Assignment:
Read the following paper:
Freese, S., Glock, J. & Squires, D. (1995). Direct allocation of resources and cost-benefit analysis in fisheries: An application to Pacific whiting. Marine Policy, 19(3), 199-211.
When you click the above link, you may be asked to log in to UVic. After you do so, you will be given free access to the paper. If you have any difficulties accessing the paper, copy-paste the title of the article into the main search bar at https://www.uvic.ca/library/, hit ‘Search', click ‘Full Text Online' in the top search result, and follow the instructions.
a. Write a 3-2-1 report for the paper, using the form on the course web site. (Note this form has changed since assignment 1; a copy of the new version is included with the rest of the Assignment 2 files).
Question 1: In your own words, what are the 3 most important concepts, ideas or issues in the reading? Briefly explain why you chose them.
Question 2: What are 2 concepts, ideas or issues in the article that you had difficulty understanding, or that are missing but should have been included? In your own words, briefly explain what you did to correct the situation (e.g. looked up an unfamiliar word or a missing fact), and the result. Cite any sites or sources used in APA format.
Question 3: What is the main economic story of the reading? (Economics studies the allocation of scarce resources.)
b. The paper your read for part a. states that "In practice, there are not large margins of error if the simple measure of consumer surplus represented by the area under an ordinary ('Marshallian') demand curve is adopted." (Freese et al., 1995, p. 202). This is not necessarily the case. As (Bockstael& McConnell, 1980) pointed out, there are several requirements for this to be the case. Among the conditions for consumer surplus to be a good approximation of compensating and equivalent variations for a price change in a natural resource are:
• The income elasticity of demand is not very large.
• The ratio of consumer surplus to income is not very large.
• The resource and any close substitutes are not in danger of being eliminated.
If you are interested in the details, read Section II of
Bockstael, N. E. & McConnell, K. E. (1980). Calculating Equivalent and Compensating Variation for Natural Resource Facilities. Land Economics, 56(1), 56-63.
Given these conditions, for the application considered in the paper - the allocation of Pacific whiting - was it correct to say that the consumer surplus is a good approximation of the compensating variation? Why or why not? Briefly explain your reasoning.