Group 6 (the Manatees)
Brian Dennis
Lindsey Gillies
Matt Stone
John Bargayo
Jeff Glowa
Ali Morgan
Market Failures and Biotic Resources
In this module, we will relate biotic resources and their affects on market failures.
Our definition of biotic resources focuses around the fact that certain resources are
renewable and can provide just as much utility from the goods that can be derived from
them than the utility from the services from the same resource. Unfortunately, since our
economy tends to focus more on the present than the future, we tend to use up resources
faster than they can regenerate, therein lays the problem. We must also not just think
about substitutability but also complementarily of resources. In this module we will
discuss various factors that deal with biotic resources and how they their relationship to
market failures.
I.
Sustainable Yield and Catch-per-unit-effort
Objectives
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Identify and evaluate the Sustainable Yield
Identify and evaluate the Catch-per-unit-effort
Relate sustainable yield and Catch-per-unit-effort to market failures and be able to
apply this knowledge to solve problems in other fields
“Catch-per-unit-effort hypothesis states that for any given effort, more stock leads to
a larger harvest in a linear fashion, and for any given stock, more effort yields a larger
harvest…However unless harvests are less than the annual increase in stock, an increase
in effort in any given year, all else being equal, implies a smaller stock and thus a smaller
harvest from the same level of increased effort in the following years.” Pg. 202
Activities - CPUE
By definition the, “Catch-per-unit-effort hypothesis states that for any given effort,
more stock leads to a larger harvest in a linear fashion, and for any given stock, more
effort yields a larger harvest. However, unless harvests are less than the annual increase
in stock, an increase in effort in any given year, all else being equal, implies a smaller
stock and thus a smaller harvest from the same level of increased effort in the following
years.” Pg. 202, Ecological Economics, Daly, Farley.
Here are some activities that delve deeper into this idea:
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To brush up on the CPUE hypothesis read http://www.blackwellsynergy.com/doi/pdf/10.1046/j.1365-2400.1997.00123.x?cookieSet=1
Follow this article and computer application,
http://www.fao.org/docrep/x5685e/x5685e04.htm
The University of California has done a study to measure the catch per unit effort
of sardines in California waters. Do an overview of the article at
http://content.cdlib.org/xtf/view?docId=kt8k400688&doc.view=frames&chunk.id
=d0e570&toc.depth=1&toc.id=d0e570&brand=calisphere
Proof of Learning - CPUE

Watch Chris Davies on EU Fisheries
http://youtube.com/watch?v=SycQWjTMAVQ
Find information on local fisheries or other types of similar harvesting in your area or
maybe deforestation and replanting. Are the populations still able to thrive or do you
notice a dwindling population. Write a letter to the editor of your local newspaper and
explain your findings and concerns

Create a Catch-per-unit-effort curve based on data found from a local fishery or
another similar type resource. Here is how they are calculated
http://wfs.sdstate.edu/wfsdept/courses/WL%20412/2005/4_catchpereffort.pdf
Here is an example, and be sure to read all of chapter 5.3 here
http://www.fao.org/docrep/005/y3427e/y3427e07.htm#bm07.3


The sardine study at the University of California is a little outdated. What changes
would you make to the study if you were to perform it again today? Look online
for other articles related to fishing and CPUE do you notice a trend over time with
effort versus the amount of fish caught?
Activities - Sustainable yield
First, let us briefly discuss sustainable yield, in essence it is the amount of resource
that can be harvested while leaving enough of the resource so that it is undiminished for
the next harvest whether it be in days, months or years. Here are some activities that will
grapple with and build upon this idea.
Figure 2: Sustainable Yield curve
http://www.fao.org/DOCREP/006/Y5027E/y5027e04.htm

Using figure 2 and the source website, label the curve.

Read this article of the economics of fisheries. Take note of how this applies to
both sustainable yield and catch per unit effort.
http://www.eoearth.org/article/Economics_of_fisheries
Visit these websites to find the definition of sustainable yield
http://stats.oecd.org/glossary/detail.asp?ID=6588 and
http://en.wikipedia.org/wiki/Sustainable_yield
Definition of maximum sustainable yield
http://en.wikipedia.org/wiki/Maximum_sustainable_yield_in_fisheries
Read this article that focuses beyond sustainable yield for individual fish species
http://www.americanscientist.org/template/AssetDetail/assetid/17216?fulltext=tru
e
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Proof of Learning - Sustainable yield

Based on the Economics of fisheries article, how does sustainable yield and catch
per unit effort relate and what are the problems faced by fisheries? Write a short
essay and post it on the forum for this module, be sure to read other essays and
provide feedback.

How does the article Ecologically sustainable yield go beyond our regular view of
sustainable yield. How can we apply this to another current problem, that is, how
can we use this strategy to solve another problem? Try and find another similar
problem in your local area and submit a plan or at least make the public aware or
what problem exists and why it exists. What can we do to fix this problem?
II.
Renewable Resource Stocks and Flows
Objectives


Identify the concepts of renewable resources in the form of stocks and flows and
how they relate to market failures
Apply these concepts in order to analyze the issue of over-fishing
Renewable resource stocks and flows are rival and potentially excludable depending
on whether or not institutions exist that can regulate access to them. If depleted faster
than they regenerate, they become rival between generations. Unfortunately, unless we
explicitly take future generations into account, economic incentives quite likely will lead
us to high depletion rates of many natural resources and may eventually threaten them
with extinction.
Activities – Renewable Resource Stocks and Flows

Read page 201 for an introduction on Renewable Resource Stocks and Flows
http://books.google.com/books?id=WGKt763MIbsC&pg=PA201&lpg=PA201&d
q=renewable+resource+stocks+and+flows&source=web&ots=a08U70VfBI&sig=
HxtCFTS0mZGsNJ66rFRJQGVnnZg&hl=en#PPA201,M1

Watch the video Overfishing Impacts: Interview with Dr. Ussif Rashid Sumaila
by opening the link provided below.
http://youtube.com/watch?v=6Bfmyw-3yys

Take a minute to read the short paper written by David N. MacLennan provided
in the link below.
http://www.fao.org/DOCREP/006/AC442e/AC442e6.htm#
Proof of Learning – Renewable Resource Stocks and Flows
III.

By applying the information on page 201 to the video, “What economic effects
could over fishing have on regions that depend on fishing to feed their
communities?” “What are your reactions to the two possible solutions that Dr.
Ussif Rashid Sumaial offers at the end of the video?”

After reading David N. MacLennan’s paper pertaining to the problems of over
fishing addressed by the Kyoto Protocol, play the role of a U.N. delegate. Prepare
your own possible solution to the problem of over-fishing and write down your
ideas. Consider the implications that your proposal could have and address them
in them your writing.
Renewable Resource Funds and Services
Objectives


Learn about the concept of optimal harvest
Apply optimal harvest to the extraction of natural resources
Optimal harvest is where marginal social costs equal marginal revenue. Optimal
harvest of stocks is solely a function of flow while the optimal amount of the fund is the
carrying capacity. Unless we recognize the values of both the fund-service and the stockflow, resource extraction rates will not be optimal.
Activities – Renewable Resource Funds and Services

Go through the reading provided below making sure to focus on the biotic
aspect of the information you read
http://en.wikipedia.org/wiki/Renewable_resource

Watch this video called the Story of Stuff: Extraction to gain an understanding
of how resource extraction effects the global society and economy
http://youtube.com/watch?v=QYbSaBH0_1M
Proof of Learning – Renewable Resource Funds and Services

IV.
After watching the Story of Stuff: Extraction, how do you feel about the issue
of optimal harvest? What suggestions can you create to address high
extraction rates of natural resources?
Natural Dividend and Unearned Income
Objectives


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Introduce the idea of dividends in an economic and financial framework.
Expand on the definition of dividends as they relate to ecological economics.
Provide an overview of the concept of natural dividends.
Explain how the idea of natural dividends is correlated with the sustainable
yield curve.
What is a dividend?
Before discussing natural dividends, a clear understanding of what exactly a
dividend is should be obtained. In pure financial terms, a general explanation of what a
dividend can be seen below:
A distribution of a portion of a company's earnings, decided by the board
of directors, to a class of its shareholders. The dividend is most often
quoted in terms of the dollar amount each share receives (dividends per
share). It can also be quoted in terms of a percent of the current market price,
referred to as dividend yield. Dividends may be in the form of cash, stock or
property. Most secure and stable companies offer dividends to their
stockholders. Their share prices might not move much, but the dividend
attempts to make up for this (Investopedia).
Basically, publicly traded companies (those in which individuals can buy stock in)
can share profits with those that have invested in the success of the company. This payout
usually occurs at scheduled intervals of time. This acts as a division of assets among
shareholders.
Activities

Now that you have a basic idea of what a dividend is, search the Internet or a
financial magazine for articles relating to dividends. When and why does a
company decide to share profits instead of reinvesting? Is there a correlation
between the percentage shareholders receive and the strength of the economy?
What is a natural dividend?
When discussing nonrenewable resources, unearned income is captivated and
quantified by scarcity rent. However, although not finite, the extraction and harvesting of
renewable resources also produces unearned income. Herman Daly and Joshua Farley
provide a definition of natural dividend:
The natural dividend is the unearned income from the harvest of
renewable resources. As nature and not human industry produces
renewable resources, all profits above “normal” profit (included in [total
cost]) are unearned, and the natural dividend is equivalent to [total
revenue-total cost] (Daly and Farley, 214).
The question that arises from this is, “who should rightfully receive the
dividend from nature’s profits?” For a relevant discussion about this topic follow
the link below to the UNEP FI Global Roundtable website and click on the PDF
link for the debate summary about natural dividend:
http://www.unepfi.org/events/2007/roundtable/programme/ecosystem/index.html
Natural Dividend and Sustainable Scale: A Symbiotic Relationship
The concept of natural dividend should now be clear, but the question
remains about how exactly to ensure unearned profits are distributed justly. This
is a question of policy, regulation and enforcement. Land, crops, and populations’
of non-humans regenerate in the absence of human presence, thus such services
should somehow be valued.
The following online article, from March 2008, provides an example of
conservation policies that have been implemented in New Jersey to ensure the longevity
of the bluefin tuna population. Understanding the maximum sustainable yield curve is
crucial in order to develop policy will make certain that harvesting bluefin will not
exceed a sustainable level. It is known that, for every species, a minimum viable
population is required in order to guarantee future harvesting.
http://www.app.com/apps/pbcs.dll/article?AID=/20080316/SPORTS06/803160443/1002/
sports
After reading the article, and thinking about the issue from both sides of the
debate, post a response on the websites blog. Consider ways in which policy and
regulations can be effectively enforced and in an equally just manner. Remember prior
discussions on just distribution. How do the two concepts interrelate in this context?
Proof of Learning

The different sections of this module focused on market failures in relation to
biotic resources. In this section the concept of dividends was introduced and
elaborated upon in the context of ecological economics and sustainable yield. The
article on Tuna harvesting in New Jersey gave an example of how policy can
effectively promote the longevity of a population. Think about another commonly
consumed good or service whose producer is probably retaining unearned income.
Nature has the ability to regenerate on its own, yet companies receive profits from
this. Write a letter to UNEP with your thoughts on this subject.
I.
Net Present Value
Objectives


Identify Net Present Value
Relate Net Present Value with prices and identify the difference in the points of
view of Neoclassical Economics and Ecological Economics.
Net present value is stated as the value to us today of all costs and benefit streams from
now into the future (p 208). It can also be defined as “the amount of money if available
today that would generate the future stream of net income in question. The farther off in
time that a cost or benefit occurs, the more we discount its present value.
T
The equation for NPV= Σ (benefits t –costs t) (1/1+r) t
(t = 0), r= discount rate, t= time period
Σ = sum together the next benefit stream from time 0 to time T
Activities

Read pages 181-182 and pages 207-208 to get a basic understanding of the
material and concepts

Review the video clip below to get a briefing on how NPV is found.
http://youtube.com/watch?v=2sXYobpdsUA
- Respond to this video by evaluating whether or not you believe the woman
speaking is an ecological economist or a neoclassical economist. Why?

Overview of Net Present Value
http://en.wikipedia.org/wiki/Net_present_value
http://cleanerproduction.curtin.edu.au/resources/training/sme_a5.pdf
http://sporkforge.com/finance/cash_flow.php
Proof of learning: Net Present Value

Explain the difference between neoclassical economic ideas and ecological
economic ideas and the pros and cons of each.

Explain the NPV equation and how it affects the price of a resource today as well
as over periods of time.

Explain the concepts described in the Youtube video and come up with your own
scenario and determine the NPV of a good or service in a certain period of time
Sources:
1. http://www.blackwell-synergy.com/doi/pdf/10.1046/j.13652400.1997.00123.x?cookieSet=1
2. http://www.fao.org/docrep/x5685e/x5685e04.htm
3.
http://content.cdlib.org/xtf/view?docId=kt8k400688&doc.view=frames&chunk.id=d0e57
0&toc.depth=1&toc.id=d0e570&brand=calisphere
4. http://youtube.com/watch?v=SycQWjTMAVQ
5. http://wfs.sdstate.edu/wfsdept/courses/WL%20412/2005/4_catchpereffort.pdf
6. http://www.fao.org/docrep/005/y3427e/y3427e07.htm#bm07.3
7. http://www.fao.org/DOCREP/006/Y5027E/y5027e04.htm
8. http://www.eoearth.org/article/Economics_of_fisheries
9. http://stats.oecd.org/glossary/detail.asp?ID=6588
10. http://www.americanscientist.org/template/AssetDetail/assetid/17216?fulltext=true
11.
http://books.google.com/books?id=WGKt763MIbsC&pg=PA201&lpg=PA201&dq=rene
wable+resource+stocks+and+flows&source=web&ots=a08U70VfBI&sig=HxtCFTS0mZ
GsNJ66rFRJQGVnnZg&hl=en#PPA201,M1
12. http://www.fao.org/DOCREP/006/AC442e/AC442e6.htm#
13.
http://www.unepfi.org/events/2007/roundtable/programme/ecosystem/index.html
14.
http://www.app.com/apps/pbcs.dll/article?AID=/20080316/SPORTS06/803160443/1002/
sports
15. http://cleanerproduction.curtin.edu.au/resources/training/sme_a5.pdf
16. http://sporkforge.com/finance/cash_flow.php
* Wikipedia and youtube sources were not included because they have free access use