Transcript Production Function Approach: Mangrove/Fishery example

Production Function Approach:
Mangrove/Fishery example
Improve understanding and communication
of values from protecting ecological systems
and services.
Value arises from the difference between
having the existing system or a different system.
My subject: Economic benefits or value of protecting
ecological systems and services as measured
through changes in output from production
processes or functions.
Paper by Barbier, Strand and Sathirathai
Categories of value and with example
Total Economic Value
Use Values
Direct Use Values
Recreational
Fish Stocks
Commercial
Fish Stocks
Nonuse Values
Indirect Use
Option Value?
Existence
Value
Bequest Value
Forage Fish
Stocks
Fish Stocks/
Plankton
Fish Stocks?
Fish Stocks/
Plankton
Many examples in literature –see Bockstael and McConnell, in Maler (ed.)
Old Approach: Damage
Function Approach
Most
of the early studies of an environmental impact on producers (e.g.
damage by air or water pollution, or by flooding) were based on the
damage function approach:
–Estimating a dose-response or damage function that relates a change in
pollution to a physical measure of damage.
–Applying this function to physical losses/damages .
–Multiplying the result by some unit value ($) (e.g. market price of the affected
good, service or asset ).
Major
Problems:
-Assumes that the consumers/producers do not respond to a
change in the environment.
-Unit value approach assumes minor environmental change.
Source: Barbier lecture
Schematic of Production Function Approach
(Mangrove/Fisheries example)
Habitat Change: shrimp aquaculture grows,
mangrove area lost
Fish/shrimp stocks decline
Cost per lb and price rise,
production/consumption fall
Profits decline
Production
function
inherent in
the change
Consumer prices
rise,consumption drops
Estimates of welfare losses and behavioral adjustments
Theory of Value Loss Estimation:
Mangrove loss equation
Mit - Mit+1 = 
0 +
1Pit + 
2wit + 
3FDit + 
4Dit + 
5Rit + 
6Yit+ 
it
where i = 1,..,5 zones, t = 1,...,14 years (1983-1996)
Mit - Mit+1 = Change in mangrove area (km2) from t to t+1,
for zone i at time t
Pit
= EVit *ERit , where EVit is the export unit value of
shrimp (US$/kg) and ERit is the exchange rate
(Baht/US$), for all zones at time t
wit
= Minimum real wage rate (baht/day), for zone i
FDit
= Number of shrimp farms per total land area (km2),
for zone i at time t
Dit
= Distance (km) of each zone i from Bangkok, for all t
Rit
= Real rate of interest (%), for all zones at time t
Yit
= Real per capita gross product (Baht), for zone i
Mean of Dependent Variable (Mit - Mit+1) = 10.3652
The mangrove/relationship and catch
equation (production function):
Relationship between mangroves and shrimp harvest
Advise/consent of fishery biologists: carrying capacity
related to mangrove
Biomass at time t = bt , Max. biomass= Bt, Mangroves= Mt, Catch=Ct
 Bt  bt 
 - Ct and Bt  f M t 1    ln M t 1
bt 1  bt  rbt 
 Bt 
Relationship between catch (Ct), shrimp stock (bt),
and inputs (Et)
Ct  kbt Et
Production function
Economic responses
Supply adjustment/effort response:
Et 1  Et    pkbt Et kbt Et  wEt ,
where Et is fishing effort, and pt(bt, Et)
is the inverse-demand (price function).
Ability to respond could be controlled by fishery
managers. In the Thailand case, largely open access.
Estimating welfare change for each period when the
fishery is Open Access and effort response immediate.
C+
C*
y
price
D
p1
p0
B
A
p*
D*
output
Area p1p0AB captures losses to consumers from decrease in
mangroves resulting in decrease in consumption, higher prices
The Bio-economic System (1st order difference equations)
Mit - Mit+1 = 0 + 1Pit + 2wit + 3FDit + 4Kit +
5Rit + 6Yit
 Bt  bt 
 - Ct and Bt  f M t 1    ln M t 1
bt 1  bt  rbt 
 Bt 
Et 1  Et    pkbt Et kbt Et  wEt ,
Ct  kbt Et
A one-time loss of mangroves:
qualitative time path to equilibrium
E
EA
Et+1 = Et = E
dM< 0
EA'
bt+1 = bt = b
bA
b
Good theory. How do you make the approach
operational in a developing country context?
Without biomass estimate, must eliminate the variable.
Biological equilibrium:
Catch=growth in each period in each region.
2
q
2
Cit  1Eit ln M it   2 E  it , 1  q ,  2  
r
Estimated production function for our paper.
Estimated value of mangroves in Thailand
Because of open access, little information on costs and,
Prices and no information on fishermen efficiency,
we could not measure changes in profits. Hence, no
losses to producers were measured.
By knowing the costs, prices and harvest levels in 1993,
we computed service flow losses for various elasticities
of demand.
Marginal value of mangrove ranged from
$165/hectare (highly inelastic demand) to $4.00/hectare
for highly elastic demand.
Other things to consider.
With information on biomass (available for some
U.S. fisheries), one could estimate the system
without using equilibrium assumptions. With
Economic information, could estimate cost functions.
Household production and recreation values are likely
most important source of use value.
Regulations on essential fish habitat use closed fishing
areas as implementation technique. We have employed
random utility models to estimate the losses to
fishing firms from potential area closures. EPA could
use this approach at times (PCB on Hudson?)
Ports=A,B
A
B
Areas=1,..9
1
2
3
4
5
6
7
8
9
Effects of Closing a Fishing Area
On Directed Effort and Fish, by Area.