ANDERSON: OPTIMUM ECONOMIC YIELD 



effort cheaper than it can produce it at home. 

 These mutually beneficial trades can continue 

 until the opportunity cost of producing effort is the 

 same in both countries, i.e. until: 



dMy dMy 



dEx dE^ 



(16) 



The same thing could be accomplished by X 

 purchasing rights to apply effort from Y until the 

 MRT's for E and M are equal. Assume for simplic- 

 ity that Pp = Pp . Initially the price for a right to 

 use one unit of effort would have to be somewhat 

 above the rent the right-holder in Y would earn by 



doing the fishing himself. {Ry = Pp^^ - -Pj , 



where a in this case is the total of the allowable 

 efforts from both countries.) People in X will be 



able to pay more than that since P^ is less than P J . 



In trade equilibrium the prices of fish and effort 

 are the same in both countries, and therefore the 

 rents in both countries will be identical and no 

 further gains from trade are possible. 



While the above will not change the amount of 

 fish produced, it will make sure that effort is being 

 produced at a minimum cost. The savings can be 

 used to produce more of the manufactured good 

 which can be distributed such that both countries 

 are better off. 



Now that two of the possible types of trade have 

 been discussed, it will prove worthwhile to show 

 exactly how they can be interrelated. 



Trade in E or in fishing rights may have an 



effect on the bargaining for the distribution of 



property rights. To see this, assume that after 



such bargainings country X is at point D in Figure 



1 , • dMy . , , dMy ^^ 



4a and at that point -W^ is less than -jy- . If it 



produces q more units of £ but sells them to Y who 

 reduces its production of £ by the same amount, 

 the PP curve will not change. Initially X will op- 

 erate somewhere horizontally to the left of point D 

 because it had to give up units of M^ to get the 

 extra units o^E. Y will be willing to pay sufficient 

 units of M toX such that it will ultimately operate 

 somewhere horizontally to the right of D and will 

 therefore show an increase in welfare. Therefore 

 at point D' in Figure 4b, which represents the 

 rights to fish and not the actual amount of £■ pro- 

 duced in each country, the welfare of X will in- 

 crease. By similar analysis it can be shown that if 

 trade is possible, Y will always be at a higher level 



of welfare at D' also. This means that the PRI's of 

 both X and Y will change shape and position. 

 Therefore more than likely there will be the possi- 

 bility of further mutually beneficial trades in the 

 distribution of fishing rights. 



The final type of trade to consider is trade in the 

 final products M andF . If the relative prices are 

 different in the two countries, mutually beneficial 

 trades can be arranged. These trades can continue 

 to be mutually beneficial until the marginal rate 

 of substitution in both countries is the same, i.e. 

 until: 



U^. 



u 



u-^ t/,r 



(17) 



These trades will be affected by trades in E and 

 also in changes in the allocation of the property 

 rights. 



On a practical note it must be admitted that few 

 countries will be willing to let their international 

 trade policy in all goods be dictated by their 

 fishery management program. Therefore it is un- 

 realistic to assume that they will drop all restric- 

 tions on international trade on this account. 



This means that even after the rights to fish 

 have been distributed, there are four things that 

 can be traded: fish, manufactured goods, effort, 

 and rights to fish. Because the prices of the last 

 two are directly related to those of the first two, the 

 relative demands for M and F will determine the 

 equilibrium set of prices. It is impossible to pre- 

 dict, however, just what the actual trade bundle 

 will be. For instance, nothing in the model allows 

 us to predict whetherX will export effort or import 

 fishing rights if it has a comparative advantage in 

 producing effort. The outcome of that, however, 

 will affect its exports or imports of F. 



Although the exact makeup of the international 

 MEY position cannot be described, Conditions 

 (15), (16), and (17) must hold simultaneously for it 

 to be in effect. (Condition (15) sets a distribution 

 from which no further mutual gains are possible, 

 and Conditions (16) and (17) guarantee that Con- 

 dition (14) above will hold for that distribution.) 

 That is all potential mutual gains (where a 

 mutual gain could consist of one country being 

 made better off and the other remaining the same) 

 by (1) altering the distribution of the rights to use 

 effort, (2) trading in actual rights or in effort itself, 

 or (3) trading in final goods, have been achieved. 

 This point (say at point D in Figure 3) is a Pareto 

 point that can be reached by mutually advanta- 



63 



