Discounting and Fisheries Sustainability
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Transcript of Discounting and Fisheries Sustainability
Discounting and Fisheries Sustainability
Rashid SumailaFisheries Economics Research Unit
Fisheries Centre, University of British [email protected]
BIRS Workshop, Banff, May 10, 2007
Fish for today; fish for tomorrow
• Should this be a goal for humanity?• Is it an achievable goal?
• Observations from the field.
• Is economics helping?• Reasons for observations.
• Can economics help?• Suggestions for tackling the problem; • Intergenerational discounting.
• Way forward.
Should this be a goal for humanity?
“The Earth and the fullness of it belongs to everygeneration, and the preceding one can have no right toblind it up from posterity” (Adam Smith, 1766 Lecture on Jurisprudence).
Photo: NASA
Catch of halibut in Norway
0
2000
4000
6000
8000
1950 1960 1970 1980 1990 2000
Years
Tonn
es
Is this an achievable goal?
Catch of Namibia Pilchard
0200400600800
1000
0 10 20 30 40 50
Years (1960 - 2002)
Cat
ch (1
000
tonn
es)
Catch of red stingray in Japan
0
4000
8000
12000
16000
20000
0 10 20 30 40 50
Years (1951 - 1999)
Ca
tch
(to
nn
es)
Catch profile of Newfoundland cod
Fish biomass and fishing intensity
• Biomass;• Fishing intensity.
Fishing Intensity
19001900
19991999
Biomass Biomass
Courtesy V. Christensen
1.8-2.51.5-1.81.2-1.50.9-1.20.7-0.90.6-0.70.4-0.60.3-0.40.2-0.30.1-0.20-0.10-0
Biomass t·km-2
0.0
0.5
1.0
1.5
2.0
2.5
1950 1960 1970 1980 1990 2000
Bio
mas
s an
d c
atch
(m
illio
n t
on
nes
)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Fis
hin
g in
ten
sityCatch
Biomass
Fishing intensityBiomass
North West Africa: Changes in key fisheries variables
State of fish stocks over time
Source: Froese and Pauly (2004).
The flow of marine ecosystem services through time
Source: Pauly & MacLean (2003).
Is economics helping?Why these pictures?
• 1st order problem:– Open access/common property.
• 2nd order problem:– Sole ownership not sufficient: Why?
2nd order problem: Sole ownership …
• Will not necessarily capture all fish values (or total economic value; TEV);
• May suffer what I term the ‘frontloading’ problem.
The valuation problem
• The economic theory of valuation calls for the computation of TEVs made up of both use & non-use (market & non-market) values from fish.
The practice of valuation
Survey of 9 leading environmental & resource economics journals (1994-2003):
• # of articles published: 4705;• # articles containing the words ‘non market’ or ‘existence value’ or ‘bequest value’: 43.
Sumaila (in press)
The ‘frontloading’ problem
Present Future
Future benefits from today’s perspective
Value
“Egoism is the law of perspectives as it applies to feelingsaccording to which what is closest to us appears to be large andweighty, while size and weight decrease with our distancefrom things” (attributed to Nietzche, 1844-1900).
Discounting in economics
Clark and Munro(1975)
ratediscount theis
fish ofunit per price is
functioncost theis *)(
fish offunction growth theis *)(
*)(
*)(*)(*)(
p
xC
xG
xCp
xGxCxG
The optimal population trajectory x = x(t) and optimal population for different discount rates
Adapted from a model developed by Clark and Munro (1975)
xM
Time, t
Pop
ulat
ion,
x
xL
xH
x0
0
The basic bioeconomic model of Clark and Munro (1975)
The optimal population trajectory x = x(t) and optimal population for different discount rates
Adapted from a model developed by Clark and Munro (1975)
Low disc. rate
xM
Time, t
Pop
ulat
ion,
xxL
xH
x0
0
The basic bioeconomic model of Clark and Munro (1975)
The optimal population trajectory x = x(t) and optimal population for different discount rates
Adapted from a model developed by Clark and Munro (1975)
Medium disc. rate
Low disc. rate
xM
Time, t
Pop
ulat
ion,
xxL
xH
x0
0
The basic bioeconomic model of Clark and Munro (1975)
The optimal population trajectory x = x(t) and optimal population for different discount rates
Adapted from a model developed by Clark and Munro (1975)
Medium disc. rate
High disc. rate
Low disc. rate
xM
Time, t
Pop
ulat
ion,
xxL
xH
x0
0
The basic bioeconomic model of Clark and Munro (1975)
Captured by Clark and colleagues
• Economics of overexploitation (Clark, 1973);• Intrinsic growth rate of fish (r);• The discount rate (d);
• d>r, could result in depletion of the stock.
Can economics help?Is discounting a problem??
• Individuals do not discount all future values at the same rate;• Studies show that discount rates to be highest for
choices involving relatively small amounts (Thaler, 1981; Hausman, 1979);
• Individuals appear to apply higher discount rates to amounts with a short delay than amounts to be received further into the future (Bonzion et al., 1989);
• Individual discount rates vary with personal characteristics, e.g., income (Gilman, 1976).
Alternative approachesproposed in the literature
• Zero discount rate: Problematic;
• Lower discount rate: How low? – Hyperbolic discounting (Ainslie, 1974); – Gamma discounting (Weitzman, 2001);– Intergenerational discounting (Sumaila, 2004;
Sumaila and Walters, 2005).
Flow of 1 unit of benefit in current
and discounted value
0
0.2
0.4
0.6
0.8
1
0 20 40 60 80 100
Years
Ben
efits
(bill
ion
$)
NPV accruing to each generation within 100 years based on conventional discounting
Conventional discounting
0.0
5.0
10.0
15.0
20.0
Generation 1 Generation 2
NP
V (b
illio
n $)
NPV accruing to each generation within 100 years based on intergenerational discounting
Resetting the discounting clock
0.0
5.0
10.0
15.0
20.0
Generation 1 Generation 2
NP
V (b
illio
n $
)
Intergenerational (IG) discounting: Discrete model
2
1
1
1
11
21
)1()1(
t
tttt
ttt
tttt CVCV
NPVNPVNPV
Sumaila (2004)
Sumaila (2004)
0.0
1.0
2.0
3.0
4.0
5.0
1 10 19 28 37 46 55 64 73 82 91 100Years
Dis
cou
nte
d n
et b
enef
its
Status quo GM
Restoration GM
0.0
0.5
1.0
1.5
1 10 19 28 37 46 55 64 73 82 91 100
Years
Cat
ch le
vel
Status quo
Restoration
0.0
1.0
2.0
3.0
4.0
5.0
1 10 19 28 37 46 55 64 73 82 91 100
Years
Dis
co
un
ted
ne
t b
en
efi
t
Status quo CM
Restoration CM
0
10
20
30
40
50
60
To
tal
dis
co
un
ted
ne
t b
en
efi
ts
Status quo CM
Restore CM
Status quo GM
Restore GM
Continuous time IG discounting
• Assumptions:– Present generation discount flows of benefits at
standard rate;
– New generation of size 1/G enters population each year: they discount at standard rate every year after entry;
– Current generation as decision makers discount the interest of future generations at a ‘future generation’ discount rate at the time they enter the population.
Sumaila and Walters (2005)
G
d ...
G
dd
G
dd d
.
.
. G
d
G
dd d 2
G
d d 1
1 o
year tJoin ... 2yr Join 1yr Join Present )(
fg2
fg2-t
fg1-t
t
2fgfg2
fg
t
t
tYear
Sumaila and Walters (2005)
IG discounting tableau
The IG bioeconomic model
time generationG ;d
d and
1
1
G
dddW where
T,..,2,1,0t ,)CV(WNPV
fg
t1tfg
T
0ttt
t
Sumaila and Walters (2005)
Issues for discussion
• AER: Axiom needed;
• Time inconsistency;
• Property rights to future generations;
• Rawl’s theory with a time dimension.
Way forward – over to you Ivar
Thanks for your attention
Photo by Asep, TNC
Newfoundland cod