Open Access Fishery

An open access fishery is one where every fisherman has access to catch fish. Here we analyze the static
equilibrium of an open access fishery. Let us assume p is the constant price of fish caught and sold in

a competitive market, q( E ) is the catch or output which depends upon fishing effort E . The sum
of profits across all the firms in the industry as:

π = pq( E )−cE [1]

The term pq( E ) is total revenue (TR) and cE is total cost (TC). Where the fishery is open access,
firms enter freely until profit is zero that is where total revenue equals total cost. The solution is

represented in Fig-1 below, where

E0 represents an open access equilibrium. It is argued that a level

of fishing effort above

E0 would result in at least some fishermen making losses. If instead, effort is

below
E
0 , then fishermen earn profits and additional resources are attracted to fishing. Recall that
costs in economics are always interpreted as the opportunity cost of the resource. A problem
associated with many fishing communities is that the opportunity cost of labor devoted to the fishing
effort are typically low, since few alternative employment opportunities exist for the labor and capital
employed in fishing.

The equilibrium in open-access fisheries represents economic overfishing where more resources than is
socially optimal are devoted to the fishing effort. If instead the fishery was owned by a single firm, the

firm would use effort

E1 to maximize profits, where marginal cost equals marginal revenue, that
'
is, p q ( E)=c .

TR

TC

TC

0
E1 E0
 Static fishing equlibria.

Fig-1

Note that under open access, there will be too many fishermen involved in fishing. Assuming all
fishermen are equally talented, the per capita catch will be too few compared to socially optimum

effort
E1 , where slope of the cost curve equals the slope of the total revenue curve.

The competitive fishery and social optimum with cost.

A key role of fishery economics is in defining policies capable of overcoming the economic inefficiency of
an open-access fishery. If there are a large number of firms then they are inclined to take account of
their own direct costs but not the cost they impose upon the other users of the resource, no value is
placed on conserving the resource because there is no guarantee that an individual firm benefits from
showing restraint. The task of fishery management, from an economic perspective, is one of compelling
firms to account for the socially optimum shadow price of stock.

Consider a fishery in which a fixed number of firms exploit the fish stock. The firms’ production functions
are a generalized form of the Schaefer model. For convenience, it is assumed that all firms are identical:

q( E i , x) i=1,2,.............. N

The q(.) function depends on effort level E and stock level x . It is twice continuously

differentiable and jointly concave in

Ei and x . The harvest cost functions are c( Ei )
i=1,2,.....N are assumed to be twice continuously differentiable and convex in effort,
Ei . The
problem for the fishery manager is to maximize the present value of the profits of all firms in the in the
industry:

Max ∫ N [ pq( Ei , x)−c( Ei )]e−rt dt

Ei 0

dx
=g (x )−Nq( Ei , x )
Subject to dt [1]

x(0)=x0 , where initial stock, x 0 is given.

The current value Hamiltonian of the above problem is :

H=N [ pq( Ei , x )−c( E i )]+μ[ g( x )−Nq( Ei , x )] [2]

The first order conditions for each identical firm are to choose the level of effort,
Ei so thati

pq E−c E−μq E=0

Or, ( p−μ )q E =c E [3]

where the marginal benefit of effort comprises the marginal benefit of selling fish at the market price
less the imputed shadow price of stock.

The costate equation is :

dμ '
=[r−g ( x )] μ−( p−μ )Nq x
dt [4]

dx dμ
=0 =0
Equilibrium is defined by setting dt in [1] and dt
in [4]. They are the steady state
solutions for equilibrium stock, where growth equals harvest and the rate of return from the numeraire
asset must equal the rate of return from the fishery. Substituting [3] for μ into [4] and setting
dμ
=0 ,
dt we get :

cE qx N
g' (x )+ =r
pq E−c E [5]

Equation [5] states that rate of return on holding the marginal unit of stock can be decomposed into two
'
parts: the return from increased stock growth, g (x ) and the return from reduced costs. This implies
that the optimal level of stock is greater in the presence of costs than would be the case for zero costs,

i.e,
x c > x 0 . [see Figure below].
 g(x) r r− Δ

0 x0 xc
x MSY x

Fig-2

cE qx N
Δ= .
In Figure-2 above at
x 0 , r=g ' ( x ) and at x c , r− Δ=g ' ( x ) , where pq E −c E This

is because as we move to the left of

x MSY , g' (x ) increases. The shadow price of stock in

dμ pq x N
=0 μ= .
equilibrium (setting dt ) is from [4] pq x N −g' ( x )

Since there are many firms in the fishery and in the harvest function ,

q=q (E i , x )

Stock is present, depletion of stock by each firm reduces the catch of every other firm. So , the source of
inefficiency for open access fishery is this externality. If the all the fishery are under sole ownership
N=1 , externality will be eliminated. In that case, the condition for socially optimum output or catch
in [3] remaining the same, optimum stock condition[5] changes to;
 cE qx
g' (x )+ =r
pq E−c E .
[5a]

The implication of this model can be explored for the specific case of identical, symmetrical firms, the
cost function TC= cE , the Schaeffer function for effort, q=θ Ex and a logistic growth function
2
g( x )=x−0. 01 x . First it is possible to identify two extreme equilibrium outcomes: the stock and
growth. The open access is found by setting μ=0 , thus from [3], pθx=c .

Now, if p=1, θ=0. 2 and c=1 , the open access stock is 5 units. The maximum sustainable

yield from the growth function g( x )=x−0. 01 x 2 is 50 units.

The social optimum is found by solving ii [5a] for the level of effort, E, substituting the equilibrium
condition that g( x )=θ Ex and solving for x. The socially optimum stock is 48 units (appx), with a
discount rate r=0. 1 .
 ∂H
=N [ pq E −c E ]−μ Nq E=0
i ∂E . Dividing through by N , we get equation [3]. The arbitrage equation for a
dμ ∂H
=rμ− '
current value Hamiltonian is dt ∂ x . ⇒rμ−N ( pq x )−μ[ g (x )−Nq x ] . This can be arranged to
dμ
=[r−g ' ( x )] μ−( p−μ )Nq x
show dt , which is how we derived equation [4] in the text..

cE qx dx
r=g ' ( x )+ =0 ,
pq E−c E dt g( x )=q( E , x ). g( x )=x−0. 01 x 2 q( E , x)=θ Ex
100−x 2x
E= g' (x )=1− , c E =c=1 ,
x−0 . 01 x 2 =θ Ex 20 θ=0. 2 r=0. 1 100 p=1
100−x
0 . 2[ ]
2x 20
0 .1=1− +
2x 100−x 100 2x
q E =θx=0. 2 x= q x =θE=0 . 2 E=0 . 2[ ] −1
q=θ Ex 10 20 10
x OPT =48
∂H dμ ∂H
=N [ pq E −c E ]−μ Nq E=0 =rμ− '
ii ∂E N dt ∂x ⇒rμ−N ( pq x )−μ[ g (x )−Nq x ]
dμ c q dx
'
=[r−g ( x )] μ−( p−μ )Nq x r=g ' ( x )+ E x =0 ,
dt pq E−c E [5a]. at dt g( x )=q( E , x ).
Assuming logistic growth function g( x )=x−0. 01 x 2 and Schaefer production function q( E , x )=θ Ex :
100−x
2 E=
x−0 . 01 x =θ Ex , from which we get 20 , given that θ=0. 2 . Now we put the following values in
' 2x 2x
g (x )=1− , c =c=1 , q E=θx=0. 2 x=
[5a] r=0. 1 , 100 E p=1 , from q=θ Ex , so 10 and
100−x
q x =θE=0 . 2 E=0 . 2[ ]
finally, 20 . Putting all these necessary values in [5a],
100−x
0 . 2[ ]
2x 20
0 .1=1− +
100 2x
−1 x OPT =48
10 [**] Solving we get .