Tom Kompas

On implementing maximum economic yield in commercial fisheries

Economists have long argued that a fishery that maximizes its economic potential usually will also satisfy its conservation objectives. Recently, maximum economic yield (MEY) has been identified as a primary management objective for Australian fisheries and is under consideration elsewhere. However, first attempts at estimating MEY as an actual management target for a real fishery (rather than a conceptual or theoretical exercise) have highlighted some substantial complexities generally unconsidered by fisheries economists. Here, we highlight some of the main issues encountered in our experience and their implications for estimating and transitioning to MEY. Using a bioeconomic model of an Australian fishery for which MEY is the management target, we note that unconstrained optimization may result in effort trajectories that would not be acceptable to industry or managers. Different assumptions regarding appropriate constraints result in different outcomes, each of which may be considered a valid MEY. Similarly, alternative treatments of prices and costs may result in differing estimates of MEY and their associated effort trajectories. To develop an implementable management strategy in an adaptive management framework, a set of assumptions must be agreed among scientists, economists, and industry and managers, indicating that operationalizing MEY is not simply a matter of estimating the numbers but requires strong industry commitment and involvement.

Technical efficiency effects of input controls: evidence from Australia's banana prawn fishery

This paper provides the first ex post estimates of the effects of input controls on technical efficiency in a fishery. Using individual vessel data from the northern prawn fishery of Australia for the years 1990–1996 and 1994–2000, stochastic production frontiers are estimated to analyse the efficiency impacts of input controls on engine and vessel size. The results indicate that technical efficiency is increasing in a measure of vessel size and engine capacity that was controlled by the regulator from 1985 to 2001, and decreasing in an unregulated input, gear headrope length. The study shows that fishers have substituted from regulated to unregulated inputs over the period 1990–2000 and technical efficiency has declined coincident with increasing restrictions on vessel size and engine capacity. The decline in technical efficiency indicates that the goal of the regulator to increase economic efficiency has not been realized.

Technology choice and efficiency on Australian dairy farms

Deregulation of the Australian dairy industry, specifically the removal of price subsidies to ‘market milk’, as well as ongoing drought in many dairy regions, has placed considerable pressure on farm cash income and a search for ways in which dairy farms can be made to operate more efficiently. Using traditional farm survey data and a unique biannual data set on farm technology use, this paper estimates a stochastic production frontier and technical efficiency model for dairy farms in New South Wales and Victoria, determining the relative importance of each input in dairy production, the effects of key technology variables on farm efficiency, and overall farm profiles based on the efficiency rankings of dairy producers. Results show that production exhibits constant returns to scale and although feed concentration and the number of cows milked at peak season matter, the key determinants of differences in dairy farm efficiency are the type of dairy shed used and the proportion of irrigated farm area. Overall farm profiles indicate that those in the ‘high efficiency group’ largely employ either rotary or swing-over dairy shed technology and have almost three times the proportional amount of land under irrigation.

Maximizing Profits and Conserving Stocks in the Australian Northern Prawn Fishery

The Australian Northern Prawn Fishery (NPF) is one of the few that has adopted a dynamic version of a ‘maximum economic yield’ (MEY) target, and, on this basis, the fishery is undergoing a process of substantial stock rebuilding. This study details the bioeconomic model used to provide scientific management advice for the NPF, in terms of the amount of allowable total gear length in the fishery, for both the MEY target and the path to MEY. It combines the stock assessment process for two species of tiger prawns with a specification for discounted economic profits, where the harvest function in the profit equation is stock-dependent. Results for the NPF show a substantial ‘stock effect’, indicating the importance of conserving fish stocks for profitability. MEY thus occurs at a stock size that is larger than that at maximum sustainable yield, leading to a ‘win-win’ situation for both the industry (added profitability) and the environment (larger fish stocks and lower impact on the ecosystem). Sensitivity results emphasize this effect by showing that the MEY target is much more sensitive to changes in the price of prawns and the cost of fuel, and far less so to the rate of discount.

Maximum economic yield

Analytical results for steady-state values of the biomass that maximises the sum of inter-temporal economic profits (dynamic bMEY) are derived in terms of a generalised harvesting function. The conditions under which dynamic bMEY exceeds the biomass that maximises the sustained yield (bMSY) are evaluated under a range of conditions including when the discount rate exceeds the intrinsic growth rate, with a variable stock effect, technological change, and from an increase in the cost per unit of effort. The findings show that dynamic bMSY provides both a sustainable and profitable management target under a wide range of parameter values.

Optimal dynamic water allocation: Irrigation extractions and environmental tradeoffs in the Murray River, Australia

A key challenge in managing semi-arid Basins, such as in the Murray-Darling in Australia, is to balance the trade-offs between the net benefits of allocating water for irrigated agriculture, and other uses, versus the costs of reduced surface flows for the environment. Typically, water planners do not have the tools to optimally and dynamically allocate water among competing uses, and water is misallocated. We address this problem by developing a general stochastic, dynamic programming model with four state variables (the drought status, the current weather, weather correlation and current storage) and two controls (environmental release and irrigation allocation) to optimally allocate water between extractions and in-situ uses. The model is calibrated to Australia’s Murray River and shows: (1) ‘pulse’ or artificial flood events are insensitive to parameter values; (2) from 2001-2009 a water reallocation that would have given less to irrigated agriculture and more to environmental flows would have generated between half a billion and over three billion USD in overall economic benefits; and (3) water markets increase optimal environmental releases by reducing the losses associated with reduced water diversions.

Capacity Reduction, Quota Trading and Productivity: The Case of a Fishery

We present the first ex post study that quantitatively analyses the effects of a licence buy-back and enhanced quota trading on the profitability and productivity of individual vessels in a fishery. Using firm-level data and a profit index decomposition method, we find that small and large vessels and three different trawler fleets all experienced substantial productivity gains in the year immediately following a licence buy-back and the establishment of a quota brokerage service. The apparent ongoing benefits of the buy-back and increased quota trading over the sample period are in stark contrast to the generally unfavourable long-term outcomes commonly associated with vessel buy-backs in input-controlled fisheries.

The Economic Payoffs from Marine Reserves: Resource Rents in a Stochastic Environment

In this paper we analysed the economic payoffs from marine reserves using a stochastic optimal control model, with a jump-diffusion process. The results show that even if the reserve and harvested populations face the same negative shocks, harvesting is optimal, the population is persistent and there is no uncertainty over current stock size, a reserve can increase resource rents. Using fishery data we demonstrate that the payoffs from a reserve, and also optimum reserve size, increase the larger is the magnitude of the negative shock, the greater its frequency and the larger its relative impact on the harvested population.

Complementarity of No-Take Marine Reserves and Individual Transferable Catch Quotas for Managing the Line Fishery of the Great Barrier Reef

Changes in the management of the fin fish fishery of the Great Barrier Reef motivated us to investigate the combined effects on economic returns and fish biomass of no-take areas and regulated total allowable catch allocated in the form of individual transferable quotas (such quotas apportion the total allowable catch as fishing rights and permits the buying and selling of these rights among fishers). We built a spatially explicit biological and economic model of the fishery to analyze the trade-offs between maintaining given levels of fish biomass and the net financial returns from fishing under different management regimes. Results of the scenarios we modeled suggested that a decrease in total allowable catch at high levels of harvest either increased net returns or lowered them only slightly, but increased biomass by up to 10% for a wide range of reserve sizes and an increase in the reserve area from none to 16% did not greatly change net returns at any catch level. Thus, catch shares and no-take reserves can be complementary and when these methods are used jointly they promote lower total allowable catches when harvest is relatively high and encourage larger no-take areas when they are small.

Incentives and static and dynamic gains from market reform: rice production in Vietnam

This article develops a dynamic model to account for the enhanced incentive effects that result from market reform through a move toward private property rights and competitive markets. Reform is captured through an emerging profits function which depends on effective prices and incentives to work harder. Static and dynamic output gains from reform are derived through increases in total factor productivity and induced capital accumulation. The model is applied to rice production in Vietnam over the period 1976–94. The more extensive is market reform, the larger the effects found on rice output, the capital stock and transitional growth rates, suggesting that incentives and more competitive markets matter greatly.