Economics%20of%20Biotic%20Resources

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Economics of Biotic Resources

• Ecosystem Structure and Function

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Econ of Ecosystem Structure Renewable 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 Curve
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Carrying capacity, MSY and minimum viable
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 effort
What is the relationship to scale?
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Harvest effort and cost

• Yieldcatchability quotient x Stock x
  effortYqXE
• Stable equilibrium
• Unstable equilibrium
• Where did historical harvests take place?
• Where are they taking place now?

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Maximizing sustainable annual profit (static)
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Profit maximization

• p TR-TC
• maximum p occurs when MR MC

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Open access fishery

• Non-excludable, rival
• p 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 stock
  depletion?

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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 Renewable resources

• The opportunity cost of not harvesting is equal
  to the foregone earnings from not investing the
  profits of that harvest.
• Whats 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 resources

• 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 Max

• Marginal opportunity costs of harvesting the
  resource should equal marginal opportunity costs
  of not harvesting the resource, i.e. MRMC
• 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 Max
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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-service

• Passenger pigeons
• Sardines
• Cassowaries

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Characteristics of optimal harvest

• 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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Summary
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What is the relationship to 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 resources