or futures markets • Marketable permits (‘individual transferable quotas’, ITQ)

17. Renewable resources policy • Others: • Government's role in the provision of information • Safe Minimum Standard of conservation (SMS): imposing constraints on resource harvesting and use so that all risks to the survival of a renewable resource are eliminated.

18. A model of a commercial fishery See Excel file logistic.xls and also Word file exploit6.xls