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Carrying Capacity and Future Generations

19 January, 2016 - 17:17

The quantity of a renewable natural resource that can be consumed in any period without reducing the stock of the resource available in the next period is its carrying capacity. Suppose, for example, that a school of 10 million fish increases by 1 million fish each year. The carrying capacity of the school is therefore 1 million fish per year—the harvest of 1 million fish each year will leave the size of the population unchanged. Harvests that exceed a resource’s carrying capacity reduce the stock of the resource; harvests that fall short of it increase that stock.

As is the case with exhaustible natural resources, future generations have a stake in current consumption of a renewable resource. Figure 13.8 shows the efficient level of consumption of such a resource. Suppose Qcap is the carrying capacity of a particular resource and S1 is the supply curve that reflects the current marginal cost of utilizing the resource, including costs for the labor and capital required to make its services available, given the interest rate and expected future demand. The efficient level of consumption in the current period is found at point E, at the intersection of the current period’s demand and supply curves. Notice that in the case shown, current consumption at Q1 is less than the carrying capacity of the resource. A larger stock of this resource will be available in subsequent periods than is available now.

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Figure 13.8 Future Generations and Renewable Resources 
 

The efficient quantity of services to consume is determined by the intersection S1 and the demand curve D. This intersection occurs at point E at a quantity ofQ1. This lies below the carrying capacity Qcap. An increase in interest rates, however, shifts the supply curve to S2. The efficient level of current consumption rises to Q2, which now exceeds the carrying capacity of the resource.

Now suppose interest rates increase. As with nonrenewable resources, higher interest rates shift the supply curve to the right, as shown by S2. The result is an increase in current consumption to Q2. Now consumption exceeds the carrying capacity, and the stock of the resource available to future generations will be reduced. While this solution may be efficient, the resource will not be sustained over time at current levels.

If society is concerned about a reduction in the amount of the resource available in the future, further steps may be required to preserve it. For example, if trees are being cut down faster than they are being replenished in a particular location, such as the Amazon in Brazil, a desire to maintain biological diversity might lead to conservation efforts.