WEAI/AERE 2009 - Individual Paper Abstract
Title: Measuring the Dynamic Efficiency Costs of Common Property Resource Exploitation: A Dynamic Discrete Choice Model of the Fishery
Author(s): Ling Huang, Duke University, Box 90328, Durham, NC 27708, Ling.Huang@duke.edu
Abstract: Although there are widely accepted theoretical explanations of over-exploitation in common property resources, empirically we know little about the micro-level mechanisms that cause individually efficient exploitation to result in macro inefficiency. This paper adds to the literature on common property resource exploitation by conducting the first empirical investigation of resource users' dynamic and strategic behavior at the micro level, with a specific application to the North Carolina shrimp fishery. I examine fishermen's strategies in a fully dynamic game, accounting for resource dynamics and other players' actions. With a combination of a simulation-based Conditional Choice Probability estimator and a Pseudo Maximum Likelihood estimator, I recover the cost structure of the fishery from fishermen's repeated choices. Using the estimated structural parameters, I compare the fishermen's actual exploitation path to the socially optimal one and quantify the dynamic efficiency costs of common property resource use. I find that individual fishermen respond to other users by exerting a higher level of exploitation effort at an earlier time than is socially optimal. Based on counterfactual experiments, the efficiency costs of such a strategy are evaluated for the shrimp fishery, in which 30.9% of the costs are due to lower harvest and the other 69.1% are due to costs from excess fishing effort. In addition, the annual congestion externality cost of the industry is also quantified using counterfactual simulations.