$/lb 



(lbs. per Unit Time) 



Figrure 2. — Longrun mar^nal cost added to Crutchfield-Zellner 



model. 



zero increase in sustainable yield. That is, the 

 marginal physical product of another unit of 

 effort (in terms of sustainable yield) is zero. 

 This occurs when sustainable yield is maximum, 

 and at this point the cost of an additional pound 

 of fish (in terms of sustainable yield) is infinity 

 (Carlson, 1969). In the static framework of 

 this model, the economic benefits from the 

 fishery are maximized when price is set equal 

 to long-run marginal cost, including congestion 

 and growth costs — that is, where the extra 

 costs of an additional pound of fish are just 

 equal to what consumers are willing to pay for 

 that additional pound. 



Assuming a normal downward sloping 

 demand for fish, long run equilibrium under a 

 regulatory agency which sets price equal to 

 marginal cost can be determined, and this 

 equilibrium can be compared with that for an 

 unregulated, competitive regime, and with 

 MSY regulation. 



Under a decentralized, competitive regime, 

 the fishery will be in long run equilibrium where 

 the long run average cost curve (including 

 normal returns) is equal to price — point A in 



Figure 3 — with catch Xi, and price Pd. But, as 

 noted by Carlson (1969, p. 20), "the cost ... of 

 (harvesting) an additional unit of fish [XoB] 

 at this level is in excess of what consumers are 

 willing to pay for it" [XoA]. Since LRMC is 

 always above XX, a competitive fishery always 

 operates in long run equilibrium at a non- 

 optimal output, with too small a stock of fish, 

 although the harvest may be larger than 

 (Figure 3), equal to (Figure 4), or smaller 

 than (Figure 5) the optimum level. 



Under the present assumptions (including 

 instantaneous transfer of resources to their 

 next best alternative use, and that demand 

 accurately reflects consumer preferences), the 

 "social" or "welfare" loss of a decentralized 

 as compared to an optimally regulated fishery 

 is the area ABE of Figure 3 — the excess of 

 the extra cost above what consumers are willing 

 to pay for the extra production of fish 

 A'l, - i'l, beyond the level A',. ABE is also the 

 extra value, above the gain in consumer surplus 

 PiEAPo the resources used to produce the 

 extra fish A'o — X\ could have produced had 

 they been used in their next best alternative 



67 



