Cournot Oligopoly in Commercial Fisheries

Designing ITQ programs for commercial recreational fishing

Preface Part 1. Introduction: 1. Introduction, purpose, and overview Andrew F. Daughety Part II. Background: 2. Of the competition of producers Augustin Cournot (translation by Nathanial T. Bacon) 3. Review of Walras's Theorie mathematique de la richesse sociale and Cournot's Reserches sur les principles mathematiques de la theorie des richesses Joseph Bertrand (translation by James W. Friedman) 4. Non-cooperative games John Nash Part III. Examining Cournot's Model: 5. On the existence of Cournot equilibrium William Novshek 6. Collusive behavior in non-cooperative epsilon-equilibria of oligopolies with long but finite lives Roy Radner 7. A non-cooperative equilibrium for supergames James W. Friedman 8. Reconsidering Cournot: the Cournot equilibrium is consistent Andrew F. Daughety 9. An experimental test of the consistent-conjectures hypothesis Charles A. Holt 10. Quantity precommitment and Bertrand competition yield Cournot outcomes David M. Kreps and Jose A. Scheinkman 11. On the efficiency of Bertrand and Cournot equilibria with product differentiation Xavier Vives 12. Price competition vs. quantity competition: the role of uncertainty Paul Klemperer and Margaret Meyer Part IV. Applications: 13. Cournot and Walras equilibrium William Novshek and Hugo Sonnenschein 14. Duopoly information equilibrium: Cournot and Bertrand Xavier Vives 15. Information transmission - Cournot and Bertrand equilibria Esther Gal-Or 16. Uncertainty resolution, private information aggregation, and the Cournot competitive limit Thomas R. Palfrey 17. Losses from horizontal merger: the effects of an exogenous change in industry structure on Cournot-Nash equilibrium Stephen W. Salant, Sheldon Switzer, and Robert J. Reynolds 18. Delegation and the theory of the firm John Vickers 19. A study of cartel stability: the Joint Executive Committee, 1880-1886 Robert H. Porter 20. Oligopoly and financial structure: the limited liability effect James A. Brander and Tracy R. Lewis.

The evils of operating Canada's commercial and recreational fisheries under open-access conditions were known before Confederation. Early recognition of these ills did not lead to an understanding of the basic problems nor to long-term solutions. In the early 1950s the first economic model was developed that articulated the underlying causes of excess capacity and the tendency of overexploitation in open-access fisheries. This was followed by a number of studies that explored the relationship between the biological reproductive capacity of a fishery and the economic consequences of managing publicly owned resources under open-access conditions. This early work provides a general framework from which a number of fisheries management alternatives emerge. Each of six management alternatives, which are implicit in policy for Canada's commercial fisheries, are assessed in terms of political acceptability, administrative feasibility, and effectiveness. It is emphasized that the responsibility of a government fisheries agency is to manage fisheries resources in the best interest of the owners of the resource – the nation's taxpayers. A properly implemented license control system would dissipate, rather than perpetuate, social and economic hardship among fishermen. This misplaced concern for unproven social problems often leads fisheries managers to support programs that sacrifice all the benefits that could be generated from the resource and the resource itself. A management scheme is recommended that encompasses a simple licensing system, a tax or a royalty on catch, and a limited variation of the "Grandfather System." The combination of these three incorporates the main advantages of most management alternatives while avoiding most of their main shortcomings. A carefully implemented program that accounts for economic and biological considerations would improve the efficiency of the industry, improve fishermen's incomes, minimize social disruptions, help to instill an environmental conscience, protect the resource, and induce less, rather than more, government intervention into the free operation of the fishing industry. Probably more important, the program would generate an economic return for the people of Canada. Key words: overcapitalization, open-access fisheries, fisheries economics, fisheries management, fisheries policy, fish licensing, license limitation, fish royalties, tax on fish landings

Individual transferable quotas (ITQs) induce changes along both the extensive margin—via consolidation of quota among fewer vessels—and the intensive margin, as harvesters adjust their behavior to ITQ incentives. We use ITQ introduction in the Bering Sea crab fishery to decompose the sources of rent generation across both margins. We embed an empirically calibrated structural model of the harvesting process into a sector-level model, allowing us to experimentally “unravel” the ITQ treatment. We show that the magnitude and source of rent generation under ITQs critically depends on the manner and degree of rent dissipation before ITQs are implemented.

Toft, J. E., Punt, A. E., and Little, L. R. 2011. Modelling the economic and ecological impacts of the transition to individual transferable quotas in the multispecies US west coast groundfish trawl fleet. – ICES Journal of Marine Science, 68: 1566–1579. There is a need to understand the potential impacts on ecosystems and economies from shifting fisheries management towards individual transferable quota (ITQ) programmes. Multispecies fisheries present the challenge of understanding spatial patterns in fisher behaviour as they strive to balance profitable target catches while avoiding species with low catch limits. A spatially explicit model of biological and fleet dynamics was constructed to evaluate how the limited-entry groundfish trawl fleet off the US west coast and selected groundfish species (targeted Dover sole, and overfished darkblotched rockfish) were affected by two approaches to management: trip limits and ITQs. The model includes regional populations for both species, provides biological and socio-economic outputs, and determines quota price endogenously when applied for ITQs. Under ITQ management, effort and the total landings of the overfished species, darkblotched rockfish, were lower, coastwide profits higher, and the centre of fishing activity shifted south to areas with lower landing rates of darkblotched rockfish. The framework presented holds promise for obtaining insight about how new, untested management alternatives affect coastal and marine resources and those who rely on them.

This paper examines the allocation problem arising from conflicting demands for marine resource use by (i) commercial fishers, (ii) recreational fishers, and (iii) conservationists. It is shown that decentralised trading of individual transferable quotas (ITQs) is capable of an efficient allocation of resource use between the first two parties. In contrast, it is found that the standard ITQ system is not capable of performing the same ideal co‐ordination between the conflicting interests of extractive users, that is, all fishers, and the non‐extractive ones, that is, conservationists. The reason is that quota trades between individual fishers and conservationists are inevitably accompanied by (positive) externalities on both other fishers and conservationists. As a result, decentralised quota trades between these parties cannot be efficient. The fundamental economic observation is that quotas for conservation and for extraction constitute two different goods. It follows that a socially optimal market allocation of these two goods requires two prices instead of the single quota price in the standard ITQ system. Thus, to achieve efficiency, the ITQ system has to be extended to incorporate both types of goods. It is shown in the paper that if fishers and conservationists can organise themselves into groups, trades of conservation quotas between the two groups can in principle lead to fully efficient allocation. An interesting implication of this modified ITQ system is that the need for a fisheries authority to set the total allowable catch (TACs) disappears.

This paper investigates, in the context of a market for a homogeneous commodity, the asymptotic properties of Cournot equilibria with free entry when the size of the market increases indefinitely. The analysis focuses on the case where the average cost function is always decreasing and the marginal cost function is non-decreasing for all sufficiently large outputs.

We explore the social efficiency of free entry in a pure network goods market where Cournot oligopolistic competition prevails and consumers have passive expectations. Focusing on network compatibility between firms, we consider the cases of two network systems: a firm‐specific system and a single industry‐wide network system. We demonstrate the following results. In the firm‐specific network system, the number of firms under free entry is socially excessive compared with the second‐best criteria. However, in the single industry‐wide network system, if the elasticity of network effects in relation to the expected network sizes is sufficiently large, the number of firms under free entry is socially insufficient compared with the second‐best criteria. Otherwise, socially excessive entry arises. We also examine the same issue in the case of a mixed network goods market.

When forest managers and policymakers wish to assess the ability of a given forest resource to support a sustainable level of timber harvests, they frequently use growth/removals ratios (G/R) developed from forest inventory data. Recently published inventory data for forests of the southern United States have documented numerous states in which softwood harvests exceed softwood growth, raising concern over the sustainability of this critical resource. At the same time, forest managers in the South have been investing in a wide range of practices that have dramatically increased the growth rates for softwood plantations. As these growth increases are verified in the field, forest managers respond accordingly with adjustments to management regimes, including shortening of rotation lengths. This, in turn, means that the area of forest harvested annually must increase in a given forest estate to approach a regulated forest condition. The Timber Inventory, Growth, and Removals model (TIGR) is a spreadsheet model developed to evaluate the impact of shortening rotation length on the growth/removals ratios for managed forests. The model demonstrates that a temporary imbalance of removals over growth results when the rotation age is shortened. Hence, managers and policymakers should use caution when making inferences or public claims about sustainable harvest levels from growth/removals ratios alone. If the public has been convinced that G/R ratios greater than 1.0 imply sustainable harvests, then difficult explanations will be required when the G/R ratio drops below 1.0. South. J. Appl. For. 26(2):72–77.

Regulated Open Access and Regulated Restricted Access Fisheries

Can They Beat the Cournot Equilibrium? Learning with Memory and Convergence to Equilibria in a Cournot Oligopoly

A renewable natural resource system such as a fishery involves both economic and ecological principles. In a natural state, fish populations reach an equilibrium level based on the carrying capacity of the environment. Human exploitation of the resource can be sustainable provided that it is consistent with this natural carrying capacity. Economic analysis of fisheries suggests that economically efficient resource use can be compatible with ecological sustainability. Setting annual harvest equal to natural growth, we can then identify an economically optimal equilibrium for the harvest level that maximizes net social benefit and is also ecologically sustainable. But open-access conditions, without harvest limits, create a strong tendency toward overexploitation in many fisheries and can even lead to the collapse of the fishery. On a global scale, fishing fleet capacity has continued to increase, with the result that over 90% of the world’s fisheries are being fished at or above the maximum sustainable yield. In recent years, despite an increase in global fishing effort, wild catch levels have remained relatively constant. Policies for maintaining sustainable yield and rebuilding depleted fisheries can involve a combination of regulation and market mechanisms. International conventions have set guidelines for territorial rights and management practices. Countries can require fishing licenses or impose quotas to limit access to the fishery. Region-wide quotas can be difficult to enforce, but systems of individual transferable quotas have been successfully implemented. Fish is an important protein source, especially in the developing world, where demand can be expected to grow as population and income rise. Consumption patterns can be modified to promote more sustainable fisheries management through consumer awareness and certification or ecolabeling programs. With little potential to increase global wild fish catch, increasing fish demand will need to be met through expansion of aquaculture. Aquaculture has great potential but can also involve significant environmental costs. Recent efforts to reduce the environmental impacts of aquaculture show promise, but more progress is necessary.

Wildlife managers are challenged to manage spatially structured populations efficiently and effectively, therefore dispersal and gene flow are vital to understand and manage, particularly for a harvested species. We used a genetic approach to describe the metapopulation structure of Rocky Mountain elk (Cervus elaphus) in Idaho to assess past patterns of population distribution and influences of harvest. We used elk tissue and DNA samples (n ¼ 216) to examine genetic dissimilarity between 7 regions and 9 elk management zones throughout Idaho using microsatellite loci (n ¼ 11). Using 5 approaches, including pairwise FST-values, assignment tests, and a Bayesian model–based clustering of genotypes, we examined the distribution of genetic variation. The distribution of genetic variation between elk populations indicated low levels of genetic differentiation among regions (expected heterozygosity [HE] ¼ 0.55–0.61, overall FST ¼ 0.011) and elk management zones (HE ¼ 0.54–0.60, overall FST ¼ 0.017). Assignment tests and migration rates indicated directional gene flow between elk populations. A patchy metapopulation best describes the distribution of genetic variation among Idaho elk populations because likely enough individual interchange occurs between geographically separated populations. The elk populations we sampled could be part of a geographically larger patchy metapopulation potentially stretching from Yellowstone National Park through Idaho into western Canada. Because of historical translocations of elk from Yellowstone National Park, insufficient time may have passed to detect differences in genetic variation. Subtle differences in the distribution of genetic variation were observed in 2 of the 9 elk management zones within 2 different regions of the state. Our findings indicate management of Idaho elk populations and dispersal are maintaining sufficient gene flow. Metapopulation structure of a harvested species based on the distribution of genetic variation is an indicator of potential genetic consequences of harvesting and sustainable harvest levels.

The recognizable Amazona parrots are highly threatened by the pet trade, hunting, and habitat destruction. This module provides an overview of how their popularity has enabled their status as a flagship species and a conservation tool. The St. Lucia parrot, once reduced to as few as 100 birds in the 1970s, is profiled here as an example to illustrate how these parrots have been used to promote conservation and increase public awareness and environmental education. In the accompanying exercise, students estimate the vital statistics of populations using raw data to determine best management strategies and sustainable harvest levels.

Climate change continues to exert pressure on ocean ecosystems. The fisheries‐related responses, such as altered body growth, recruitment and spatial distribution of the targeted stock(s), have generally been reasonably well investigated. Nevertheless, there are still important knowledge gaps in how biophysical drivers impact stock productivity and thereby sustainable harvest levels. Considering this, we investigated 26 fish stocks in the Northeast Atlantic, a region characterized by accelerated climate change effects and a diverse set of fisheries. A novel, stepwise, Bayesian framework to quantify stock productivity was established to identify shared trends and project future patterns, aiming at determining essential baselines for adaptive fishery management in the face of climate change. Despite variation among large marine ecosystems and stocks, an overall declining trend in productivity over the past four decades was observed, especially in high‐latitude areas. These hindcast results were mainly attributed to higher temperatures posing negative effects on productivity, which was dependent on the stock's thermal preference. Contrastingly, the proxy for food availability – gross secondary production – exhibited less consistent impacts. In the forecast, the applied Shared Socio‐economic Pathways (SSPs) indicated that most stocks are likely to encounter adverse effects, with the worst cases expected to occur under SSP2‐4.5 in the 2050s, and under SSP5‐8.5 in the 2090s. Thus, this study generally not only supports earlier climate vulnerability assessments (‘scorings’) of experts but also provides evidence for revised directional effects under climate change, underlining the complexity of processes affecting stock productivity.