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Chapter 17

Economics of Outdoor Recreation

Outdoor recreation in many developed countries has grown rapidly in the latter part of the 20th century

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• Data for the U.S. on the number of people who participated in

different types of outdoor recreation• Large percent increases in number of participants were in bird

watching, hiking, backpacking, and sightseeing• Percent increases in number of participants in fishing and hunting

were small• To some extent this may reflect the impacts of the environmental

movement, which has tended to put greater emphasis on nonconsumptive uses of resources rather than the traditional consumptive uses

• Traditionally, much of the supply of outdoor recreation resources has been a public function

• In recent decades there has developed a privately provided market in outdoor recreation, from ski resorts to fishing and whale watching

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Table 17-1, p.334

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• Demand curves for an imaginary public park:

– Horizontal axis: visitor-days, defined as the total number of day-long visits (two half-day visits make one visitor-day); vertical axis: the entrance price to visit the park

– There are a series of aggregate demand curves, each pertaining to a different time period (10 years ago, the current period, and 10 years in the future), arrived at by summing the individual demand curves of visitors to the park

– q1, q2, and q3: numbers of visitor-days if entrance fees = 0

– Population growth, income growth, transportation improvements or drops in the price of gas, and taste and preference toward outdoor recreation shift D to the right

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1. The Demand for Outdoor Recreation Figure 17-1, p.335

Efficient Visitation Rates

• D is market demand curve for visits to a public park (MPB on slide 9 )

• D does not account for congestion externalities (MEB on slide 9)—when the rate of visitation increases, more visitors cause congestion that lowers the value of the visitation experience; if entrance fees are 0, there are open-access externalities—the users of the resource inflict on one another in the form of diminished resource value (q0: open-access level of visitation)

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Figure 17-2, p.337

Efficient Visitation Rates (con’t)

• Marginal costs of operating the park are constant at a level of MC (MSC on slide 9 )

• Curve A is MSB on slide 9• MSB = MPB + MEB; MEB is negative though!!!• In order to lead to the socially efficient use rate

q*, an extra fee = ‒MEB = congestion cost = C must be put into place

• Total fee = MC + C

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Consumption externalities Production externalities

(c)Positive

(d)Negative

(b) Positive

(a) Negative

The benefits to the rest of society of people being vaccinated before traveling abroad

Noise pollution from using car stereos

The benefits to the environment that arise from the planting of woodland by a forestry company

Wastes being dumped into a river by a company

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Modeling a Tax (on a negative consumption externality)

9

$

Q

MPB

MSC

MSB = MPB + MEB0 QE QC

MPBt

b

a

Amount of tax

• Rationing: the controlled distribution of scarce

resources, goods, or services; rationing controls the size of the ration, one’s allotted portion of the resources being distributed on a particular day or at a particular time; in economics, rationing is an artificial restriction of demand

• Rationing by price: charge an entrance fee sufficiently high that visitation is limited to q*

• Nonprice rationing methods: limit entry to those people who meet some characteristics; first-come, first-served

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2. Rationing by Price

Greg Mankiw’s Microeconomics--CHAPTER 5 ELASTICITY AND ITS APPLICATION

P

Q

D

Q2

P2

P1

Q1

P rises by 10%

Q falls by 15%

15%

10%= 1.5

Price elasticity of demand

=Percentage change in Qd

Percentage change in P

Example:

Pricing and Total Revenue

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Along a D curve, P and Q move in opposite directions, which would make price elasticity negative.

We will drop the minus sign and report all price elasticities as positive numbers.

Along a D curve, P and Q move in opposite directions, which would make price elasticity negative.

We will drop the minus sign and report all price elasticities as positive numbers. Rule of thumb: The flatter the curve,

the bigger the elasticity. The steeper the curve, the smaller the elasticity.

D

“Inelastic demand”

P

QQ1

P1

Q2

P2

Q rises less than 10%

< 10%

10%< 1

Price elasticity

of demand

=% change in Q

% change in P=

P falls by 10%

Consumers’ price sensitivity:

D curve:

Elasticity:

relatively steep

relatively low

< 1

Greg Mankiw’s Microeconomics--CHAPTER 5 ELASTICITY AND ITS APPLICATION 12

D

“Unit elastic demand”

P

QQ1

P1

Q2

P2

Q rises by 10%

10%

10%= 1

Price elasticity

of demand

=% change in Q

% change in P=

P falls by 10%

Consumers’ price sensitivity:

Elasticity:

intermediate

1

D curve:intermediate slope

Greg Mankiw’s Microeconomics--CHAPTER 5 ELASTICITY AND ITS APPLICATION 13

D

“Elastic demand”

P

QQ1

P1

Q2

P2

Q rises more than 10%

> 10%

10%> 1

Price elasticity

of demand

=% change in Q

% change in P=

P falls by 10%

Consumers’ price sensitivity:

D curve:

Elasticity:

relatively flat

relatively high

> 1

Greg Mankiw’s Microeconomics--CHAPTER 5 ELASTICITY AND ITS APPLICATION 14

• If demand is elastic, then price elast. of demand > 1 % change in Q > % change in P

• The fall in revenue from lower Q is greater than the increase in revenue from higher P, so revenue falls.

Revenue = P x Q

Price elasticity of demand

=Percentage change in Q

Percentage change in P

Greg Mankiw’s Microeconomics--CHAPTER 5 ELASTICITY AND ITS APPLICATION 15

• If demand is inelastic, then price elast. of demand < 1 % change in Q < % change in P

• The fall in revenue from lower Q is smaller than the increase in revenue from higher P, so revenue rises.

Revenue = P x Q

Price elasticity of demand

=Percentage change in Q

Percentage change in P

Greg Mankiw’s Microeconomics--CHAPTER 5 ELASTICITY AND ITS APPLICATION 16

Differential Pricing• Many parks have capacity limits, either hard limits like a

certain number of campsites or visitation levels where congestion externalities begin to take hold

• Consider a park with a certain number of picnic sites q0; MC is constant; D1 is for weekday visitors and D2 is for weekend visitors

• Two prices are required: during the week, set p1 = MC. But this price will not work for weekends, because quantity at this price will be q2 which exceeds the capacity q0; then set price = p2 during the weekends, thus total costs = c + d + e, total revenue = a + b + c + d + e, and profit = a + b, or, still charge p1 on the weekends, but with nonprice rationing

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Figure 17-6, p.345

• A form of tourism involving visiting fragile, pristine, and

relatively undisturbed natural areas, intended as a low-impact and often small scale alternative to standard commercial tourism

• Its purpose may be to educate the traveler, to provide funds for ecological conservation, to benefit the economic development of local communities, or to foster respect for different cultures

• Since the 1980s ecotourism has been considered a critical endeavor by environmentalists, so that future generations may experience destinations relatively untouched by human intervention

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3. Ecotourism

Chapter 18

Economics of Wildlife Management

Textbook DetailsEDITION: 1st Edition ISBN: 0132808501 ISBN-13: 9780132808507 PUB. DATE: June 2001 PUBLISHER: Prentice Hall 19

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Douglas squirrel: a pine squirrel; its appearance varies according to the season

• Regardless of the objective of wildlife management—

hunting, ecotourism, predator control—the critical relationship is the growth dynamics of the wildlife population of interest

• A population increases, decreases, or remains constant due to factors such as food availability, sex ratios, fecundity and mortality rates, and predation pressure

• From 1937 to 1943, wildlife biologist Arthur Einarsen studied the way a population of pheasants grew after the species was introduced onto an island (“Specific Results from Ring-Necked Pheasant Studies in the Pacific Northwest,” Transactions, Seventh N. A. Wildlife Conference, 1942, pp. 130-138.) 2

1

1. Wildlife Ecology and Human InstitutionsPopulation Growth Curves

• Figure 18-1, page 357

– Panel (a): For the first few years population increases were modest, but then the rate of change increased greatly. In 1941 the increment reached its maximum, and the next year it was lower. It was expected that around 1946, the population would meet its maximum, the carrying capacity for the habitat

– Panel (b): logistic growth curve—an inverted U curve showing how the annual increment in a population is related to the size of that population (the annual increment of small population is relatively low; it reaches a maximum at population size of 1,400 pheasants; then drops to zero at a population of 2,600)

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Population Growth Curves (con’t)

– 2,600: carrying capacity; 1,400: the stock size that

defines maximum sustainable yield, the maximum quantity of the wildlife that could be harvested on a sustainable basis

– An economic optimum (social efficiency) differs from the biological point of maximum sustainable yield

– Social efficiency should take into account other sources of value such as value for recreational hunting, value for ecotourism, value for biological diversity, existence value, and uncertainty

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Population Growth Curves (con’t)

• The dominant landowning tradition in the U.S. is private

property – Small land holdings (by each of a number of private

owners) relative to the geographic spread of wildlife habitats: coordinated management among landowners was difficult due to high transaction costs so that wildlife had tended to be treated as an open-access resource; this led to the assertion of control by state authorities over private actions that were decimating wildlife stocks

• Public landownership: maintain or convert the land to public ownership, and then designate a public agency to manage the wildlife resources (Table 18-1, page 362)

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Wildlife Management Practices

• The greater part of the value of hunting may stem from the satisfaction derived from engaging in the activity rather than in the number of wildlife harvested

• Table 18-2, page 363 – In 2001, there were 37.8 million participants in

hunting and fishing; the most popular activity was freshwater fishing, followed by big game hunting; total expenditures on fishing and hunting were $70.0 billion

– Total participants in animal watching were 66.1 million, with $38.4 billion of expenditures

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2. Sport/Recreational Hunting

• To control hunting effort – Closed seasons: the hope behind limiting the length

of a hunting season is that the number of hunting days will be reduced

– In many places public authorities use lotteries to control hunting effort (Maine has a lottery to distribute moose hunting permits)

– Publicly enforced bag limits: a limitation on the number of wildlife that may be taken per trip or per year

– Private ownership: privately provided hunting has become popular in the U.S. and elsewhere; private landowners charge hunters for access to resident stocks of wildlife 26

• Suburbanization is the growth of areas on the fringes of major cities; this brings people into contact with the wildlife that were living on the suburban fringe

• Figure 18-6, panel (b), page 368– On the basis of the marginal benefits and marginal costs curves

indicate, the efficient animal population size is k*– MB (or MWTP) summarizes people’s attitude about wildlife.

They place a high initial value and then the value of a marginal animal declines. This value is based on existence value, hunting value, or viewing value

– MC shows the social costs of this stock of wildlife: the animals bring about changes in the ecosystem (beaver dams change surface water system); health costs such as threats of Lyme disease from tick-carrying deer; collisions between animals and automobiles; physical threats to pets and children; damage to agricultural crops… 2

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3. Wildlife in Suburban Areas

• Diffuse benefits, concentrated costs: In Minnesota the reestablishment of the gray wolf confers benefits on a widely dispersed group of people, both inside and outside of the state. But it leads to substantial costs for a relatively small group—ranchers and farmers who experience depredation of their domestic livestock

• Figure 18-7, page 371: – MWTPL: aggregate MWTP by locals; MWTPN:

aggregate MWTP by nonlocals– MCL: aggregate marginal costs by locals; MCN:

aggregate marginal costs by nonlocals; they are equal

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4. Distribution Issues in Restoration

• Figure 18-7, page 371 (con’t): – Efficient stock levels are different for locals and

nonlocals: s2 and s1

– In Alaska, state officials planned a wolf control project to reduce depredation of the state elk herds in accordance with MWTPL and MCL curves, with little recognition that there might be a MWTPN curve representing the values of people in the rest of the country for the existence of wolves in Alaska. The Alaskan authorities were forced by the nonlocal group to develop new plans

• Table 18-3, page 373: mean WTP of supporters; total WTP of supporters; actual WTP is 28.6% of stated WTP

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• Several decades ago, African elephant and black rhinoceros were wildly hunted for elephant ivory and rhino horn; the bans on rhino horn and elephant ivory were then carried out (1977 and 1989), but the rhino horn ban has been a disaster while the ivory ban has been successful. Why?

• Figure 18-8, page 374: – Two S curves: before and after the ban (costs of getting caught

and punished shift S up); two D curves: D1—before the ban; D2

—after the ban– The major difference between the two markets is the slopes of

D curves: D for ivory is flat since there are good substitutes of ivory to make piano keys, increased prices lead to big decreases in quantity demanded; D for rhino horn is steep since there are no ready substitutes for medical recipes, increased prices do not lead to big decreases in quantity demanded 30

5. Public Policy and Wildlife Markets