Welfare measurement in multimarket bio-economic models or Applied welfare bio-economics

Transcription

1 Welfare measurement in multimarket bio-economic models or Applied welfare bio-economics Niels Vestergaard Lars Ravn-Jonsen FAME University of Southern Denmark

2 Introduction What is welfare economics? Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic wellbeing, especially relative to economic efficiency and the resulting income distribution associated with it. It analyzes in terms of economic activities of the individuals. The applied welfare economist usually focuses on ways to increase total economic surplus, the size of the pie, or at least to measure changes in the size of the pie. Tools: Cost-benefit analysis, consumer and producer surplus, discrete choice models, externalities, taxes etc.

3 Introduction In several marine areas the fishing industry operates on interrelated market where both exogenous changes and regulatory changes will have multimarket effects. e.g. environmental changes or changes in final demand e.g. changes in allocation of harvest between different groups In applied welfare economics these spillover effects have to be included. Just, Hueth and Schmidt (1982) developed general expressions for measuring the total welfare using general equilibrium surplus changes. Their work was based on Harberger who showed that using general equilibrium demand and supply curves will capture the sum of welfare effects in also related market.

4 Introduction Difference between partial and general approaches (and the multiplicative method). In partial approaches changes in economic welfare are only measured in the affected market, e.g. losses due to reduced production and consumption and to increased prices. In general approaches all the effects are measured, i. e. feedback effects between other markets. In applied work a subset of markets is choosen. These are the most affected markets.

5 Example The reduction of quota for Sandeel in 2012: Multiplying current output prices or average profit with the reduction in quota is not an approriate measure of the economic loss. It might be a measure for the reduction in economic activity. Prices will most likely increase and the firms involved will adjust their input use and hence the production cost will also change. But these changes spill over to other related markets and in principle, the measurement has to capture the sum of welfare effects obtained at all markets.

6 Price The partial approach S S=Supply P p A C B D Loss in Producer surplus: B-A Loss in Consumer surplus: A+C+D Net total loss: B+C+D Demand q q Quantity

7 Ecosystem examples Ecosystem models of living marine resources emphasize the ecological relationship between species. And consequently harvest of one species may have impact on the availability of not only the harvested species but also on other species. This may impact the harvesting cost and therefore it can have welfare economic effects. These kind of effects are called ecosystem externalities. An example is the role of forage fish in the ecosystem, where the forage fish acts as prey, but is also subject to harvest. And changes in the predator fishery may feedback into the forage fish fishery.

8 General economic effects of ecosystem: A multi-market approach to forage fishery Demand 1 Demand 2 Fleet 2 Fleet 1 Supply Birds etc. Piscivorous fish Climate change Forage fish

9 Review Thurman and Easley (1992) analyses how allocation of harvest between two fleets may have wider effects than just on the market directed affected (i.e. on the first hand or dockside market), namely on the dockside market for other species and at the retail market. Vestergaard (1999) explores the relationship between two harvesting quota markets using general equilibrium. In a recent paper Quaas and Requate (2012) include demand interactions into a bio-economic model with independent species and fisheries, i.e. a number of single species fisheries where there is interactions on the demand side on the market for fish products. No eco-system effects. A large literature has addressed applied welfare economics problems in other sectors using a general equilibrium approach.

10 Illustration of the approach: The simplest possible model

11 Competitive fishery

12 Competitive fishery

13 A comment on industry equilibrium In ITQ fisheries the average profit equals the costs of quota holdings. And the output price minus quota price is equal to marginal cost (i.e. virtual price = marginal cost) price MC (supply) Quota rent p p v h c h u quantity

14 Evaluation of changes in stocks

15 Equilibrium stocks

16 Changes in surplus price S=MC 0 S=MC 1 P B A h 0 h 1 quantity

17 Measurement of surplus

18 Total surplus and distribution The changes in total surplus and the distribution of the surplus between different producers is determined by: The response of stocks to changes in temperature Ecosystem interaction Cost functions of the fleets The regulatory system In our analysis optimal regulation is assumed. Under open access the supply function is the average cost curve and the producer surplus is always zero.

19 Sum up Changes in economic surplus in ecosystem fisheries due to policy changes or exogenous changes can be assessed using equilibrium supply curves. Changes in one part of the ecosystem spill over to other parts and these changes have to be included in a general analysis. The changes in surplus depends on the regulation system. If there is no consumer surplus and open access regulation there is no need to include that fishery because the changes in producer surplus is equal to zero. This has been shown in a very simply example. In empirical work the challenge is to estimate the supply functions and the relationship between changes in stock and temperature.