19ECONOMICIMPACTTECHNOLOGY

Direct Effects. The amount of the increased purchase of

inputs used to manufacture or produce the final goods and services purchased by residents.

Indirect Effects. The value of the inputs used by firms that

are called upon to produce additional goods and services for those firms first impacted directly by recreational spending.

Induced Effects. Result from the direct and indirect effects of

recreation spending. Induced effects are related to persons and businesses that receive added income as a result of local spending by employees and managers of the firms and plants that are impacted by the direct and indirect effects of recre- ational spending. This added income results in increased demand for goods and services and, in turn, increased pro- duction and sales of inputs.

Total Effect. The sum of direct, indirect and induced effects.

Typically, the total effects are between 1.5 to 2 times more than the amount that the visitors originally spent in the local economy.

Total Output. The value of all goods and services produced

by the industries in a sector. For an economy as a whole, total output double-counts the value of production because it accounts for all sales; intermediate outputs are counted every time they are sold. In terms of direct impacts, the additional total output caused by visitor expenditures is equal to the increased final demand — the increased final demand will roughly equal the dollar value of visitor expenditures, minus the value of items that have to be imported into the region.

Value Added. Total output minus the value of inputs to a sec-

tors’ production. As such, value added is the net benefit to income.

Total Income. The sum of property income and employee

compensation.

Employment. The number of full-time job equivalents or the

sum of full-time and part-time employees. Source: Leeworthy and Wiley (1997).

overlook many important gains and losses. As an extreme example, consider the high value such an analysis might have provided in 1992 on the benefits of Hurricane Andrew for the construction sector in southern Florida. Since its scope is deliberately selective, caution may be necessary in interpreting the results of economic impact analysis. Second, economic impact analysis rarely attempts to evaluate natural resource goods or services that are not traded in markets. Consequently, while impact analysis can show where the gains or losses occur from a change in policy or market conditions, only cost-benefit analysis can determine whether society has become better off as a result or if resources are now being allocated more efficiently.

The Fishery: An Application of Economic Impact Analysis

Fisheries are frequently the subject of cost-benefit analysis or economic impact analysis, and are an application of particular interest to coastal resource managers. The case studies in this volume on Florida’s saltwater marsh (Chapter 5), and the spiny lobster fishery (Chapter 13) are both examples. As their point of departure, bioeconom- ic models of the fishery assume the fishery is an open-access resource, i.e., that no one owns the fish stocks. Use or property rights do not exist for fish in the sea, and fishers do not have to pay to take a fish. The individual fisher has little incentive to limit fish- ing effort because “he who is foolhardy enough to wait for its proper time of use will only find that it has been taken by another” (Gordon 1954).

Figure 3.1 shows the economic analysis of an open-access fishery. The curve is total sustainable revenue (TSR), or revenues that could be earned on a recurring basis at every level of effort (E). The straight line from the origin is the total cost (TC) of harvest at each level of effort. In fisheries economics, the term capital refers to vessels and gear, while effort is a combination of vessels, gear and labor. Maximum Sustainable Yield (MSY), the highest point of the TSR curve, is the maximum harvest that can be taken

with the same level of effort on a recurring basis. MSY occurs only when the biology of fish stocks fol- lows a Schaeffer growth model, i.e., biomass growth is a logistic func- tion of existing biomass.

In open-access fish- eries, effort levels will tend to be at point EOA, where the revenue from fishing effort equals its costs. At every point from E=O to EOA, total sustainable rev-

Figure 3.1. Maximum economic yield, maximum sustainable yield, and open-access yield (from Garstam et al. 1996).

$/E OA Total cost Total sustainable revenue

E*

_EMSY

_Eopen

Effort

20

MEY MSY

enues are greater than total costs. Vessels continue to enter the fishery as long as the TSR curve lies above the TC curve, i.e., TSR>TC. Entry occurs up to the point where TSR=TC because fishers only consider the private costs of harvest, not the social costs. This oversight implies a market failure because the private costs of harvest are less than the social costs, which include the opportunity cost of all the resources used, including the fish stocks.

Maximum economic yield (MEY) is the harvest that provides the maximum eco- nomic benefits to society. MEY is located where the difference between the TSR and TC curves is at its greatest. This level is the most efficient because the cost of using an addi- tional unit of effort to harvest (the marginal cost of effort) just equals the additional, or marginal, revenue or satisfaction (the marginal benefits) from using it. Moving in either direction from MEY reduces profits. At this point, the social costs of harvest are taken into account. Society would be better off here, because all resources would be put to their highest valued use. Less effort could be used to harvest the same level of fish that results in open access, and at lower cost.

Traditional fisheries regulations intended to restrict or reduce effort to the MSY level include catch quotas, trip limits, bag limits, gear restrictions, limits on fish size, and seasonal and area closures. These policies can lead to temporary improvements in stock levels but do so by raising harvest costs: the total cost curve in the figure up and to the left. But even if the total cost curve rotates all the way to the MEY point (E*), that would not increase net economic benefits. The total revenues would still equal total costs, with profits still zero. Over time, these methods generally do not sustain stock improvements because of the open-access market failure. If the regulations do succeed in improving stock levels, effort will eventually increase to take advantage of the improved stocks and catch rates. As long as profits exist (or TSR>TC), existing fishers will find ways to increase effort or new vessels will enter the fishery. The result is greater catch and effort and a need to regulate further. Lower levels of effort and har- vest can be achieved when clearly defined and enforceable use rights for fish in the ocean exist (Gautam et al. 1996). [For more details on bioeconomic models of the fish- ery, see Gautam et al. (1996), chapter 1, and Iudicello et al. Wieland (1999), chapters 2 and 3.]