Economics of Biotic
Resources
Ecosystem Structure and Function
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
Sustainable Yield Curve
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
Sustainable harvests and effort
What is the relationship to scale?
Harvest effort and cost
• Yield=catchability quotient x Stock x effort
Y=qXE
• Stable equilibrium
• Unstable equilibrium
• Where did historical harvests take place?
• Where are they taking place now?
Maximizing sustainable annual profit
(static):
Profit maximization
• π = TR-TC
• maximum π occurs when MR = MC
Open access fishery
• Non-excludable, rival
• π=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?
Can you find the tacit assumption
responsible for the happy result that profit
maximizing exploitation does not require
much stock depletion?
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?
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.
• What’s 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?
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
Dynamic profit Max
• Marginal opportunity costs of
harvesting the resource should equal
marginal opportunity costs of not
harvesting the resource, i.e. MR=MC
• Think about repaying a loan with the
profits from reducing the stock
• What if the discount rate is very high?
Dynamic profit Max
When is Extinction Optimal?
• Open access
• Private ownership, but resource cheap to
harvest, and grows more slowly than
investments
Including the fund-service
•Passenger pigeons
•Sardines
•Cassowaries
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
Summary
What is the relationship to
distribution?
• Who benefits from ecosystem fundservices?
• Who benefits from the harvest of stockflows?
• Who deserves profits from harvest of
stock-flows?
Natural dividend from renewable
resources