Monday, November 17, 2008

Aquaculture

Back in undergrad, I remember writing a paper on aquaculture for an environmental economics class. I am glad that this wasn't part of any lecture I can remember:
As long as the price of farm-raised salmon, cod and tuna is lower than wild caught species then the production costs are lower.

I suppose the demand curve just wanders off somewhere into the distance to be forgotten about. One of the most important lessons in economics is that there is no such thing as a "fair markup price". Price is set by demand and supply (and the market structure, and the information available, and...), but certainly not by an arbitrary percentage added on over and above the cost of production.

To be fair, he lets the demand curve wander back in near the end, but still. You can't endorse the teaching of fair price doctrines.

Aquaculture is a particularly tricky thing because it generates hard-to-capture externalities. Taxing the farmed fish is difficult because the methods used by the operators and the geographical location of the fish farm can substantially affect the amount of ecodamage, so a levy based on output isn't appropriate. There's also more obscure things, like interbreeding with native populations and passing on weaker genes. Imposing correct incentives is difficult.

And of course any plan to deter aquaculture expansion in Newfoundland would be met with heavy opposition.

POSTSCRIPT: Why the heck do we index transition matrices (i,j), when i is tomorrow and j is today, but j follows i in the alphabet? Drives me foolish.

1 comment:

Stephen Gordon said...

In my course notes, P_{i,j} is the probability of going from i to j. That means my transition matrices are the transposes of those in the textbooks, but I think it's a small price to pay for having notation that helps understanding instead of hindering it.