Economics of Renewable Resources Essay
Economics of Renewable Resources
Answer any THREE questions. Do not attempt to answer more than three questions. The three questions that you answer will be given equal weight.
1.(a) Consider now a newly planted stand of trees. What decision rule should be employed for determining the “optimal” investment in the trees – the optimal rotation – given that the stand of trees is being managed on a Single Rotation basis? Explain.
Now suppose that the stand was, instead, to be managed on a Multiple Rotation basis, rather than a Single Rotation basis. What impact would managing the stand on a Multiple Rotation, as opposed to a Single Rotation, basis have upon the optimal rotation period? Would it be correct to say that the opportunity to use the forest land over and over again for growing trees, under Multiple Rotation, would lead to the rotation period being longer than it would be under a Single Rotation basis? Explain fully.
It has been argued that forest policies in most Canadian provinces have as their long term goal fully regulated normal forests. Explain, with the aid of a simple example, what is meant by the term normal forest, as opposed to a single stand of trees. What relevance, if any, does the idea of a normal forest have to the concept of Maximum Sustained Yield as applied to forestry? Explain.
2. The economics of renewable natural resources has, in all of its sub-branches, a common theoretical core. The core consists of the closely linked theory of capital and the theory of investment. You have studied the economics of fishery management and foresty management. In what sense, if any, can fishery resources and forestry resources he regarded a capital assets from the point of view of society? With the aid of examples, discuss the opportunities, which society has to “invest” both positively and negatively, in such resources. What basic rules do the theories of capital and investment suggest that society should follow in making such investment decisions? In light of these rules, define what would an economist understand by the term “overexploitation” of a specific renewable resource. Under what circumstances would you expect “overexploitation” given set of renewable resources to be of a chronic problem? Explain.
3. (a) The static economic model of the fishery studied by you, the Gordon-Schaefer model, predicts that optimal economic management of a fishery resource would always lead to the fishery resource being stabilized above the MSY level. The dynamic, capital theoretic, economic model, also studied by you, gives us no such assurance. On the contrary, the dynamic economic model predicts that optimal economic management of the fishery could easily lead to the fishery resource being stabilized below the MSY level. How can such an apparent contradiction be explained? Discuss.
The static Gordon-Schaefer economic model of the fishery also predicts that, under Pure Open Access, while there will be overexploitation of the fishery resource there will be no danger of the fishery resource being driven to extinction. Yet there are several examples from the real world of fishery resources being driven to at least near extinction. Recall the examples of Norwegian Spring Spawing Herring and the Bering Sea Donought Hole pollock resource. How can you explain the difference between the Gordon-Schaefer model prediction and what we observe in the real world? Discuss fully.
4. Under the 1982 UN Convention on the Law of the Sea, coastal states, such as Canada, have been given the right to establish 370km Exclusive Economic Zones (EEZs). Due to the mobility of most capture fishery resources, most coastal states establishing EEZs find that some of the fishery resources in their EEZs cross the EEZ boundary into neighbouring EEZs, or into the adjacent high seas. The coastal states are thus faced with a “shared” fish stock management problem.
Consider now two coastal states, A and B, that share a transboundary fish stock, which does not extend into the adjacent high seas. On what grounds can it be argued that, if A and B refuse to cooperate in managing the transboundary fish stock, both A and B will be driven to adopt fishery exploitation strategies that they will know to be harmful? Suppose that A and B agree to cooperate in the management of the transboundary fish stock. A and B are identical in every respect, except that A has a lower social rate of discount than does B. Could this difference in social rates of discount lead to A and B differing in terms of their management goals for the transboundary fish stock? If so, how? If A and B do have difference resource management goals, does the economic theory of shared fish stock management studied by you suggest that it will be impossible for A and B to establish a successful cooperative fisheries management arrangement? Explain.
5. Limited Entry Type I fisheries management programs, involving limited entry to the fishery combined with Olympics style TACs, have more often than not produced disappointing results. This has led to the adoption of Limited Entry Type II programs in which TACs and limited entry to the fishery are combined with harvesting rights schemes, the most common of which in Canada consists of ITQs.
Discuss the nature of ITQ schemes, such as those found in B.C., and in so doing explain why economists prefer ITQ schemes in which the individual quotas are: (i) long term (in fact, if not in law); (ii) expressed as percentages of the TAC, as well as being transferable. Would it be correct to say that ITQ schemes are feasible only in single species fisheries, or can they be used in multiple species fisheries as well? Explain. Everyone agrees that there are some fisheries, particularly in developing fishing states, where it is not feasible to implement ITQ schemes. Do alternative harvesting rights schemes exist that might be used in such fisheries? If so, describe briefly one such alternative harvesting rights scheme.