Economics and the Management of Ocean Fisheries

1
Economics and the Management of Ocean Fisheries

• Gordon Munro
• Department of Economics and Fisheries Centre
• University of British Columbia
• Vancouver, Canada

2
Introduction

• Worlds ocean fisheries are divided between
• capture fisheries hunting fish in the wild
• aquaculture fish farming
• While aquaculture is steadily growing in
  importance, we shall confine ourselves to capture
  fisheries
• capture fisheries pose a far greater management
  problem than does aquaculture

3
Importance of Ocean Capture Fisheries

• Although ocean capture fishery resources have
  been subject to overexploitation, these fisheries
  have annual harvests equal 80 million tonnes,
  with first sale value of roughly US 70 billion
• Provide direct, and indirect employment to as
  many as 200 million
• particularly important to the developing world

4
Developments in Ocean Capture Fisheries

• There is clear evidence that ocean capture
  fishery harvests are reaching a plateau
• only increase through improved management
• That is not alarming what is alarming is
  evidence increasing overexploitation
• FAO criterion is stock at level capable of
  Maximum Sustained Yield (MSY)?
• (i) Stock at MSY level Fully Exploited
• (ii) Stock above MSY level Less than Fully
  Exploited
• (iii) Stock below MSY level - Overexploited

5
Growing Overexploitation

• According to the FAO, in 1950 no more than 5 of
  capture fishery stocks overexploited by the
  early 2000s, this figure had jumped to 25. A
  further 50 are in the Fully Exploited category
• Fully Exploited is not Overexploited, but fear
  that many Fully Exploited stocks are candidates
  for Overexploited category (but see later)
• Recent work by Daniel Pauly (co-winner, 2006
  Volvo Foundation Prize) and R. Froese (2003)
  implies that FAO may be understating the problem

6
Global trend in the status of marine fisheries
resources based on FAO statistics(Daniel Pauly
and R. Froese, 2003)
100
Collapsed
80
Overfished
Relative status ()
Fully exploited
60
Developing
40
Undeveloped
20
1950 1960
1970 1980
1990


7
Causes of the Problem

• How did we get into such a situation? What is to
  be done about it?
• We shall argue that economics lies at the heart
  of each of two questions
• view now being taken by marine biologists, e.g.
  Ray Hilborn, University of Washington, another
  co-winner of 2006 Volvo Foundation prize
• BUT! economists alone cannot solve problem
  capture fisheries management inherently
  interdisciplinary in nature

8
The Economists Perspective

• All natural resources seen as real capital
• capital any asset capable of yielding stream of
  economic returns through time
• capital, both human made and natural
• Can build up stock of capital through positive
  investment sacrifice today, for hope of return
  tomorrow
• can also run down stock of capital -disinvestment

9
Renewable and Non-renewable Natural Resources

• Is the resource capable of growth?
• if yes renewable if no, non-renewable
• non-renewable, e.g. minerals either zero
  investment, or disinvestement -mining
• renewable zero investment means harvesting on a
  sustainable basis - skimming off growth
  positive investment possible, by harvesting less
  than growth
• Capture fishery resource quintessential
  renewable resource

10
Optimal Economic Management

• Capture fisheries management from economic
  perspective real asset management problem
• ideal manage portfolio of capture fishery
  resources (assets) to maximize net economic
  benefits to society through time
• Actual management decidedly less than ideal
• sub-optimal management estimated to cost World
  economy up to US50 billion per year

11
Common Pool Problems

• Capture fishery resources difficult to manage
• fish are mobile not visible before capture
  complex species interactions environmental
  shocks
• Difficult in past to assign property rights to
  resources fisheries typically open access,
  common pool
• Common pool confronts fishers with socially
  perverse incentives no interest in investing in
  resources resources are there to be mined
• overexploitation of resources guaranteed

12
Serious Fisheries Management A Recent
Phenomenon

• Serious fisheries management only 60 years old
• If costs of fishing high, overexploitation of
  common pool fishery resources a minor problem
• this was the view, up until 20th century! open
  access nature of ocean capture fisheries
  enshrined in doctrine of the Freedom of the Seas
• Turn now to evolution of international legal
  framework encompassing ocean capture fisheries

13
Freedom of the Seas

• 17th century doctrine -Hugo Grotius
• oceans divided into narrow coastal state
  territorial sea (5.5 km), and the high seas
• High seas fishery resources deemed to be res
  communis, the property of all . All nations to be
  allowed to fish unhindered on high seas
• economics high cost of ocean fishing protected
  these resources in Grotius day assurances of
  Thomas Huxley in 1883

14
Coming of Overexploitation

• Technological advances in fishing -late 19th,
  20th century- meant that high seas fishery
  resources were not inexhaustible, after all.
• Common Pool nature of resources led to expected
  results - mining of the resources
• Freedom of the Seas (pertaining to fisheries), as
  a result, has been steadily eroded, but a remnant
  remains

15
Mining of Fishery Resources The Example of the
North Atlantic

• Biomass -measure of size of resource fishing
  intensity -fraction of resource harvested per
  period (fishing mortality)

Biomass
Biomass tkm-2
1.8-2.51.5-1.81.2-1.50.9-1.20.7-0.90.6-0.70.
4-0.60.3-0.40.2-0.30.1-0.20-0.10-0
Courtesy V. Christensen
16
Erosion of the Freedom of the Seas

• Heavy exploitation of ocean fishery resources led
  to attempts to control high seas fishing
  -culminating in the
• 1982 UN Convention on the Law of the Sea -
  produced 200 nautical mile (370 km) Exclusive
  Economic Zone (EEZ) regime
• coastal state property rights to resources
• EEZs account for 90 of capture fishery stocks -
  drastic reduction in fisheries Freedom of the Seas

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EEZ Regime Resource Management Issues

• EEZ regime mitigated, but did not eliminate, the
  common pool problem exists within EEZs
• Fish are mobile fish found to cross EEZ
  boundaries gave rise to shared fish stock
  problem
• FAO estimates that as one much as one third of
  marine capture fishery harvests based on shared
  stocks.

19
Internationally Shared Fish Stocks
HIGH SEAS
A Transboundary stocks B Straddling stocks C
Discrete High Seas stocks
20
UN Fish Stocks Agreement

• In 1982, the management of straddling stocks
  seen as minor problem, but problem grew to crisis
  proportions over next decade led to new UN
  conference (1993-95) and UN Fish Stocks
  Agreement
• straddling stocks to be managed through Regional
  Fisheries Management Organizations (RFMOs). RFMO
  regime at early stage
• Turn now and discuss fisheries management at (a)
  domestic (intra-EEZ), and (b) international level
  will NOT go into EU Common Fisheries Policy in
  detail

21
Domestic Fisheries Management

• The central problem counter the perverse fisher
  incentives created by common pool nature of
  capture fisheries
• do so in the face of great uncertainty
• uncertainty can be reduced, but never eliminated
• The two approaches to management FAO)
• Incentive Blocking
• Incentive Adjusting

22
Incentive Blocking Approaches

• Incentive blocking obvious, and first, approach
  block fishers from responding to perverse
  incentives
• If fishers have an incentive to overexploit
  resources block them by harvest controls e.g.
  Total Allowable Catches (TACs), and gear
  restrictions
• BUT harvest controls lead to new common pool
  problem, which economists call Regulated Open
  Access

23
Regulated Open Access

• If harvest restricted, then restricted harvest
  becomes new common pool. Fishers have every
  incentive to compete for shares of valuable
  harvest
• Inevitable result excess fleet capacity race
  for the fish
• example of Alaska pollock fishery -US EEZ prize

24
Consequences of Excess Capacity

• Excess fleet capacity leads to
• direct economic waste -investment in fleet
  capital that, from societys point of view, is
  redundant
• also shortened fishing seasons -inefficient
  fishing and inferior product.
• Excess capacity is also a threat to the resource
• makes monitoring of harvesting more difficult
  -TAC often exceeded
• mass of unsatisfied vessel owners press for
  liberal TACs - TACs can easily become dangerously
  liberal
• FAO sees excess capacity as major threat to world
  fishery resources

25
Limited Entry Programs

• Regulated open access leads to additional
  incentive blocking measure -restrict number of
  vessels in fishery limited entry
• limited entry programs often accompanied by
  vessel decommissioning schemes to eliminate
  existing excess capacity
• Limited entry programs disappointing results
• fishers incentives unchanged
• fleet capacity a bundle of inputs resource
  managers cannot control all inputs fishers
  substitute uncontrolled for controlled inputs
• paradox of reduced number of vessels in fishery,
  but increased fleet capacity

26
Fisheries Subsidies

• Fisheries management problems aggravated by
  subsidies, often introduced to relieve distress
  in fishing communities
• Fisheries subsidies (worldwide) US 15-25 billion
  per year
• conservative estimate
• roughly half are benign in terms of management
  the other half are malign, and intensify the
  perverse incentives
• the controversial decommissioning subsidies

27
Management Disasters

• The initial approach to resource management, as
  well as producing many disappointments, led to
  some outright disasters, one the most prominent
  of which was Northern Cod off Newfoundland
• Canadas prize under EEZ regime
• Canada planned a resource investment program,
  after implementing its EEZ
• Nevertheless, in 1992 Canada had to declare a
  harvest moratorium on Northern Cod fishery, which
  remains to present day

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Newfoundland Northern Cod1850 - 2000
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Incentive Adjusting Approach

• Disappointment with Incentive Blocking approach
  has led to increasing emphasis on Incentive
  Adjusting approach
• Introduce measures that will adjust fisher
  incentives to make them compatible with societys
  goals possible measures
• taxes little used
• create de facto property rights for fishers
  rights base management

31
Rights Based Management

• Rights based management takes three basic forms
• individual harvest quotas IQs
• fisher cooperatives
• community based fishery management schemes
• there are signs of convergence also some
  outright blends
• Key- give fishers incentive to invest
  (positively) in the resource

32
Individual Harvest Quotas

• TAC divided into individual shares
• originally designed to curb race for the fish and
  excess capacity
• property rights to harvest shares
• IQs found to work best when they are
• long term
• transferable ITQs
• expressed as percentage of TAC, rather than
  fixed quantities
• 1. and 3. give fishers incentives to be concerned
  about long tem management of resource

33
ITQ Companies

• ITQ holders have incentive to coalesce into de
  facto companies, which in turn leads to fishers
  acquiring de facto (collective) property rights
  to resources
• ITQ companies called upon to bear management
  and enforcement costs
• become investors in resource cover cost of
  research, develop more conservationist harvesting
  methods

34
Spread of ITQs

• ITQs negligible 20 years ago, now cover about 15
  per cent of world capture fisheries
• Iceland and New Zealand the pioneers
• in EU can be found in some form in the
  Netherlands, Denmark and the UK
• prominent in Australia and Canada, growing
  importance in US

35
Alternatives to ITQs

• ITQs no universal panacea
• ineffective without good monitoring objections
  on equity grounds
• infeasible in many developing coastal states
• Community based fisheries management collective
  property rights to community group examples
  Japan and Chile
• Fisher cooperatives once again fisher property
  rights to fisher groups - example Alaska pollock
• evidence of convergence

36
Some Encouraging Signs

• Can now point to a string of fisheries, with
  Incentive Adjusting management measures that are
  clear success
• some examples
• FAO (2005) - some indications (still weak) that
  the trend towards overexploitation has leveled
  off - and perhaps about to be reversed

37
Marine Protected Areas (MPAs)

• In passing, one policy that is being advocated is
  that of sealing off segments of fisheries, as no
  fishing zones (MPAs)
• To be seen as a supplement to other fisheries
  management measures, not as an alternative still
  have the incentive problem
• Economic case for MPAs act as a buffer against
  unavoidable management errors
• similar to a financial portfolio holder putting
  part of portfolio in low yield liquid assets

38
International Fisheries Management

• Shared fish stocks the big international issue
• review of categories transboundary and
  straddling
• Start off with transboundary stocks, which in
  1982, was THE shared fish stock issue
• reasons for
• Would argue that EU Common Fisheries Policy can
  be seen as a cooperative transboundary stock
  management program, with cooperative mechanism,
  which is strong by world standards

39
Management of Transboundary Stocks

• 1982 UN Convention coastal states sharing
  resource must seek to cooperate, but not required
  to reach agreement
• thus non-cooperative management allowed-the
  default option
• Two questions for economists
• what are the consequences, if any, of the
  default option?
• what conditions must be met, if cooperative
  management regime is to be stable over long run?

40
Strategic Interaction

• There will (except in unusual circumstances) be a
  strategic interaction between/among states
  sharing resource
• harvest plans of one state will affect harvest
  plans of other states.
• economists forced to recognize strategic
  interaction, which they do by drawing upon
  theory of such interaction better known as game
  theory
• 2005 Nobel Prize in Economics -T. Schelling and
  R. Auman -Nobel citation
• Why do some groups of ---countries succeed in
  promoting cooperation, while other suffer from
  conflict? Schelling and Auman have established
  game theory as the dominant approach to this age
  old question.

41
Non- cooperative Management(the default option)

• Two classes of games competitive and cooperative
• To answer Question (1), draw upon theory of
  competitive games
• The answer serious risk that the players will
  be driven to adopt inferior, and possibly
  destructive, polices
• The Prisoners Dilemma (PD) -worlds most
  famous competitive game
• The case of Pacific salmon -Canada and the US

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Pacific Salmon

• Canada and the US agreed in late 60s to manage
  cooperatively salmon resources from northern
  California to Gulf of Alaska
• very difficult, but negotiators driven on by
  manifestations of Prisoners Dilemma (PD),
  including fish wars
• treaty signed in 1985, but seized up in early
  90s for 6 years. During period of treaty
  paralysis, PD returned with a vengeance.
• Conclusion cooperation does matter Question (2)
  must be addressed head on

44
Cooperative Management

• Some requirements for stable cooperative
  management arrangement
• effective intra-EEZ management
• every player to receive economic benefits at
  least as great as it would get under
  non-cooperation
• stunningly obvious, but often ignored in practice

45
Some More Requirements

• c. maximize scope for bargaining through side
  payments (transfers)
• The North Atlantic Salmon Fund
• d. resiliency. Every arrangement likely to be
  subject to unpredictable environmental or
  economic shocks. If arrangement lacks resilience
  in face of such shocks, it will founder
• Pacific salmon again
• Norwegian Spring Spawning Herring

46
Straddling Stock Management

• Everything that we said about transboundary stock
  management holds, question - what needs to be
  added, if anything?
• Non-cooperative management - nothing more needs
  to added, except that threat of a Prisoners
  Dilemma type of outcome even greater , e.g.
  Grand Banks of Newfoundland

• High Seas (light blue) and EEZs (dark blue),

47
Cooperative Management of Straddling Stocks

• Cooperative management of straddling stocks more
  complex than that of transboundary stocks
• Straddling stocks to be managed through RFMOs,
  with coastal, and distant water, fishing states
  as participants -e.g WCPFC
• Two issues
• illegal vs. unregulated fishing, and free
  riding
• the New Member problem

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Illegal vs. Unregulated Fishing and Free Riding

• Non-members of RFMO fishing unauthorized in a
  members EEZ are guilty of illegal fishing- can
  be dealt with firmly.
• If non-members do same thing in high seas portion
  of RFMO - engaged in unregulated fishing -
• bad, but not clear what can be done about it
• Unregulated fishing open invitation to free
  riding, which can easily undermine RFMO

50
New Member Problem

• Under UN Fish Stocks Agreement , charter RFMO
  member cannot bar outright new members/entrants
• New Members and implicit free riding
• implicit free riding as damaging as the explicit
  form
• Turning poachers into gamekeepers and implicit
  vs. explicit free riding - the Great Dilemma

51
The Great Dilemma

• Recent cutting edge analysis concludes that, if
  control over unregulated fishing is weak, there
  will be cases in which there is no way out of
  the dilemma
• Implications RFMO members will have to be
  granted at least de facto property rights to
  resources in high seas portion of RFMO
• high seas be such in name only
• unregulated fishing will become illegal fishing

52
Some Conclusions

• Economics does play a central role in capture
  fisheries management -fundamental importance of
  economic incentives facing fishers and states
• Open access fisheries lead to certain
  overexploitation, because of perverse fisher
  incentives
• Incentive Adjusting approach to domestic
  management, which gives fishers incentives to
  invest in resources, showing encouraging signs of
  success
• Fisheries subsidies, however, are an ongoing
  threat

53
Some More Conclusions

• International fisheries shared stocks
  non-cooperation gives states incentive to
  overexploit resources
• Straddling stocks most difficult problem- need to
  eliminate unregulated fishing, which can be seen
  as arising from a Freedom of the Seas hangover