Question

Fisherman Alex and John fish in the South China Sea. They can choose to fish for 8 months or 12 months. If they both fish for 8 months, they can catch 800 kilograms fish each. If they both fish for 12 months, they can catch 1200 kilograms fish each. If Alex fishes for 8 months but John fishes for 12 months, Alex can only catch 800 kilograms fish but John can catch 1200 kilograms fish. If John fishes for 8 months but Alex fishes for 12 months, John can only catch 800 kilograms fish but Alex can catch 1200 kilograms fish. Price of each kilogram of fish is $100.

a) Is the fishing area in South China Sea a public goods?

b) Draw a payoff matrix based on the information provided. What is the outcome of the game?

c) Suppose, the amount of fish caught is reduced by 50% due to overfishing. Will it change the outcome of the game?

d) Every May to August is the period of fishing moratorium (suspension of fishing) in South China Sea. Explain the rationale behind fishing moratorium.

Answer 1

Part 'a' :

The most common features of any public good are non-excludibility and non-rivalry. According to these, the use of these goods does not mean that the good will be exhausted and one person cannot stop others from consuming these goods.

As the fishermen cannot stop other fishermen from using the South China Sea, it shows the characteristic of non-rivalry. By the usage of the Sea by the two fishermen, the sea does not exhaust and hence it shows the characteristic of nom excludability.

Therefore, South China Sea can be considered a public good.

Part b :

Part c :

If the amount of fishes caught decreases by 50%, then the new game will be :

Part d :

Even when the use of public goods are not subject to price and expenditure, there is always some social cost(public cost or the cost on environment) to be incurred. This social cost is incurred by the society. From fishing in the South China Sea, Alex and John do not incur any cost directly but the social cost of their consumption of South China Sea is the depletion of the fishes. As they keep fishing rapidly, the fishes in the Sea keep decreasing. Therefore, to keep the balance of the environment the fishing moratorium is placed so to give the fishes time to replenish. This moratorium period can be called the indirect/social cost of fishing on the environment.