J. Barry Smith

Crop Sharing in the Fishery and Industry Equilibrium

This article presents a model of commercial fishing in a stochastic environment that focuses on the labor-employment contract. In a partial equilibrium context, the authors show that when boat owners and crew members are risk-averse, crop sharing is the optimal contract, and the resultant labor employment level will be greater than with a (suboptimal) wage contract. Industry effects and steady-state resource growth limitations are introduced into a market equilibrium model. In this extended model, market equilibria will also involve sharing contracts. These will result in greater employment, which comes at the expense of reduced resource stocks and higher-than-necessary harvesting costs. The article also examines how industry regulation such as licensing, quotas, and subsidies will differ if the prevailing contract is cropsharing as compared with a wage. Despite the fact that cropsharing contracts are privately optimal in a regulated setting, they may not be socially optimal.

Stochastic Steady-State Replenishable Resource Management Policies

The purpose of this paper is to investigate the generalization of deterministic golden rule results to the case of resource uncertainty. It is shown that within a diffusion framework, the optimal steady-state management policy is equivalent to a management policy that is optimal outside the stochastic steady state. The results contained in this paper provide a useful link between steady-state optimal management policies in the deterministic resource economics and biology literatures and the quickly developing stochastic resource literature.

Measuring Welfare Changes When Quantity Is Constrained

In this paper, the authors propose a simple and efficient method of estimating welfare measures in a n-equation consumer demand system when some quantities are constrained or rationed. The authors also estimate the variance of these measures. The method is evaluated using Monte Carlo studies of two demand systems. They also use the method to analyze the welfare costs of constraining the hours worked by married women in Canada. The GAUSS code for implementing the method is included.

Contemporaneous externalities, rational expectations, and equilibrium production functions in natural resource models

Abstract This paper examines traditional approaches to modeling production processes in resource industries and finds that they are often incomplete with respect to desired properties and restrictions. A new notion of equilibrium production functions is introduced in which explicit account is taken of the recognised interdependence of firms involved in extraction. The results are quite encouraging. In particular, the resultant model of production has the ex ante desired technical, externality, mass balance, aggregation, and heterogeneity properties. As well, it provides useful insights for empirical research. Finally, this new approach with its explicit recognition of the interdependence of firms has the potential for providing new directions into the analysis of industry equilibrium and regulation of resource industries.

Rent-seeking and optimal regulation in replenishable resource industries

ConclusionsIn this paper, wasteful rent-seeking behaviour has been shown to have important implications for the determination of the welfare maximizing regulatory policies of replenishable natural resource industries. In general, the incorporation of wasteful rent-seeking activity into the analysis leads to policies which suggest a greater level of industry output than has been advocated by tradition policies that do not take rent-seeking into account. Our analysis therefore supports a more laissez faire policy than has been recommended in the literature.Specifically, we find that when rents are completely dissipated by wasteful rent-seeking activity (t = 1), the role of the regulator is simply to guarantee biological efficiency, should this be threatened by the economic equilibrium achieved by the free-access of firms. One of two possibilities can occur. In the first, the economic equilibrium determined by the free-access of firms is biologically efficient, i.e., the equilibrium steady state of the replenishable natural resource exceeds or is equal to the maximum sustainable yield stock size (xMSY). If this occurs, the regulator needs to take no action whatsoever. In the second case, the economic equilibrium generated by the free-access of firms does not yield biological efficiency. The equilibrium is characterized by a steady state stock of the natural resource that is smaller that the maximum sustainable yield stock size, namely (xMSY < xMSY). In this case, therefore, the regulator does need to intervene, but his best policy takes the simple form of setting the total quota equal to the maximum sustainable yield (MSY) of the resource. Thus, while the results are to some extent consistent to those derived by Buchanan for the regulation of externalities, the fact that we are dealing here with replenishable resources adds a further dimension to the issue and changes some of the policy implications.

Rent-seeking behaviour of retaliating agents

5. ConclusionsThis paper has examined a rent-seeking game where the players take a more sophisticated approach to evaluating the potential strategies and counter-strategies of their rivals than in the standard Nash case. We have derived the conditions for the existence of symmetric and nonsymmetric equilibria for the game and derived the properties of these equilibria. Three results merit repeating. First, we find that rent dissipation will not, in general, be complete. Second, and in contrast to much of the traditional literature, we find that the socially optimal result of zero rent-seeking is sometimes a feasible equilibrium outcome for our game. Finally, there exist rent-seeking configurations in which the best play of one of the rivals is to withdraw from the game or, alternatively stated, where it is not optimal for a rival to contest the rent by entering the game. In these nonsymmetric cases it would appear that Tullocks conjecture about the value of preemptive moves remains valid. This is true even when the strategies and counter-strategies available to the players are much more complex than in the traditional Nash approach.As a final point we raise the issue of whether or not it is reasonable to suppose that the players in rent-seeking games will take their strategy and counter-strategy sets to be as large as we have assumed in this paper. Players may well make their moves and counter-moves based upon ‘rules of thumb’ or other considerationsSee, for example, Tullock (1988) for a discussion of the importance of what he refers to as ‘extrinsic’ influences on the play of rent-seeking games. that effectively bound the strategy sets of the players. As well, it may be useful to consider games where players, upon entering the game, commit themselves to a given level of expenditures. Many of these issues are considered in a related paper by the authors.

Diagnostic Analysis and Computational Strategies for Estimating Single Spell Discrete Time Duration Models – A Monte Carlo Study

This extensive Monte Carlo study re-examines properties of the nonparametric maximum likelihood estimator of discrete duration models with unobserved heterogeneity and unknown duration dependence. Alternative specifications and computation strategies are compared. We find: i) The inherent complexity of mixture models poses the major estimation hurdle. ii) It is important to choose a flexible specification for duration dependence. Polynomial specifications with a fixed number of terms can lead to systematically biased estimates of the hazard. iii) In estimation, simulated annealing is found to dominate all other optimization algorithms. Common applied research problems, such as near-boundary false optima are eliminated. iv) A bootstrap procedure is suggested to help choose the number of support points of unobserved heterogeneity. v) Likelihood ratio tests may still be appropriate especially when there are many common parameters in the components of the model. vi) Gateaux derivatives do not appear to help optimize the likelihood function.

On the Social Costs of Rent-Seeking versus the Social Costs of Production Flexibility

SummaryIn this paper an analysis is provided of two alternative methods of defensive behaviour by a firm. First, rent-seeking and, second, potential adjustment by way of investing in product flexibility. From the analysis it emerges that at times rent-seeking may be socially superior (less socially wasteful) to other, more traditional, means of responding to threats. This paper therefore suggests that in circumstances where some type of defensive or aggressive activity by firms is available, rent-seeking, while constituting gross social waste, may be a net social gain, given the alternative options available to the firm.

A Discrete Model of Replenishable Resource Management Under Uncertainty

This paper examines issues in the management of replenishable resources under uncertainty. The stochastic resource dynamics are given by the discrete-time counterpart of the classic logistic growth model. The use of discrete-time stochastic dynamics allows for a more general characterization of growth uncertainty than is possible with continuous-time models. Given a general specification of the resource management problem, necessary and sufficient conditions for the optimal management policy are derived. Many important properties of the management policy are derived and comparisons are made with the deterministic counterpart policy. An example serves to illustrate many of the results of the analysis.