ANDERSON: OPTIMUM ECONOMIC YIELD 



latter is the proper amount of it produced. The 

 equalizing mechanism in both cases is the trade in 

 fish which is indirect trade in effort. 



Figure 2 depicts the international MEY situa- 

 tion in terms of the PP curve of both countries. 

 Expression (14') says that the absolute value of 

 the slope of the indifference curves in both coun- 

 tries (~ T7^) must be less than the absolute value of 

 the slope of their existing PP curves at the point of 

 operation (—-). That is at the equilibrium point, 



the slope of the indifference curve must be less 

 steep than the slope of the PP curve. Therefore the 

 slope of the price ratio line must also be less steep 

 than the slope of the PP curve. What this means is 

 that both countries must produce less fish than 

 they would under normal free market conditions 

 given the relative cost of producing F and M. The 

 reason for this is that they must take into account 

 the effect of their output levels on the production 

 of fish in the other country. In the diagram the 

 regulated price ratio common to both countries is 

 represented by the two straight lines. Country X, 

 producing at point A and consuming at point B, is 

 importing Mj, units of M and exporting F7. units of 

 F. Country Y, producing at point A' and consum- 

 ing at point B', is doing the reverse. Since at the 

 equilibrium, producers in both countries are bas- 

 ing the production decision on the same price 



ratio, and since 



dMy dM 

 dE 



X 



dE 



- , there will be no 



F„A 



COUNTRY X 



COUNTRY Y 



Figure 2. — In the two country case, the international maximum 

 economic yield can be represented by the countries producing at 

 A and A' and consuming at B and B', the difference being made 

 up by international trade. The exact relationship between the 

 slope of the indifference curves and the production possibility 

 curves is expressed in Equations (14) and (14'). 



balance of payments problem; i.e. the value ofF 

 traded will equal the value of M traded. 



Two technical points regarding this diagram 

 should be pointed out. First, since there are inter- 

 national interdependencies involved, operation at 

 the international MEY requires government reg- 

 ulation. Some form of taxes or other means of 

 control will be necessary in each country to keep 

 producers operating where the price ratio to con- 

 sumers, as represented by the slope of the indiffer- 

 ence curve, is different than the ratio of marginal 

 costs of production, as represented by the slope of 

 the PP curve. Second, it may seem strange that 

 country X, the importer offish, is consuming at a 

 point inside its existing PP curve. (If the indiffer- 

 ence curve for country Y through point B' inter- 

 sects the PP curve, that country will also be oper- 

 ating at a point where its welfare is not as large 

 as it might be given its existing PP curve.) Would 

 it not be to its advantage to stop trading and ex- 

 pand its own fishing by moving up its PP curve? 

 In answering this question it must be remembered 

 that the only reason country X's PP curve is as 

 high as it is, is that country Y has reduced its 

 level of effort. Only if country Y were foolish 

 enough to keep its level of effort the same regard- 

 less of country X's behavior would the latter bene- 

 fit from an increase in effort. It would gain wel- 

 fare while country Y would lose. This discussion 

 points out, however, that proper management 

 of international fisheries will be difficult to en- 

 force because one or both of the countries involved 

 will be motivated to increase effort from the op- 

 timal point. 



So far three distinguishable points on each PP 

 curve can be identified: the open-access equilib- 

 rium point (where the slope of the indifference 

 curve, or the international price line, as it inter- 



sects the PP curve equals 



F/E 



;, i.e. point B in 



dM/dE 



Figure 1); the local MEY optima given the level of 

 effort in the other country (where the slope of the 

 indifference curve or the international price line is 



equal to — — , i.e. point D in Figure 1); and the point 



where the country contributes to an international 

 MEY given the level of F produced abroad, i.e. at 

 point A or A' in Figure 2. With regard to the latter, 

 only if both countries are operating in this fash- 

 ion, is it a true international MEY, where the 

 value of the net increase in fish production by 

 the marginal unit of effort, regardless of its origin. 



57 



