Bob wrote: > > David Hillary wrote: > > The allocation of > > natural resources in these circumstances is characterised by > > inefficiency and imprudent use (e.g. a fishery will by inefficiently > > over-harvested if many fishers can access it without restriction). In > > order to use the price mechanism to ration the limited supply of natural > > resources efficiently, normally it requires government to establish > > exclusive rights in natural resources, which are government created > > property rights. Examples include fishing quota and land titles. > > This presupposes that government employees that don't fish know more > about the fish than the fisherman that fish. That ain't never going > to happen. Government need not know more than the fishers, it only needs to know how to establish property rights in natural resources and auction them to the highest bidder, leaving the business of fisheing to fishers, and concerning itself with the development of effective institutions for natural resources. Government does harm when it rations natural resources without using the price mechanism, because the alternative is have a 'beauty contest' or allocate natural resources to the biggest contributor to campaign finance. The price mechanism allocates resources efficiently and without encouraging corruption. A deregulated and unsupported fishing industry and rational fisheries policies with an emphasis on using the price mechanism to ration natural resource scarcity will be efficient. The New Zealand system of fishing quotas come very close to the ideal of perfection. The allocation of 20% of fishing quota to Maori by political rationing, rather than by auction, is the problematic part. Necessary government quotas are a myth promoted by > government, and tree huggers that are making a killing off of > federal and state tax revenues. where is the argument here? You'd be amazed at the number of > non-profits in the US getting federal and state tax dollars. Talk > about a growth industry in the US. High Tech, move over. A number > of years ago, IBD did an article about the number of and growth rates > of .org offices opening (and moving existing offices to) in DC to be > closer to where the money is. Only in America .... > > There's a sword fisher that runs out of New Bedford. To stay > profitable it has to spread it's fishing over a large area. It runs > down to the Canaries off of the NW corner of Africa, then west to > the Dominican Republic, then north and home. About a month and a > half. point being? > > Try sending out a USD 2,000,000 hunk of steel to the Grand Banks > and meet it's fixed operating costs and it's mortgage. Remember, > the owners labor costs are zeroe if it comes back with an empty > hole. Despite that, a round trip is very very expensive. If it comes > back 1/2 full the owner has to decide if it is the fish or the > skipper. He gives the skipper a second chance. It comes back 1/2 > full again. Now the owner is sweating bullets. By this time if it's > the fish he'll have a good sense for that. He now has to sell it or > spend a lot of money (if he has it to spend) to re-rig it for > for other fishing or other use. It's a high risk, tough business > to consistently make money in. Boat ownership turnover is high. > You have to have some cowboy in you to play. Tree huggers and > government employees are clueless. The reason they don't go away > is that they can *afford* to remain clueless. Fishing is a competitive industry, its rate of return will not involve risk adjusted economic profit, and if fish stocks have been over-fished, so that their rate of growth has been diminished, the industry will be making economic losses. The growth of fish stocks is a function of the size of the fish stocks. For example the rate of growth of fish stocks might be described by the function G(S)=-S*(S-a)*(S-b) [NB b>a>0]. Each period the fish stock grows by G-H where H is the harvest of fish. If H=G(S) the harvest can be sustained, if H>G the fish stock will fall over time and if H<G(S) the fish stock will grow over time. The maximum sustainable H is therefore where G(S) is maximised, which is calculated by differenting and setting the first derivative to zero and the second derivative less than zero. (This is (2*(a+b) + sqrt((4*(a+b)^2)-12*a*b))/6.) Fish stocks can be manipulated to this level only if the overall rate of harvesting is controlled so that the stock can be grown or depleated by under-harvesting or excess harvesting respectively. However this point may not be the optimal use of the resource because the cost of harvesting per unit may vary with the size of the stock and the economic resources allocated to building the stock (a form of savings or capital accumulation) must also be accounted for. The economic return on the fishery is equal to the quantity of fish produced (G(S)), multiplied the the price of fish at the market (P), less the harvesting cost(H*C), less the opportunity cost of capital(S*i). As a formula the return is R=G(S)*P-H*C-S*i. If the H is to be sustainable, then it must equal G(S) (after any adjustment to attain the optimal S), thus R=G(S)*P-G(S)*C-S*i = G(S)*(P-C)-S*i. P and C are both functions of H, (the more fish supplied to the market, the lower the market clearing price). This means that P and C are functions of H, which are have said must equal G(S). Thus the return from the fishery can be expressed as R=G(S)*(P(G(S))-C(G(S)))-S*i. This function is simply maximised to give the optimal fish stock to target. If you think this task is too difficult for government, the government can outsource it by giving management of the fishery to a private company and paying it a small but fixed proportion of R (alternatively the right to fish the entire resource perpetually could be sold then subject to Land Value Taxation). > A free market will conserve the fish just fine. If you think that open use of the resource can efficiently manage the resource then you do not understand the economics of the resource. The fish stock can only be managed if use of the resource is not open, otherwise fishers will be unable to secure their investment in the fish stock, S. The fish stock S will plunge, the cost of harvesting C will rise and the growth of the fish stock G(S) will plumet if this occurs. The fish stock can be calculated by solving P=C, and this implies that the entire rent of the fishery R will be disappated if the fishery is open. > > Now *government* subsidized fishing boats is another whole story > that doesn't get told. I suspect the demand for the subsidy comes from the bust after S has been depleated and G(S) has plumeted, C has risen and R has disappeared. Initially the resource was unexploited and the fish stock S was b. Then the resource started to be in demand and the stock was depleated towards (2*(a+b) + sqrt((4*(a+b)^2)-12*a*b))/6, where G(S) is maximised. Between these two points the open and unregulated use of the resource is in sustainable equilibrium and there is no rent. When the demand for the resource results in H>max(G(S)), S falls below (2*(a+b) + sqrt((4*(a+b)^2)-12*a*b))/6, G(S) falls below max(G(S)) and the fishery goes into dis-equilibrium. The demand continues to rise and the H-G(S) grows large. C increases sharply as S heads towards a, destroying the profitbility of the fishing industry. (If S reaches a the fishery will be destroyed and never recover.) Then, of course the fishers call on government subsidy. > > When, when one looks close enough, is government *not* the problem? > > Bob Government does things it shouldn't and does not do things it should. I think that the things that the government does that it shouldn't are regulation of exchange between citizens (well at least the extent and nature of it) and taxation of the results; and that the things is doesn't do that is should involve the establishment of efficient property rights in natural resources and collection of rent therefrom. 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