Renewable resources: Fisheries model



This notebook plots a few graphs of the fisheries model seen in the tutorial. It is written in Python (specifically, in a Jupyter notebook). Note that it does not provide a full analysis of the model, but it provides you with some additional visualizations. No need to understand the Python code, but feel free to play around with it by downloading the code from my GitHub page.

Setup

Let's define the functions in our model, so we can call them later. Recall the model's functions.

Let's quickly plot the harvesting and regeneration functions.

Biological equilibrium

Let us first look at the natural fish stock by plotting the regeneration function.

This shows the natural regeneration of the renewable resource. We note that there are TWO biological equilibriums, which can be found by setting $G(S) = 0$ (i.e. the situation in which there are no natural changes to the fish population). This results in (1) $S=K=10$ million or (2) $S=0$. The first equilibrium occurs because beyond 10 million fish the growth in fish stock is negative, as the ocean reached its capacity to support fish and the fish will starve. The second equilibrium is an extinction equilibrium. 0 fish cannot reproduce. The first (second) equilibrium is stable (unstable), meaning that small deviations from the equilibrium will (not) result in a gravitation back to that same equilibrium, as indicated with the arrows.

Also note the maximum growth halfway $K$. This is the maximum sustainable harvesting. If the stock is at $\frac{1}{2}K$, the regeneration is at its maximum. In that situation, one could harvest that amount of fish each period while maintaining the fish population at $\frac{1}{2}K$.

Growth over time

We can also make a plot over time. The following plots start with an initial stock $S_0$ and show how many periods it takes to nearly rebound to its full capacity $K$.

In the left plot, the initial stock is close to extinction ($S_0 = \frac{K}{100}$), but within 100 periods the stock nearly rebounds to $K$. In the middle plot the population is far above what is sustainable (50% above $K$) and the stock quickly returns to $K$. In the last plot fish are extinct and the population does not recover.

Fishing

We now add fishers to the mix. Together with the regeneration function, harvesting determines the change in stock over time. Or mathematically, $\Delta S = G(S) - H$.

One can solve for the bio-harvesting equilibrium, finding that $S^b = (1 - \frac{\alpha}{\gamma}E)K$ (or in the extinction case: $S^b=0$). Let's use this in our visualization.

These plots show how regeneration changes the fish stock and how harvesting changes the fish stock. The net change is depicted by the bottom plot. The plots visualize two situations. One for low total effort and one for high total effort. Note how they change the fish stock, but also the periodical harvesting.

An interesting observation is that the maximum sustainable harvest is somewhere in between these situations. Compared to the high-effort situation, there is an opportunity to exert less effort AND achieve a higher periodical harvest AND retain a higher fish population.

Free entry

The free entry condition pins down the economic equilibrium stock at which no further profits are possible. If there are positive or negative profits firms would enter or exit the market (i.e. more or less total effort).

The free entry condition states $$\sum_i \pi_i = 0$$ $$S^e = \frac{\bar{w}}{\alpha \bar{p}} \quad\text{ for } E>0$$ which provides the only stock $S$ at which there are no profits.

Looking at the profit function ($\pi_i = (\alpha S \bar{p} - \bar{w})e_i$) we indeed see that changing $e_i$ does not make the profit function positive or negative. The only variable that determines the sign of the profit function is $S$. In order to have no profits, $S$ must be exactly $S^e$.

Intuitively this can be explained as follows. If $S$ is large, harvesting is more profitable, leading to more harvesting efforts. This increase in $e$ will put downward pressure on $S$. Only when $S = S^e$, there will be no more adjustments to $E$.

Since there is only one stock for which there are no profits, this must be the steady state stock of fish. Now we can go back to the earlier biological equilibrium and find the total effort that leads to this $S$.

And the number of firms is the total level of effort $E$.