Public Goods and Common Resources

1. Public Goods and CommonResources 11

2. The Different Kinds of Goods • Public goods & Common resources • Not excludable: people cannot be prevented from using them (free riders) • Externalities • Public Good: positiveexternality/benefits for the public, but not compensated for in market • SMB > PMB -> 2 different demand curves • Produce too little when PMB = PMC (Market) • Common property resource: negative externality/costs • PMC < SMC -> 2 different cost curves • Overuse of the resource

3. Criteria Use For Classifying Goods • Excludability – can people be excluded from using the good it they don’t pay for it? • Common Property (e.g., Parks, Fishery) – NO! • Rivalry in consumption • One person’s use diminishes other people’s use • Common Property – Yes! (Trees, Fish)

4. Public Goods & Common Property Resources • Common Property Resource – also not excludable, but is rival in consumption • Can’t exclude others from using/accessing the resource (fish, timber/forests) -> leads to overuse and possible exhaustion of the resource

5. The Different Kinds of Goods • Types of goods • Public goods • Not excludable & Not rival in consumption • Common resources • Rival in consumption & Not excludable • Private goods • Excludable & Rival in consumption • Natural monopoly • Excludable & Not rival in consumption

6. 1 Four types of goods Goods can be grouped into four categories according to two characteristics: (1) A good is excludable if people can be prevented from using it. (2) A good is rival in consumption if one person’s use of the good diminishes other people’s use of it. This diagram gives examples of goods in each category.

7. Renewable Common-Pool Resources: Fisheries and Other Commercially Valuable Species

8. Growth rate (replacement) and size of the fish stock/pool • Too Small/Low Stock Size • Lower growth rate as fish can’t hook up and reproduce • Birth (replacement) less than death/harvest • Growth rate declines; species becomes extinct • Too Large Stock Size • Food sources (plankton, biomass, other fish) too small to support large # of fish • Growth rate declines

9. Schaffer model: Relationship between the Fish Population and Growth

10. How do we use this to manage the fisheries (prevent extinction) • Compare • Open Access Fishery (Tragedy of the Commons) • Everyone who has a boat can harvest as many fish as they can catch profitably • Maximum Sustainable Yield (MSY) • What is the largest stock of fish that can be sustained from one year to the next (harvest = growth rate at max stock size) • Economically Efficient • Given costs/benefits – what is the efficient harvest

11. 3 Possible Solutions • 1. Open (unregulated) Fisheries (Ec) • Catch until total costs exceed revenues (up to zero profits) => ATC(Q) = TotRev(Q) = P*Q • 2. Maximum Sustainable Yield(MSY) (Em) • Largest “harvest” that can be sustained every year (harvest = replacement rate) • Biologist solution • 3. Economically Efficient (Eo) • Maximize Economic Value (MC(Q) = MR(Q)

12. FIGURE 14.2 Efficient Sustainable Yield for a Fishery

13. Policy Options • Command and Control (Regulation) • Set Quota for number of fish that can be caught • Ignores differences in costs/efficiency of fishermen • Can lead to over capacity (too many boats, too big) • Discarded catch/by-catch issues • Tradable permits (ITQs) • Determine optimal “harvest” and number of licenses to be issued • Divide quota/target by number of license = #fish caught per license • Auction or grandfather licenses • Allow owners to trade (one-year, or multi-year) • Multi-species/by-catch • Taxes • Per unit tax on the #fish caught

14. Individual Transferable Quotas (ITQs) • An efficient quota system will have the following characteristics: • The quotas entitle the holder to catch a specified volume of a specified type of fish. • The total amount of fish authorized by the quotas should be equal to the efficient catch level for that fishery. • The quotas should be freely transferable among fishermen.

15. Taxes also raise the real cost of fishing, but do so in an efficient manner. • Unlike regulations, the tax can lead to the static-efficient sustainable yield allocation because the tax revenues represent transfer costs and not real-resource costs. • Transfer costs involve the transfer of resources from one part of society to another. • For the individual fisherman, however, a tax still represents an increase in costs.

16. Taxes also raise the real cost of fishing, but do so in an efficient manner. • Unlike regulations, the tax can lead to the static-efficient sustainable yield allocation because the tax revenues represent transfer costs and not real-resource costs. • Transfer costs involve the transfer of resources from one part of society to another. • For the individual fisherman, however, a tax still represents an increase in costs.

17. FIGURE 14.7 Effect of Regulation

18. Individual Transferable Quotas (ITQs) • An efficient quota system will have the following characteristics: • The quotas entitle the holder to catch a specified volume of a specified type of fish. • The total amount of fish authorized by the quotas should be equal to the efficient catch level for that fishery. • The quotas should be freely transferable among fishermen.

19. TABLE 14.1 Countries with Individual Transferable Quota Systems

20. Subsidies and Buy Backs • One of management options to reduce overcapacity. • Payments used to buy out excess fishing capacity are useful subsidies, but if additional capacity seeps in over time, they are not as effective as other management measures.

21. Marine protected areas and marine reserves are areas that prohibit harvesting and are protected from other threats such as pollution. • Marine protected areas are designated ocean areas within which human activity is restricted. • Marine reserves protect individual species by preventing harvests within the reserve boundaries.