Chapter 12

Common-Pool Resources: Commercially Valuable Fisheries

Chapter 12 examines renewable resources with biological growth. This chapter focuses on common-pool
resources (fisheries) whose movement and lack of well-defined property rights make achieving economic
efficiency much more difficult. Commercially valuable species can be exploited beyond recovery if not
carefully managed. An economic model is overlayed on a biological model as an example. Efficient levels
of harvest are defined and economic incentives for sustainable harvests are discussed.

[These models tend to be difficult for students. Take time to set up the biological models and emphasize
what is being measured on the axes.]

◼ Teaching Objectives
1. Present the Schaefer model.

2. Define static-efficient sustainable yield.

3. Discuss the difference between maximum sustainable yield and static-efficient sustainable yield.

4. Discuss the difference between the open-access and static-efficient outcome.

5. Present and discuss dynamic efficiency and the effect of the discount rate.

6. Discuss the two types of externalities created with free-access.

7. Present public policy options for fisheries management and the pros and cons of each option.

◼ Outline
I. Efficient Allocations
This section presents a simple biological fisheries model and defines the concept of a static-efficient
sustained yield from a fishery. Emphasis is placed on the fact that the maximum sustained yield is
not the efficient allocation unless the marginal cost of effort is zero. The dynamic efficient
sustainable yield model is then presented.
A. Biological Dimension—The Schaefer model
1. The Schaefer model posits an average relationship between the growth of the fish population
and the size of the fish population.
2. The graphical relationship is represented with the size of the population on the horizontal
axis and the growth of the population on the vertical axis (Figure 12.1). The shape of the
graph shows that population growth first increases as population increases, and then
decreases as population continues to increase.
©2015 Pearson Education, Inc.
 Chapter 13 Common-Pool Resources: Fisheries and Other Commercially Valuable Species 65

3. The two points of intersection of the growth function with the horizontal axis represent
equilibria. Only the second intersection represents a natural equilibrium. This is the
population size that would persist without outside influences. Reductions in the stock
(deaths for example) are exactly matched by increases in the stock (births for example).
Thus, this is also a stable equilibrium. It is also the carrying capacity of the habitat.
4. The other equilibrium point is called the minimum viable population and is the level of
population below which growth in population becomes negative. Thus, this is an unstable
equilibrium. A change in the stock in either direction would lead to either positive or
negative growth.
5. Sustainable yield refers to a catch rate that is equal to the growth rate. As long as the
population size remains constant, then the growth rate and catch rate will remain constant.
6. The peak of the function on this graph is called the maximum sustainable yield. This is
the population size that yields the maximum growth and thus the largest sustainable catch.
Catch rates higher than the maximum sustainable yield would lead to extinction.
7. For any fish stock, the sustainable yield can be found by locating the intersection of a line
from the stock size to the function and then determining what growth rate (catch rate) it
is associated with based on the vertical axis.
B. Static-Efficient Sustainable Yield
1. The static-efficient sustainable yield is the catch level that, if maintained perpetually,
would produce the largest annual net benefit. The dynamic-efficient sustainable yield
incorporates discounting.
2. Assumptions of the economic model are:
a. The price of fish is constant and does not depend on the amount sold.
b. The marginal cost of a unit of fishing effort is constant.
c. The amount of fish caught per unit of effort expended is proportional to the size of the
fish population.
3. The static-efficient sustainable yield allocation maximizes the constant net benefit (catches,
population, effort levels, and net benefits are constant over time).
4. The function illustrated in Figure 12.1 can be used to derive a graph that represents benefits
(total revenue) as a function of fishing effort.
a. Harvest-effort functions are added to the population function as shown in Figure 12.2.
As effort increases, the harvest-effort function will rotate upwards.
b. The sustained yield associated with each level of effort is where the harvest-effort
function intersects the population function.
c. Figure 12.3 graphs the relationship between effort (on the horizontal axis) and the
sustainable catch on the vertical axis. This is the sustainable yield function defined in
terms of effort instead of population.
d. The sustainable yield function is multiplied by the price to get total revenue. Since the
price of the fish is constant, the total revenue function will take the same shape, as
illustrated in Figure 12.4. [Remind your students that increasing effort will reduce the
fish population.]
e. The peak of this function again represents the maximum sustainable yield.
5. Since marginal costs are assumed constant, total cost is a straight line from the origin. Net
benefit is the vertical distance between benefits and costs. Maximum net benefit is at point
E e where the vertical distance is maximized and where the marginal benefit (slope of the
total benefit function) equals marginal cost (slope of the total cost function).

©2015 Pearson Education, Inc.

66 Tietenberg/Lewis • Environmental and Natural Resource Economics, Tenth Edition

6.The maximum sustainable yield is not equal to the static efficient yield unless the marginal
cost of additional effort is zero. The efficient level of effort is less than that necessary to
harvest the maximum sustainable yield and thus is associated with higher population sizes.
7. A change in the marginal cost of effort (due to a change in technology, or a regulation, for
example) would cause the total cost curve to rotate. Lower marginal costs would cause
a rotation to the right. Higher marginal costs would cause a rotation to the left.
C. Dynamic Efficient Sustainable Yield
1. The dynamic efficient sustainable yield will equal the static efficient sustainable yield if
the discount rate equals zero.
2. Higher discount rates mean higher costs (foregone current income) to the resource owner
of maintaining the stock.
3. With positive discount rates, the efficient level of effort increases and equilibrium
populations decrease.
4. With an infinite discount rate, the level of effort would rise to E c (Figure 12.4) where net
benefits equal zero. With an infinite discount rate the marginal user cost is zero since the
value of the future is zero.
5. Under the dynamic efficient management scheme, extinction could occur if the growth rate
is lower than the discount rate and if the costs of extracting the last unit are sufficiently low.
6. Actual fisheries differ from the standard model discussed above in two ways: (1) marginal
costs are typically not constant, but rather increase as the remaining stock size decreases,
and (2) since the price of fish is not constant, the size of the harvest can affect price.

II. Appropriability and Market Solutions

This section compares and contrasts the typical market allocation to the efficient allocation and
discusses the externalities associated with unrestricted fisheries that lead to these differences.
A. A sole owner of a fishery would have a well-defined property right to the fish and would want
to maximize his or her profits. Profit maximization will lead to the static-efficient sustainable
yield. A sole owner can increase profit by increasing fishing effort until marginal revenue equals
marginal cost (Figure 12.5).
B. Ocean fisheries, however, are typically open-access resources. Thus, no single fisherman can
keep others from exploiting the fishery.
C. Open-access creates two kinds of external costs:
1. Contemporaneous external costs are the costs imposed on the current generation from
overfishing. Too many resources (boats, fishermen, etc.) are committed to fishing.
2. Intergenerational external costs are the costs imposed on the future generation from the
exploitation of the stock today. Overfishing reduces stocks and thus future profits.
D. Unlimited access creates property rights that are not well-defined. Efficiency would create
profit equal to the scarcity rents. Rents encourage entry into the fishery. Entry will occur until
the rents are gone and will result in overexploitation of the fish stock. (Figure 12.5 exhibits this
situation also.)
E. With free-access, individual fishermen have no incentive to “save” the resource. The asset value
disappears. Individuals have incentives to increase effort until profits are zero. This is the case
for many ocean fisheries.
F. Whether or not free-access poses the threat of species extinction must be determined on
a case-by-case basis.

©2015 Pearson Education, Inc.

 Chapter 13 Common-Pool Resources: Fisheries and Other Commercially Valuable Species 67

G. Open-access and common-pool resources are not synonymous. Open access generally violates
both the efficiency and sustainability criteria (Example 12.1).

III. Public Policy Toward Fisheries

This section presents a variety of public policy responses to the problems outlined above.
A. Raising the Real Cost of Fishing
1. Raising the marginal cost of effort results in a lower harvest and higher stock sizes.
2. Regulations such as gear restrictions or equipment bans will raise the cost of fishing.
Examples include restrictions on the size and type of traps, net restrictions, turtle exclusion
devices, etc.
3. Limitations on fishing seasons and times will also raise the cost of fishing.
4. While these policies may result in an efficient catch, they are inefficient because the efficient
level of catch is not caught at the lowest possible cost. Fishermen will overcapitalize. With
time restrictions, fishermen will invest in more equipment than is necessary in order to
capture the fish in the limited season. Raising the cost of fishing uses resources that could
have been used elsewhere. Net benefits are lost because excessively expensive means are
used to catch the fish.
5. These policies have led to substantial losses in the net benefits received by the fishery. The
problem is further exacerbated if the incomes of fishermen suffer. Lower incomes lead to
incentives to violate regulations, and further conservation efforts become difficult to
implement.
6. Technological innovations have lowered the cost of fishing, offsetting the increases imposed
by regulations.
B. Taxes
1. A tax on effort would also cause the total cost curve to rotate (higher total cost) and will
lead to lower catches and higher population levels (Figure 12.6).
2. Unlike regulations, the tax can lead to the static-efficient sustainable yield allocation
because the tax revenues represent transfer costs and not real-resource costs.
3. Transfer costs involve the transfer of resources from one part of society to another.
Regulations cause resources to be used up or wasted. Taxes cause resources to be moved
around. Thus from society’s perspective, transfer costs are retained as part of the net
benefit.
4. For the individual fisherman, however, a tax still represents an increase in costs.
C. Catch Share Programs
1. A properly designed individual transferable quota (ITQ) system is another policy option
for obtaining an efficient allocation. An efficient quota system will have the following
characteristics:
a. The quotas entitle the holder to catch a specified volume of a specified type of fish.
b. The total amount of fish authorized by the quotas should be equal to the efficient catch
level for that fishery. (A quota defined in terms of the right to own and use a fishing
boat would not be efficient since there would still be incentives to overcapitalize.)
c. The quotas should be freely transferable among fishermen and markets should send
appropriate price signals about the value of the fishery.
2. Since quotas are valuable, transferable quotas will command a positive price. Fishermen
who own quotas, but have high costs, can make more money by selling their quotas to

©2015 Pearson Education, Inc.

68 Tietenberg/Lewis • Environmental and Natural Resource Economics, Tenth Edition

fishermen with lower costs and vice versa. Transferable quotas also encourage technological
progress.
3. Thus, both the tax system and the ITQ system encourage lower harvest rates in an efficient
manner.
4. The distribution of rent from a quota system depends on how the quotas are initially
allocated.
5. If the government auctions off the quotas, the government appropriates all the rent and the
outcome is similar to that of a tax.
6. If the government gives the quotas away, the fishermen can then trade among themselves
and the rent goes to the current generation of fishermen.
7. New entrants would have to purchase quotas from existing fishermen. The price of the
transferable quotas will rise to the point at which it equals the discounted market value of
future rents.
8. Future generations see little difference between a quota system and a tax system. In both
cases, they have to pay to enter the industry.
9. Examples of existing or proposed ITQ programs are numerous. (Table 12.1 lists some
examples.)
10. The ITQ system established in New Zealand to protect the deepwater trawl fishery is
highlighted and discussed in this section. This is an excellent class case study. (Example
12.2 examines restrictions and quotas for Atlantic Sea Scallops.)
11. Problems with ITQ programs can include bycatch and high-grading which both result in
high mortality rates. When quotas specify the catch in terms of the weight of the species,
the value of the catch is affected by the size of the fish. Fishermen thus have incentives
to throw back the less valuable fish. This is called high-grading. As with by-catch, the
fish that are thrown back rarely survive, resulting in wasted harvests and smaller stocks.
12. Territorial Use Rights Fisheries (TURFs) are an alternative to ITQ systems where the
right to fish for certain species in a certain area is allocated. These are access rights and
not ownership rights. By assigning property rights, TURFs create an incentive to protect
the future value of the resource. Debate 12.1 discusses how TURFs and ITQs can be
combined to create an even more efficient system.
D. Aquaculture
1. Allowing some fisheries to be privately held is one solution to the common-property problem.
2. This solution can work when fish are not very mobile (e.g., lobsters), or can be confined, or
when they return to areas to spawn.
3. Aquaculture is the controlled raising and harvesting of fish. Fish farming involves
cultivating fish over their lifetime. Fish ranching involves holding fish in captivity for the
first few years of their lives.
4. Privately owned fisheries encourage owners to invest in resources that increase the yield of
the fishery.
5. Oysters and mussels are examples of species that have been successfully raised through
aquaculture.
6. By 2008, about 46% of fish consumed around the world were raised on farms. About 2/3 of
the seafood consumed in China comes from fish farms.
7. Some governments, such as in Japan, have created private property rights for waters that
were formerly held in common.
8. Fish farming can create environmental problems from pollution and from the destruction of
ecologically valuable sites.
©2015 Pearson Education, Inc.
 Chapter 13 Common-Pool Resources: Fisheries and Other Commercially Valuable Species 69

E. Subsidies and Buybacks

1. Subsidies that reduce the cost of fishing, such as fuel subsidies and tax exemptions,
encourage overfishing.
2. Payments used to buy out excess fishing capacity (buybacks) are useful in that they
reduce overcapacity. However, they can induce fishermen to acquire more vessels than
otherwise.
F. Marine Protected Areas and Marine Reserves
1. Marine reserves protect individual species by preventing harvests within the reserve
boundaries. Marine reserves also reduce habitat damage from fishing gear.
2. Marine protected areas can promote ecosystem balance unlike single species harvesting
quotas. The removal of sensitive species in the form of by-catch is prevented.
3. Marine protected areas do not always create win-win situations. Local harvesters may have
to sacrifice in the short run in order to benefit in the long run. Policies must recognize these
costs.
G. The 200-Mile Limit
1. As an attempt to reduce the common-pool and open-access issues associated with ocean
fisheries, countries bordering the sea now have ownership rights that extend 200 miles
offshore. Within the 200-mile limit, the countries have exclusive jurisdiction. This ruling
protects coastal fisheries, but not the open ocean.
H. Preventing Poaching
1. Poaching presents another threat to commercially valuable species. Poaching can be
discouraged by raising the relative cost of this illegal activity.
2. Providing incentives to protect the species is another possible solution.

◼ Common Student Difficulties

The jump from the biological model of a fishery to the economic model will be difficult for some students.
Emphasize the different axes and how an increase in effort represents a move from right to left in one
graph, and a move from left to right in the other. I have found it useful to make enlarged photocopy
handouts of these graphs for class so that the students can focus on the concepts and add notes to the
graphs instead of worrying about drawing the graph.

Additionally, the assumptions of the economic model are extremely restrictive, and I doubt you will be
able to finish a presentation of the theoretical model without a challenge to these assumptions. Remind the
students that these assumptions allow us to set up the problem and isolate the open access problem and
outcome. Then you can show them what happens when one of these assumptions is relaxed or how a price
change might affect the incentives to comply with regulations and the like. Finally, social costs could be
added to this model to examine optimal levels of fishing effort. For some species, social costs could be so
high that the optimal level of effort is zero.

◼ Suggested Classroom Exercises

A version of the game below was presented in Chapter 2, but I find it is more fun to incorporate when
discussing fisheries. My environmental studies students have, in the past, been horrified to find that not
only are the fish they caught worth nothing because they flooded the market, but also that they have
completely extinguished the species. They are most distraught by the latter point. This game is simple and
does a nice job of illustrating the open-access problem.
©2015 Pearson Education, Inc.
70 Tietenberg/Lewis • Environmental and Natural Resource Economics, Tenth Edition

One extension of this game is to try to create a situation that exhibits the differences between free-access
and common-property resources. One way to achieve this is to play the game again, but allow the students
to communicate and attempt to “manage” the “fish” before the fishing begins. I have done this by
completing the first version of the game at the beginning of a class before lecturing on Chapter 12. I then
lecture on fisheries models and talk about management options. At the beginning of the next class, I then
ask the students if they would like to try the game again, but this time I let them communicate and they are
playing for problem set points instead of money. They will usually form some sort of agreement as to how
many fish to pick up. (Once, after an agreement was reached, one student then picked up all the fish and
the class received no problem set points!)

Another extension could be the addition of regulations and noncompliance penalties that could be imperfect.
A role of a die or dice could determine the probability of getting caught. Adding a reproduction rate for the
“fish” could also work.

Fish Game
A simple game that is fun and illustrates the common pool resource issue is called “the carmel game” or
the “fish game” as I like to call it.

This game is a demonstration of free access goods and is an adaption of a game used by James Alm in his
microeconomics course. The “fish” (caramels or other candy) are placed around the room and anyone can
catch a fish. You can use fewer caramels than students if cost is a factor, but it probably will not matter if
you use more—some students are bound to grab as many as they can. However, the price of fish depends
on the number caught; the more caught, the lower the price. If all the fish are caught, then the price is $0.00.
(This way you are only out the price of the candy because invariably all will be caught. This shows how
free access causes inefficient markets, i.e., some level of harvest less than complete harvest would maximize
“profits.” Since the marginal cost of catching fish is zero in this game, maximum profits occur at maximum
total revenue.)

Directions
Stage 1
Place 50 (or number of students) fish around the room.
Student directions:
At the signal, you will have one minute to pick up the “fish.”
Anyone can play by picking up as many fish as they want.
Come to the front of the classroom to redeem fish.
Any fish picked up must be redeemed in the next stage.
No talking during the game.

Stage 2
Count the total number of caramels that were collected.
Find the price based on the total number.
Exchange caramels for cash.
(Price is based on the following market demand curve. See below.

Stage 3: (optional)
Gather the remaining caramels and play the game again.

©2015 Pearson Education, Inc.

 Chapter 13 Common-Pool Resources: Fisheries and Other Commercially Valuable Species 71

In the optional two-harvest period game, the “fish” are randomly thrown about the classroom. If the
fish are harvested (i.e., picked up) in the first period (i.e., first 30 seconds), the price for their return
is low. If the fish are harvested in the second period, then the price is higher. No one in the class is
allowed to communicate. This prevents those who are near a fish from agreeing to wait until the
second period. Naturally, every fish is immediately picked up.
Both of these games are variations of the prisoner’s dilemma, which characterizes many types of
open-access resources.

Inverse Market Demand

P = 1.00 − 0.02Q

P Q PQ
$1.00 0 $ 0.00
$0.98 1 $ 0.98
$0.96 2 $ 1.92
$0.94 3 $ 2.82
$0.92 4 $ 3.68
$0.90 5 $ 4.50
$0.88 6 $ 5.28
$0.86 7 $ 6.02
$0.84 8 $ 6.72
$0.82 9 $ 7.38
$0.80 10 $ 8.00
$0.78 11 $ 8.58
$0.76 12 $ 9.12
$0.74 13 $ 9.62
$0.72 14 $10.08
$0.70 15 $10.50
$0.68 16 $10.88
$0.66 17 $11.22
$0.64 18 $11.52
$0.62 19 $11.78
$0.60 20 $12.00
$0.58 21 $12.18
$0.56 22 $12.32
$0.54 23 $12.42
$0.52 24 $12.48
$0.50 25 $12.50
$0.48 26 $12.48
$0.46 27 $12.42
$0.44 28 $12.32
$0.42 29 $12.18
$0.40 30 $12.00
$0.38 31 $11.78
$0.36 32 $11.52
$0.34 33 $11.22
©2015 Pearson Education, Inc.
72 Tietenberg/Lewis • Environmental and Natural Resource Economics, Tenth Edition

$0.32 34 $10.88
$0.30 35 $10.50
$0.28 36 $10.08
$0.26 37 $ 9.62
$0.24 38 $ 9.12
$0.22 39 $ 8.58
$0.20 40 $ 8.00
$0.18 41 $ 7.38
$0.16 42 $ 6.72
$0.14 43 $ 6.02
$0.12 44 $ 5.28
$0.10 45 $ 4.50
$0.08 46 $ 3.68
$0.06 47 $ 2.82
$0.04 48 $ 1.92
$0.02 49 $ 0.98
$0.00 50 $ 0.00

In the book, National Research Council, 1999, Sharing the Fish: Toward a National Policy on Individual
Fishing Quotas, National Academy Press, Washington, D.C., numerous case studies of ITQs are explored.
These are great in-class discussion tools. There are numerous examples that can be used for small group
discussions. I have asked groups to analyze different ITQ programs and then report back to the larger class
their opinions as to the pros and cons (or successes and failures) of their particular program.

◼ Essay Question
Would the establishment of a marine reserve maximize the present value of net benefits for fisherman?
Using your knowledge of discounting, how could reduced harvests in the short run be offset by increases
in the long run?

©2015 Pearson Education, Inc.