Transcript Role of Economics

Chapter 17
Economics of Outdoor Recreation
Outdoor recreation in many developed countries has
grown rapidly in the latter part of the 20th century
1
water skiing
cross-country skiing
snowmobiling
horseback riding
2
Table 17-1, p.334
• Data for the U.S. on the number of people who participated in
different types of outdoor recreation
• Large percent increases in number of participants were in bird
watching, hiking, backpacking, and sightseeing
• Percent increases in number of participants in fishing and hunting
were small
• To some extent this may reflect the impacts of the environmental
movement, which has tended to put greater emphasis on
nonconsumptive uses of resources rather than the traditional
consumptive uses
• Traditionally, much of the supply of outdoor recreation resources
has been a public function
• In recent decades there has developed a privately provided
market in outdoor recreation, from ski resorts to fishing and
whale watching
3
4
1. The Demand for Outdoor Recreation
Figure 17-1, p.335
• Demand curves for an imaginary public park:
– Horizontal axis: visitor-days, defined as the total number
of day-long visits (two half-day visits make one visitorday); vertical axis: the entrance price to visit the park
– There are a series of aggregate demand curves, each
pertaining to a different time period (10 years ago, the
current period, and 10 years in the future), arrived at by
summing the individual demand curves of visitors to the
park
– q1, q2, and q3: numbers of visitor-days if entrance fees = 0
– Population growth, income growth, transportation
improvements or drops in the price of gas, and taste and
preference toward outdoor recreation shift D to the right
5
Efficient Visitation Rates
Figure 17-2, p.337
• D is market demand curve for visits to a public
park (MPB on slide 9 )
• D does not account for congestion externalities
(MEB on slide 9)—when the rate of visitation
increases, more visitors cause congestion that
lowers the value of the visitation experience; if
entrance fees are 0, there are open-access
externalities—the users of the resource inflict on
one another in the form of diminished resource
value (q0: open-access level of visitation)
6
Efficient Visitation Rates (con’t)
• Marginal costs of operating the park are
constant at a level of MC (MSC on slide 9 )
• Curve A is MSB on slide 9
• MSB = MPB + MEB; MEB is negative though!!!
• In order to lead to the socially efficient use rate
q*, an extra fee = ‒MEB = congestion cost = C
must be put into place
• Total fee = MC + C
7
Consumption externalities
Production externalities
(c)
Positive
(d)
Negative
(b)
Positive
The benefits to
the rest of
society of
people being
vaccinated
before traveling
abroad
Noise
pollution
from using
car stereos
The benefits to
the environment
that arise from
the planting of
woodland by a
forestry company
ECO424-Ch6-slide 6
(a)
Negative
Wastes
being
dumped
into a
river by a
company
8
Modeling a Tax (on a negative
consumption externality)
tax = ‒MEB at QE
MSC
a
Amount of tax
b
MPB
MPBt
MSB = MPB + MEB
0
ECO424-Ch7-slide 23
QE
QC
Q
9
2. Rationing by Price
• Rationing: the controlled distribution of scarce
resources, goods, or services; rationing controls
the size of the ration, one’s allotted portion of
the resources being distributed on a particular
day or at a particular time; in economics,
rationing is an artificial restriction of demand
• Rationing by price: charge an entrance fee
sufficiently high that visitation is limited to q*
• Nonprice rationing methods: limit entry to those
people who meet some characteristics; firstcome, first-served
10
Pricing and Total Revenue
Price elasticity
of demand
Percentage change in Qd
=
Percentage change in P
Example:
P
P rises
by 10% P2
P1
Along a D curve, P and Q move in
opposite directions, which would
make price elasticity negative.
15%
= 1.5
10%
We will drop the minus sign and
report all price elasticities as
positive numbers.
Greg Mankiw’s Microeconomics-CHAPTER 5 ELASTICITY AND ITS APPLICATION
D
Q2
Q
Q1 Q falls
by 15%
Rule of thumb: The flatter the curve,
the bigger the elasticity. The steeper
the curve, the smaller the elasticity.
11
“Inelastic demand”
< 10%
% change in Q
Price elasticity
<1
=
=
of demand
10%
% change in P
P
D curve:
relatively steep
Consumers’
price sensitivity:
relatively low
P falls
by 10%
Elasticity:
<1
Greg Mankiw’s Microeconomics-CHAPTER 5 ELASTICITY AND ITS APPLICATION
P1
P2
D
Q1 Q2
Q
Q rises less
than 10%
12
“Unit elastic demand”
% change in Q
Price elasticity
=
=
of demand
% change in P
10%
=1
P
D curve:
intermediate slope
Consumers’
price sensitivity:
intermediate
10%
P1
P falls
by 10% P2
Elasticity:
1
Greg Mankiw’s Microeconomics-CHAPTER 5 ELASTICITY AND ITS APPLICATION
D
Q1
Q2
Q
Q rises by 10%
13
“Elastic demand”
> 10%
% change in Q
Price elasticity
>1
=
=
of demand
10%
% change in P
P
D curve:
relatively flat
Consumers’
price sensitivity:
relatively high
P1
P falls
by 10% P2
Elasticity:
>1
Greg Mankiw’s Microeconomics-CHAPTER 5 ELASTICITY AND ITS APPLICATION
D
Q1
Q2
Q
Q rises more
than 10%
14
Price elasticity
=
of demand
Percentage change in Q
Percentage change in P
Revenue = P x Q
• If demand is elastic, then
price elast. of demand > 1
% change in Q > % change in P
• The fall in revenue from lower Q is greater
than the increase in revenue from higher P,
so revenue falls.
Greg Mankiw’s Microeconomics-CHAPTER 5 ELASTICITY AND ITS APPLICATION
15
Price elasticity
=
of demand
Percentage change in Q
Percentage change in P
Revenue = P x Q
• If demand is inelastic, then
price elast. of demand < 1
% change in Q < % change in P
• The fall in revenue from lower Q is smaller
than the increase in revenue from higher P,
so revenue rises.
Greg Mankiw’s Microeconomics-CHAPTER 5 ELASTICITY AND ITS APPLICATION
16
Differential Pricing
Figure 17-6, p.345
• Many parks have capacity limits, either hard limits like
a certain number of campsites or visitation levels
where congestion externalities begin to take hold
• Consider a park with a certain number of picnic sites
q0; MC is constant; D1 is for weekday visitors and D2 is
for weekend visitors
• Two prices are required: during the week, set p1 = MC.
But this price will not work for weekends, because
quantity at this price will be q2 which exceeds the
capacity q0; then set price = p2 during the weekends,
thus total costs = c + d + e, total revenue = a + b + c + d
+ e, and profit = a + b, or, still charge p1 on the
17
weekends, but with nonprice rationing
3. Ecotourism
• A form of tourism involving visiting fragile, pristine, and
relatively undisturbed natural areas, intended as a lowimpact and often small scale alternative to standard
commercial tourism
• Its purpose may be to educate the traveler, to provide
funds for ecological conservation, to benefit the
economic development of local communities, or to
foster respect for different cultures
• Since the 1980s ecotourism has been considered a
critical endeavor by environmentalists, so that future
generations may experience destinations relatively
untouched by human intervention
18
Chapter 18
Economics of Wildlife Management
Textbook Details
EDITION: 1st Edition
ISBN: 0132808501
ISBN-13: 9780132808507
PUB. DATE: June 2001
PUBLISHER: Prentice Hall
19
kit foxes
Douglas squirrel: a
pine squirrel; its
appearance varies
according to the
season
America’s bats are dying due to
“white-nose syndrome”: one million
insect-eating bats from 10 states and
adjacent areas of Canada have died
since winter 2006
California desert
sheep
greater sage-grouse:
an icon of western
sagebrush ecosystems
20
1. Wildlife Ecology and Human Institutions
Population Growth Curves
• Regardless of the objective of wildlife management—
hunting, ecotourism, predator control—the critical
relationship is the growth dynamics of the wildlife
population of interest
• A population increases, decreases, or remains constant
due to factors such as food availability, sex ratios,
fecundity and mortality rates, and predation pressure
• From 1937 to 1943, wildlife biologist Arthur Einarsen
studied the way a population of pheasants grew after
the species was introduced onto an island (“Specific
Results from Ring-Necked Pheasant Studies in the Pacific
Northwest,” Transactions, Seventh N. A. Wildlife Conference,
1942, pp. 130-138.)
2
1
Population Growth Curves (con’t)
• Figure 18-1, page 357
– Panel (a): For the first few years population increases
were modest, but then the rate of change increased
greatly. In 1941 the increment reached its maximum,
and the next year it was lower. It was expected that
around 1946, the population would meet its maximum,
the carrying capacity for the habitat
– Panel (b): logistic growth curve—an inverted U curve
showing how the annual increment in a population is
related to the size of that population (the annual
increment of small population is relatively low; it
reaches a maximum at population size of 1,400
pheasants; then drops to zero at a population of 2,600)
22
Population Growth Curves (con’t)
– 2,600: carrying capacity; 1,400: the stock size that
defines maximum sustainable yield, the maximum
quantity of the wildlife that could be harvested on a
sustainable basis
– An economic optimum (social efficiency) differs from
the biological point of maximum sustainable yield
– Social efficiency should take into account other
sources of value such as value for recreational hunting,
value for ecotourism, value for biological diversity,
existence value, and uncertainty
23
Wildlife Management Practices
• The dominant landowning tradition in the U.S. is private
property
– Small land holdings (by each of a number of private
owners) relative to the geographic spread of wildlife
habitats: coordinated management among
landowners was difficult due to high transaction costs
so that wildlife had tended to be treated as an openaccess resource; this led to the assertion of control by
state authorities over private actions that were
decimating wildlife stocks
• Public landownership: maintain or convert the land to
public ownership, and then designate a public agency to
manage the wildlife resources (Table 18-1, page 362)
24
2. Sport/Recreational Hunting
• The greater part of the value of hunting may stem from
the satisfaction derived from engaging in the activity
rather than in the number of wildlife harvested
• Table 18-2, page 363
– In 2001, there were 37.8 million participants in
hunting and fishing; the most popular activity was
freshwater fishing, followed by big game hunting;
total expenditures on fishing and hunting were $70.0
billion
– Total participants in animal watching were 66.1
million, with $38.4 billion of expenditures
2
5
• To control hunting effort
– Closed seasons: the hope behind limiting the length
of a hunting season is that the number of hunting
days will be reduced
– In many places public authorities use lotteries to
control hunting effort (Maine has a lottery to
distribute moose hunting permits)
– Publicly enforced bag limits: a limitation on the
number of wildlife that may be taken per trip or per
year
– Private ownership: privately provided hunting has
become popular in the U.S. and elsewhere; private
landowners charge hunters for access to resident
26
stocks of wildlife
3. Wildlife in Suburban Areas
• Suburbanization is the growth of areas on the fringes of major
cities; this brings people into contact with the wildlife that
were living on the suburban fringe
• Figure 18-6, panel (b), page 368
– On the basis of the marginal benefits and marginal costs curves
indicate, the efficient animal population size is k*
– MB (or MWTP) summarizes people’s attitude about wildlife.
They place a high initial value and then the value of a marginal
animal declines. This value is based on existence value, hunting
value, or viewing value
– MC shows the social costs of this stock of wildlife: the animals
bring about changes in the ecosystem (beaver dams change
surface water system); health costs such as threats of Lyme
disease from tick-carrying deer; collisions between animals and
automobiles; physical threats to pets and children; damage to
2
agricultural crops…
7
4. Distribution Issues in Restoration
• Diffuse benefits, concentrated costs: In Minnesota the
reestablishment of the gray wolf confers benefits on a
widely dispersed group of people, both inside and
outside of the state. But it leads to substantial costs for
a relatively small group—ranchers and farmers who
experience depredation of their domestic livestock
• Figure 18-7, page 371:
– MWTPL: aggregate MWTP by locals; MWTPN:
aggregate MWTP by nonlocals
– MCL: aggregate marginal costs by locals; MCN:
aggregate marginal costs by nonlocals; they are equal
28
• Figure 18-7, page 371 (con’t):
– Efficient stock levels are different for locals and
nonlocals: s2 and s1
– In Alaska, state officials planned a wolf control
project to reduce depredation of the state elk herds
in accordance with MWTPL and MCL curves, with
little recognition that there might be a MWTPN
curve representing the values of people in the rest
of the country for the existence of wolves in Alaska.
The Alaskan authorities were forced by the nonlocal
group to develop new plans
• Table 18-3, page 373: mean WTP of supporters; total
WTP of supporters; actual WTP is 28.6% of stated WTP
29
5. Public Policy and Wildlife Markets
• Several decades ago, African elephant and black rhinoceros
were wildly hunted for elephant ivory and rhino horn; the
bans on rhino horn and elephant ivory were then carried out
(1977 and 1989), but the rhino horn ban has been a disaster
while the ivory ban has been successful. Why?
• Figure 18-8, page 374:
– Two S curves: before and after the ban (costs of getting caught
and punished shift S up); two D curves: D1—before the ban;
D2—after the ban
– The major difference between the two markets is the slopes of
D curves: D for ivory is flat since there are good substitutes of
ivory to make piano keys, increased prices lead to big decreases
in quantity demanded; D for rhino horn is steep since there are
no ready substitutes for medical recipes, increased prices do
not lead to big decreases in quantity demanded
30