Fisheries and Aquatic Resources

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Session 4
Fisheries and Aquatic Resources
John A. Dixon from materials prepared by J.
Vincent, T. Sterner, J.E. Padilla, and Marian
delos Angeles johnkailua_at_aol.com World Bank
Institute Ashgabad, November, 2005
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Allocating Scarce Resources the Fisheries

• Optimal fisheries management
• Tragedy of the Commons
• Regulation of public fisheries
• Common property resources

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1. Simple fishery model

• Fish growth is an instantaneous, logistic
  function of fish stock
• XMSY maximum sustained yield stock
• Growth is highest
• Catch at F(X) or lower can be sustained
  forever
• Any catch below this amount (e.g., F1(X)) can be
  generated by either of two fish stocks, one small
  and one large
• k carrying capacity

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Convert to economic terms

• Change horizontal axis from fish
  stock (X) to fishing effort (E)
• Reverses direction of axis when stock is low,
  effort must be high
• Change vertical axis to money
• Total revenue (TR)
• Price (P) Catch (H)
• Add total cost function
• TC Unit cost (c) Effort
• Rent TR TC

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Optimal management

• Suppose only one fisher. How much effort should
  he apply?
• E, where profit (rent) is maximized
• MEY maximum economic yield
• Note MEY is left of MSY
• Optimal harvest (H) is less than the MSY harvest
• But rent is larger than at MSY

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Marginal analysis

• Can show that MEY point is where marginal revenue
  (MR) equals marginal cost (MC)
• For the marginal unit of effort
• Marginal rent 0
• Average rent gt 0

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Which approach conserves more fish?

• Goal of traditional fisheries management achieve
  MSY
• In contrast, the economist aims for MEY
• Relative to MSY, at MEY
• Fish catch is lower
• Fishing profits are higher
• Fishing effort is lower
• Fish stock is higher
• MEY more fish is conserved

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2. Tragedy of the Commons Property rights and
environmental degradation

• Property rights are often not well-defined for
  environmental resources
• Open access e.g., no restrictions on who can
  use the open seas
• Result tragedy of the commons
• Economics research indicates that unclear
  property rights and other institutional factors
  are the fundamental causes of environmental
  degradation, and not only more obvious factors
  like population growth and consumption

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Tragedy of the Commons

• Now suppose users act independently and maximize
  individual profit
• Because fishery is common pool, MRi AR gt c at
  E each user perceives that his profit will rise
  if he increases his fishing effort
• But if all users do this, AR declines its not
  fixed in the aggregate
• Users keep adding effort until E 0, where AR c
• Rent is completely dissipated, and fish stock is
  severely depleted

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Stock externality

• An individual user who adds effort beyond E
  ignores an externality that his actions impose on
  other users
• The increase in effort causes a decrease in fish
  stock
• As a result, other users catch fewer fish
• In the aggregate, their profits decrease by an
  amount that more than offsets the increase in the
  individuals profit

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Market failure lack of property rights

• Fishery is open access fishers (or herders,
  etc.) are free to use as much as they wish
• No property rights no one is excluded
• Everybodys property is nobodys property
• When combined with common-pool assumption, result
  is rent dissipation
• Too many boats chasing too few fish
• Fishers earn only opportunity cost of labor
• In developing countries, subsistence wage
  poverty

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Example Costa Rica

• Illustrates unfolding of tragedy after
  introduction of technology that permits
  harvesting of unexploited fish stocks
• Gulf of Nicoya was Costa Ricas most important
  fishery during 1970s and 1980s, but it rapidly
  became overfished
• Analyzed by World Resources Institute in Accounts
  Overdue (1991)

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EXAMPLE PHILIPPINES, OVERFISHED SMALL
PELAGICS 1948-1991
Source J.E. Padilla
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COD

• Cod in Atlantic Banks outside Canada richest in
  the World
• Crashed 1992
• 30 000 fishermen unemployed
• No sign of recovery after 10 years!

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Iceland shows the way

• World Cod catch down 75 since 1968
• 200 mile EFZ hopeful
• Private transferable quotas as SHAREs in TAC
• TAC decided by biologists

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3. Regulation of public fisheries
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Fisheries regulation options

• What are options to address open access?
• Options are
• Command-and-control limit aggregate effort to
  EMEY or aggregate catch to HMEY
• Charge set tax on effort or catch, to eliminate
  discrepancy between MR and AR
• Individual tradable quota (ITQ) limit aggregate
  catch to HMEY, allocate quotas to fishers, allow
  them to buy and sell

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Command-and-control

• Regulating quantity of effort
• How to define Ei vessels? days? horsepower?
• Regulating quantity of catch
• E.g., fishery is closed when aggregate catch
  reaches quota
• Inefficient each user increases effort in order
  to catch fish before the quota is filled

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Charges

• Tax on effort same problem as regulating
  quantity of effort
• Tax on catch easier than taxing effort (because
  catch is easier to measure), but rarely done
• Politically unpopular

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ITQs

• Seemingly best of the options limits aggregate
  catch to MEY level, in a cost-effective way
• Low-cost fishers outcompete others for quotas
• See James Sanchirico and Richard Newell,
  Quota-based fisheries management (Resources,
  spring 2003)

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CHARACTERISTICS OF SOME ITQ FISHERIES
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CHARACTERISTICS OF SOME ITQ FISHERIES
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World leader New Zealand (NZ)

• Diverse short-lived (squid 1 year) vs.
  long-lived (orange roughy 125 years), inshore
  (diving) vs. offshore (deep-sea fishing)
• Introduced in 1986 26 species
• Today 45 species 85 of NZs commercial catch
• Divided EEZ into species-specific management
  regions, based on populations
• 1 for hoki, 11 abalone
• In 200, 275 quota markets
• Total quota based on MSY
• Individual quotas can be split, leased,
  subleased, but number that a single company can
  hold is limited
• Monitoring and enforcement detailed reporting,
  satellite tracking, on-board observers

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Issues with NZ ITQ markets

• Market efficiency
• Very active markets annual average of 1,500
  quota sales and 9,300 leases through 2000
• 44 of total catch leased in 2000
• Market capitalization US2 billion
• Small medium companies use quota brokers
• large companies have quota managers on staff
• Prices have risen fisheries becoming more
  profitable, especially those that were initially
  overcapitalized
• Monthly quota prices for given species have
  converged over time

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Issues with NZ ITQ markets

• Ease of administration
• NZ regulators report greater demand for data,
  less adversarial relationship
• Quota values depend on information and integrity
  of system
• Vs. U.S. 100 lawsuits pending against National
  Marine Fisheries Service
• Distribution
• Big political concern with ITQs in U.S. will
  ITQs hurt small-scale fishermen?
• NZ 37 decline in number of quota owners 25 of
  quota markets are concentrated
• But most owners continue to be small or medium
  cos.
• Which is better sustainable but concentrated
  industry, or unconcentrated but unsustainable
  industry?

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Fisheries policiesin developing countries

• Government objective is typically to increase
  catch or employment, not to maximize rent
• Subsidies are common boats, engines, gears,
  fuel, ice-making equipment, fish culture
• How do such subsidies affect effort? catch?
• crowding? pollution? fishers income?

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4. Common property resources Collective action

• Is there a need for government regulation?
• Fishers have an incentive to craft an agreement
  with the following key features
• All fishers agree to limit their effort so that
  the collective effort does not exceed EMEY
• The fishers agree to hire someone to ensure that
  no one cheats (common-pool assumption remains)
• All fishers receive a share of the rent that
  remains after paying costs of policing
• Why doesnt this self-organization happen?

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Common property collective action

• Actually, it does happen many examples of common
  property institutions in developing countries,
  and not just for fisheries
• Common property ? Open access
• Long studied by anthropologists, long ignored by
  economists
• Our simple model predicted rent dissipation in
  part because it didnt allow cooperation or
  repeated interaction among fishers

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Attributes of long-enduring CPRS

• Recognition of rights to organize
• Clearly defined boundaries resource and users
• Congruence
• Appropriation rules and resource conditions
• Distribution of benefits of appropriation and
  costs of rules
• Collective-choice arrangements
• Individuals affected by rules can participate in
  modifying them
• Monitoring
• Graduated sanctions
• Conflict-resolution mechanisms

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Summary

• There are many sustainable management points for
  renewable resources
• Economic (rents) and ecological (stocks)
  characteristics vary among those points
• In the absence of property rightsi.e., in open
  accesstragedy of commons results rent
  dissipation, stock depletion
• Various property rights options exist not just
  public or individual private, but also collective
  (common property)