Demand Side Provision Problem
Demand side provision problems result from the excess demand of harvesters. This excess demand for the resource depletes the resource and reduces the avaiability of the resource in the future. In the context of a fishery, a demand side provision problem will result when harvesters extract at a rate greater than the rate of reproduction. Extracting at this rate will have a net negative effect on future populations an thereby reduce the available catch in future years. Within a groundwater basin, such as Tucson AZ, this will result when people extract water from an aquifer at a rate greater than the rate of recharge. Solving a demand side provision problem involves maximizing the discounted stream of profits, net present value, of the resource and often times establishing efficient and effective property rights (Libecap, 1989).
Once a demand side provision problem occurs they become extremely difficult to address. The primary reason for this difficulty is that harvesters must be willing to sacrifice current returns in the anticipation that future returns will increase. This problem is compounded when the discount rate among individuals is either very high, they place little value on future earnings, or is heterogeneously distributed, individuals possess different rates of discounting.
An extreme example of a demand side provision problem would be the collapse of the Atlantic cod fishery. This fishery collapsed in the early 1990's and since then the goverment has been forced to restrict the harvesting of the resource in order to rebuild populations. This is done with the anticipation that this fishery will once again be profitable. This restriction has forced fisherman out of work while the fishery rebuilds itself, but the time horizon for recovery may be far enough away that many would not be voluntarily willing to accept these restrictions.
Other examples of demand side provision problems can be found by analyzing the rate of deforestation in the 19th and early 20th century within the United States or within the Brazalian Amazon today. These examples actually point out another important component to solving a demand side provision problem, biology. In most natural resource settings the solution to a demand side provision problem is only as good as the biological knowledge on which it is structured. Currently our knowledge on the impacts of deforestation and the rates of growth allow us to conduct an ex post analysis of the situation and determine that deforestation is a demand side provision problem. In the case of the Atlantic cod fishery, biology is now an important component to the solution of overharvesting. A select group of fisherman are paid by the goverment to harvest within given areas of the fishery to collect specimens for biological study so that resource managers may get a better understanding of the biology underlying the resource.
|Copyright 2006 Experimental Economics
Center. All rights reserved. ||Send us