Economies of Natural Resource Questions

Description

1) Suppose the demand curve for a public park is Q = 80 – 2p, where Q is the number of visitor-days and p is the entry price. The marginal cost of operating the park is MC = 10. 
a) What is the efficient level of entrance fee and the number of visitors at this fee level (assume no congestion problems)? 
b) At the price/quantity combination of (a), what is the price elasticity of demand for park visitation? (To find this, take a small change in price, say, $1. Figure out the elasticity with the change in quantity resulting from this price change. The percentage change in price and quantity is different depending on whether the price has gone up by one dollar or down by one dollar. Take the average of the two estimates.) 
c) What is the price-quantity combination that maximizes revenues, and what is the price elasticity of demand at this point on the demand curve?

d) Graphically illustrate this scenario, showing the demand curve, the MC curve, the efficient outcome from (a), and the revenue max outcome from (c)

2) If access to a hunting area is rationed by price, we can be sure that the level of visitation that results will maximize the social net benefits of the activity. If the same activity level is determined by lottery, however, we cannot be sure of this. A) Explain why not. B) How could a basic lottery be adapted to result in an economically efficient outcome?

3) Both mountain bikers and hikers enjoy Horsetooth Mountain Park. Assume there are more substitute hiking spots than there are biking trails. The marginal cost of both biker and hiker visits is $7

A) Graphically illustrate the total demand for visits to the park and the separate demand curves for bikers and hikers. 
B) Show the economically optimal amount of visitation for bikers and hikers. 
C) Discuss (but do not graph) the effect of congestion on the optimal rate of visitation and who will be affected by this change in optimal visitation.

4) Consider a typical graphical model of market supply and demand as applied to the market for two endangered species products: rhino horn and elephant tusk (two separate markets). A global ban on the trade of endangered species products has been imposed. This is likely to affect both the demand and the supply for both products. The demand for rhino horn is relatively inelastic, since relatively few close substitutes exist. The demand for elephant tusk is relatively elastic, since good substitutes exist. A) Graphically illustrate in which market you would expect a ban to be successful and explain why. B) What alternatives to a ban are there that might improve the effectiveness of the policy to reduce the trade in endangered species products?

5) A) Show (graphically) how local and nonlocal interests might differ in assessing the desirability of a project or policy. B) Discuss the issues that create this divergence of interest. C) Use the data in the following table to illustrate this discussion through the lens of the Yellowstone National Park, USA to quantify the benefits, costs and net benefits to locals and the country at large.(I will attach the table if it does not show here).

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MODULE 5
NON-CONSUMPTIVE USES OF BIODIVERSITY AND
ECOSYSTEM SERVICES
Economics of Natural
Resources
Economics of Recreation
Economics of outdoor recreation
›Def: “Resource intensive” outdoor recreation that
makes use of forests, grasslands, lakes and rivers
›Trend is from consumptive to more nonconsumptive
uses of resources
›Less hunting, more birdwatching
›Traditionally undertaken on public lands
›Increasingly are private lands alternatives
›Complements? Or substitutes?
›Economic questions of optimal visitation, entrance
fees and visitation policy.
Demand Curves for Recreational
Services in Parks
• Each demand curve for parks is the (vertical) sum of the
individual WTPs for a given amount of parks.
• Need to find socially efficient rate of visitation that maximizes
the net benefits of visitation to society
• Often subject to congestion externalities/ solitude values
D
Q0
Dealing with congestion
externalities
›Charge for the amount of the externalities (polluter
pays principle)
›Limit entry to q*
›Based on characteristics of the people
›Based on willingness to pay
›Based on lottery
›Based on first come, first served.
›Recall ÝP à Ý Revenues when demand is inelastic
and the opposite. Relatively unique resources have
inelastic demands.
Differential Pricing Strategies
›Charge more during high demand periods
›E.g., weekends, school holidays
›Charge more for more resource intensive activities
›Charge more for people more likely to be able to pay
more.
›Charge less to those with rights “claims” to the
resource.
›Charge less to those who are an investment.
Entrance fees – Comparative Analysis
Elements to include:
v Socio-economic situation of the
country
v Common PA features across countries
(Climate, attractions, rarity,
conditions)
v Popularity of sites
Case study: Protected area entrance fees in Tanzania: The search
for competitiveness and value for money
http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S007564582017000100006
Country
PA
Entrance fee (adult)
Ecuador
Galapagos National Park •
https://whc.unesco.org/ •
en/list/1/video
Int.: US$ 100
Nationals: US$ 6
Indonesia
Komodo National Park
•
https://www.youtube.co •
m/watch?v=BHqNWkkM
zI0
Int: US$ 11 (Mon –Sat)
Int: US$16 (Sun, Public
Holidays)
South
Africa
Kruger National Park
•
•
•
Int: US$23 Per day
Regional: US% 11.5 per day
Citizen/resident: US$ 5.8 per
day
UK
Lake district National
Park
Free
Zimbabwe
Victoria Falls World
Heritage Site
•
•
•
Int: US$ 30
Regional: US$ 20
Resident: US$ 7
Example of entrance fees. Source: Leung, Yu-Fai, Spenceley, Anna, Hvenegaard, Glen, and
Buckley, Ralf (eds.) (2018). Tourism and visitor management in protected areas: Guidelines for
sustainability. Best Practice Protected Area Guidelines Series No. 27, Gland, Switzerland: IUCN. xii +
120 pp.
24
Entrance fees – Best Practice
entrance
fees cover
46% of
operation
costs
Entrance fee for the Galapagos National Park
Foreign tourist (non resident)
US$ 100
Foreign tourist under 12 years
US$ 50
Foreign tourist (Andean Community or Mercosur residents)
US$ 50
Foreign Tourists (Andean or Mercosur residents under 12 years)
US$ 25
Citizens or residents of Ecuador
US$ 6
Citizens or residents of Ecuador under 12 years
US$ 3
Foreign Tourists non-resident attending a national academy
institution
US$ 25
National or foreign children under 2 years
No fee
http://cpps.dyndns.info/cpps-docs-web/planaccion/docs2011/oct/turismo_biodiv/doc.15.epler_tourism_report-en_5-08.pdf
29
User Fees – Best Practice
‘Gorilla viewing activity fees in Volcanoes National Park
(Rwanda)’
Price of a Rwanda Gorilla Permit
US$ 1500
Non Residents, East African Residents, East African
Citizens, Rwandan Residents, Rwandan Citizens
30%
Discount
(US$ 1,050)
if visiting other Rwanda national parks (Akagera
national park, Nyungwe national park) for 3 days and
more during the low season of November – May
15% discount on conference guests who stay pre & post MICE
(US$ 1,275) events to see gorillas
US$ 15,000
for Private gorilla trekking of an entire group with an
exclusive personalized tour guide service
US$ 30,000
for a minimum of 3 visitors for 3 consecutive days
(Behind the scenes)

Gorilla Permit in Rwanda


Raising US$ 200
million annually
Visitors willing to pay
US$ 1,500
20,000 visitor permits
available per year
Other issues in the economics of
outdoor recreation
• Local vs nonlocal
• Costs, benefits, values, WTP, Ability TP, leakages, poaching (rent
seeking), cultural change, power and distribution of benefits.
ECONOMICS OF WILDLIFE
MANAGEMENT
• WILDLIFE MANAGEMENT QUESTIONS ARE NOT ENTIRELY
ABOUT HARVEST, BUT OFTEN HAVE HARVEST AS A
CONTRIBUTING FACTOR
• HUNTING, ECOTOURISM, PREDATOR CONTROL, WILDLIFE
MARKETS
• NONCONSUMPTIVE USE VALUES CONTRIBUTE
• SOME CONSUMPTIVE USE VALUE
• NONUSE VALUES (E.G., EXISTENCE BEQUEST) OFTEN IMPORTANT
• ECOLOGICAL-ECONOMIC APPROACH LIKE FISHERIES, BUT
MORE COMPLEX DUE TO DIFFERENT VALUES, HABITAT
VARIATION, AND INTERACTION WITH PEOPLE
WILDLIFE MANAGEMENT MODELS
• Fisheries model good for optimal harvest,
but not so good for optimal management
given other economic values
• Property rights very important since species
are land based
• Species do not respect property rights
boundaries
• Open access problems are likely
• Coordinated management often required
• Transactions costs, free riding concerns
• Private coordination vs public coordination
Institutional Incentives for Wildlife Management
or
b2 – b1 = resource rents @ e*
ECONOMICS OF BIODIVERSITY
PROTECTION
• Q: Does economics have anything to say
about biodiversity preservation?
• Is this in any way an economic problem?
• Q: What is biodiversity? Why does it need to
be preserved?
• How to choose species or habitats for
preservation is the big question.
• Based on economics, ecology, # of species,
scarcity of species, “value” of species?
WHAT IS BIODIVERSITY AND HOW IS IT
CONNECTED TO PEOPLE?
• Biodiversity is the variability among living organisms
from all sources, including terrestrial, marine, and
other aquatic ecosystems and the ecological
complexes of which they are part; this includes
diversity within species, between species, and of
ecosystems.
• Biodiversity forms the foundation of the vast array of
ecosystem services that critically contribute to
human well-being.
• Biodiversity is important in human-managed as well
as natural ecosystems.
• Decisions humans make that influence biodiversity
affect the well-being of themselves and others.
NOAH PROBLEM
• How to fill an arc of fixed size to preserve the
globe’s biodiversity.
• Decision rule:
•
•
•
•
First come, first served?
Cute and cuddly?
Value? Cost effectiveness?
Maximum social welfare?
• Benefits: 1) Effect that including a species will have on its
survival probability. 2) Social value of the species using
whatever criteria are important for measuring social
worth.
• Costs: Social costs of including the species
COST EFFECTIVE BIODIVERSITY
PRESERVATION APPROACHES
• Maximize # of species: Hot spot approach
• Thus small species get a premium in the ark
• Max diversity/uniqueness of species: Modified hot
spot approach
• Greedy algorithm
• Select greatest number of species, then sites that add the
most species
• Other: genetic distinctiveness or importance
SURVIVAL PROBABILITY
• All species in the ark survive AND all species off the ark
die.
• We are rarely so certain as this.
• B-C analysis looks at survival probabilities with and
without the programs
• Using this criterion the most endangered species will
not be the ones preserved.
USING SURVIVAL PROBABILITIES FOR
TARGETED PRESERVATION
SOCIAL BENEFITS OF SURVIVAL
• First must argue that no decision criterion is value
free.
• Species value
• Individual
• Commercial, market value
• Nonmarket value
• Value of species because of its relationship to other species.
RESILIENCE AND STABILITY
• Economic value of ecosystem resilience is
the speed at which a system returns to its
original condition.
• The cost implications of ecosystem
disruption is the economic value of
resilience.
• Ecosystem resilience is among the
arguments for preserving diversity rather
than preserving species
• Portfolio approach to risk mitigation
DIAMOND-WATER PARADOX
• That which is valuable in total is not necessarily
valuable at the margin (e.g. water)
• That which is valuable at the margin is not
necessarily valuable in total (e.g., diamonds)
• Paradox: prices reflect marginal, not total value
ECONOMIC ISSUES IN
NATIONAL PARK
MANAGEMENT IN
ARGENTINA & MEXICO
ECONOMIC ISSUES IN NATIONAL
PARK MANAGEMENT
• Overview of economic perspective
• Brief discussion of economic valuation tools
• Application to Monarch Butterfly Sanctuary &
Biosphere Reserve, Mexico
• Application to Glaciers National Park, Argentina.
ECONOMICS & NATIONAL PARKS
Park manager perspective:
• How much to charge and to whom?
• How many people (visitors, residents), where, when
and how?
• Ecology, economy or both?
Gateway community perspective:
•
•
•
•
Who benefits and by how much?
Who loses and by how much?
How to redistribute benefits & costs if appropriate?
Tourism/recreation vs other of economic
development
ECONOMICS & NATIONAL PARKS:
VALUATION CHALLENGES
• Market fails to capture park values
• Use values (consumptive vs nonconsumptive)
• Nonuse values (bequest, option, existence)
• Valuation methods required to reveal values
and make policy decisions
• Indirect market (hedonic price, travel cost)
• Non-market (contingent valuation, contingent
behavior)
• Economic impact approaches (export base
analysis)
ECOTOURISM,
ENTRANCE FEES, AND
ECONOMIC POLICY
The Monarch Butterfly Biosphere Reserve,
Michoacan, Mexico
OBJECTIVES
• Estimate the economic value of the Monarch
Butterfly Biosphere reserve to tourists (TCM/CB)
and gateway communities (Export Base).
• Explore the optimal entrance fee structure
from distinct accounting stances or
management objectives (landowners, local
communities, Mexican government)
• Describe potential policy solutions to optimal
pricing strategy differences
APPROACH
• 450 questionnaires administered throughout the high
season of 2002.
• 8 university economics students served as
interviewers
• 20 interviews of local businesses were undertaken for
the Export base analysis
DATA COLLECTION
• TCM elicitation question asked if visitors would
still visit if their costs were 25%, 50%, or 100%
higher.
• CB question asked them whether they would
still visit if there were more congestion and to
rate the amount of congestion.
• Export base asked local business owners about
total sales, total employment, seasonal sales,
seasonal employment and the proportion of
each that was due to visitors to the Monarch
butterfly sanctuary.
RESULTS: OPTIMAL ENTRANCE FEES
Table 5: Monarch Butterfly Sanctuary revenues under different fees
Entrance fee (US$)
Visitors
? Visitors %
1.50
97,725
0
2.50
59,612
39
5.00
54,726
44
15.00
38,112
61
16.00
32,249
67
Revenue
146,587
149,030
273,630
571,695
515,988
EVIDENCE BASE:
STAKEHOLDER
PERSPECTIVES
Ejiditarios perspective:
• Entrance fee = USD 15.00
• Visitation = 38,112
• Sanctuary Revenue = USD 571,695
• Community revenue = USD 1.8 million
• Total economic welfare = USD 3.12 million
Community perspective:
• Entrance fee = USD 1.50
• Visitation = 97,725
• Sanctuary revenue = USD 146,587
• Community revenue = USD 4.6 million
• Total economic welfare = USD 8.01 million
RESULTS: POLICY STRATEGY?
• National government’s strategy?
• Maximize visitation/minimize entry fee?
• Minimize visitation/maximize ecological quality?
• Policy strategies:
• Regulatory? Incentive based?
ECONOMIC
VALUE OF
SCENIC HIGHWAYS
Provincial Highway 11,
Santa Cruz, Argentina
CAN ECONOMICS HELP GATEWAY
COMMUNITIES BENEFIT FROM NATURAL
TREASURES?
The case of El Calafate and Glaciers
National Park, Argentina
EL CALAFATE, ARGENTINA
• El Calafate is gateway community to Glaciers
National Park and Fitzroy region. Highly
dependent on tourism.
• 80 Km roadway, undeveloped, with views of
ranches, mountains and animals typical of
Patagonia.
• Proposed development in the form of electric
cables, billboards and road construction.
• The value of an undeveloped and scenic
roadway to tourists or to residents does not enter
neatly into the marketplace.
APPROACH
• Travel cost and contingent valuation survey of
tourists regarding attitude toward roadway
development.
• 400 surveys stratified by Argentines, Foreigners,
tour package purchasers and nonpackage
purchasers.
• Survey provided in English and Spanish.
• Collaborative effort of INCAE, FUNAFU, and
Santa Cruz Ministry of Tourism
PARTS OF THE SURVEY
• Designed to provide valuation information as
well as tourism policy information
• Important features of the site and tourist
experience
• Travel costs and sensitivity to changes in costs
• Hypothetical changes in the natural
environment at the site (here visually depicted)
• Demographics
BASELINE
SCENARIO 1
SCENARIO 2
SCENARIO 3
RESULTS:
•
$65 million direct, $92 million total expenditure in
El Calefate Region
•
$4.9 million/yr WTP to avoid development.
WORLD HERITAGE AND ECONOMIC
DEVELOPMENT
• TEV does not equal Local Economic Impact
• Costs and benefits may not distribute equitably.
• Regional planning can avoid pursuit of
incompatible development alternatives.
• Room for innovative policy alternatives to capture
value for stewardship.
• Non-economic objectives may temper or
overshadow economic objectives.
END OF MODULE 5
Table 18-3 Benefits and Costs to Local and Nonlocal People from Wolf
Restoration in Yellowstone National Park
Local Nonlocal
Total
Mean WTP* of supporters
$20.50
$8.92
Mean WTP of nonsupporters
$10.80
$1.52
Estimated number of supporters
391,204 50,152,416 50,543,620
Estimated number of nonsupporters 340,522 25,774,290 26,114,802
Total WTP of supporters
$160,553 $8,956,130 $9,116,683
Total WTP of nonsupporters
$68,718 $784,322 $853,040
Net benefits
$91,835 $8,171,808 $8,263,643
WTP = willingness to pay.
These numbers are calculated by assuming a perpetual income stream, discounted at 7 percent, that
gave a present value equal to the one-time payments that respondents indicated as their willingness
to pay. They are also adjusted to reflect an estimate that actual willingness to pay is only 28.6 per-
cent of stated willingness to pay; this is based on the researchers’ previous work on the relationship
between stated and actual WTP.

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Natural Resource Economics

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