49


 Pi I *
correct price. Unless 0 i k, P. will not equal P., which will
 k

result in a different set of input levels being chosen. The reason this

is so is that P. fails to reflect between region price effects.

 These results are not surprising. In a situation in which each

sector is being managed independently, only costs and revenues specific

to the region will be considered in the decision process. If, in fact,

there exist cross-regional price effects which are not considered, each

region in attempting to maximize its profits will tend to choose higher

levels of output and, hence, higher input levels than would be obtained

if the interregional effects were taken into account. If all regions

were under the control of one central management authority, these inter-

regional price effects would be "internalized" and the appropriate

levels of regional input levels and outputs would be obtained.

 As a motivation behind how such a situation as described above

 could arise, consider a fishery which is composed of several states

 fishing over a fairly large geographic area. Furthermore, assume that

 the fishery is such that each state's demand price is determined in

 part by the within state supply of fish and in part by a national

 market, supplied by shipments from all states in the fishery. Thus, the

 price in each state is determined directly within state catch and in-

 directly through a national market by the catch of all states in the

 fishery. Now, if the management authority is extended over the fishery,

 the appropriate method of incorporating management goals becomes a

 relevant question. One possible goal of management could be to manage

 the fishery in such a manner as to maximize the entire fishery's profit.

 A key result of the above analysis is that under these circumstances,

 management should not be undertaken on an independent basis by