Nick, Tim, and Brian are fishermen who live next to a lake that is open to fishi

Question

Nick, Tim, and Brian are fishermen who live next to a lake that is open to fishing; in other words, anyone is free to use the lake for fishing. Assume that these men are the only three fishermen who fish in this lake and that the lake is large enough for all three fishermen to fish intensively at the same time. Each year, the fishermen choose independently how many fish to catch; specifically, they choose whether to fish intensively (that is, to place several fishing lines in the water for long periods of time, which hurts the sustainability of the lake if enough people do it) or to fish nonintensively (which does not hurt the sustainability of the lake). None of them has the ability to control how much the others fish, and each fisherman cares only about his own profitability and not the state of the lake. Assume that as long as no more than one fisherman fishes intensively, there are enough fish to restock the lake. However, if two or more fish intensively, the lake will become useless in the future. Of course, fishing intensively earns a fisherman more money and greater profit because he can sell more fish. The lake is an example of______________because the fish in the lake are_______________and____________Which of the following solutions could ensure that the lake is sustainable in the long run, assuming that the regulation is enforceable? Check all that apply. Convert the lake to private property, and allow the owner to sell fishing rights. Outlaw fishing intensively. Develop a program that entices more fishermen to move to the area.

Explanation / Answer

Answers:

Assume that as long as no more than one fisherman fishes intensively, there are enough fish to restock the lake. However, if two or more fish intensively, the lake will become useless in the future. Of course, fishing intensively earns a fisherman more money and greater profit because he can sell more fish.

The lake is an example of a common resource because the fish in the lake are non-excludable and rival in consumption.

Explanation: The government has decided to make the lake available to everyone, means that is may consider as non - excludable. However, because too much fishing can lead to the lake becoming useless, the lake is also rival in consumption. So, The Lake is a common resource.

Depending on whether Tim and Brain both choose to fish either non-intensively or intensively, fill in Nick’s profit-maximizing response in the following table, given Tim and Brain’s actions.

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Tim and Brian’s Actions

Fish Non-intensively

Fish Intensively

Nick’s Profit Maximizing Response

Fish intensively

Fish intensively

Explanation: If the other two men are fishing non-intensively, Nick's decision about whether or not to fish intensively will have no bearing on the lake's health. Because Nick will catch more fish if he fishes intensively and will thus make more money, Nick's most rational response is to fish intensively. If the other two men are fishing intensively, then regardless of whether Nick fishes intensively or not, the lake will be useless next year.

    Therefore, Nick’s profit maximizing response is to fish intensively so that he makes the most money he can today. Here, the marginal social cost of fishing intensively exceeds any one individual's marginal cost of fishing intensively.

Which of the following solutions could ensure that the lake is sustainable in the long run, assumeing that the regulation is enforceable? Check all that apply.

Develop a program that entices more fishermen to move to the area.

Explanation: Developing a program that entices more fishermen to move to the area will yield the same result as when there are three fishermen: All fishermen will fish intensively, and the lake will be depleted after one year. By contrast, making intensive fishing illegal is a regulatory solution that can successfully ensure that the lake will remain healthy.

     The other proposed solution to the overuse of common resources is to make them excludable in effect, making them private goods. Converting the lake to private property can also prevent the resource from being overused, because the property owner will have an incentive to make sure that the lake is useful for many years.

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Tim and Brian’s Actions

Fish Non-intensively

Fish Intensively

Nick’s Profit Maximizing Response

Fish intensively

Fish intensively

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