Dynamics of Permit Transfersin Alaska Salmon Fisheries

Gunnar KnappProfessor of Economics

Institute of Social and Economic ResearchUniversity of Alaska AnchorageGunnar.Knapp@uaa.alaska.edu

907-786-7717

Presented at CNREP 2010

Challenges of Natural Resource Economics & PolicyNew Orleans, Louisiana

May 27, 2010

Management systems have been introduced in numerous fisheries worldwide which restrict participation in the fishery

to holders of access rights

• Permits—right to participate in a fishery– Alaska example: Salmon limited entry permits

• Catch shares—right to harvest a share of the total allowable catch– Alaska example: Halibut individual fishing quotas (IFQs)

Management systems based on access rights bring significant economic benefits.

• More sustainable fisheries• More efficient and profitable fisheries

– Higher catches– Lower costs– Higher prices

An important issue which arises with access rights in where the holders of the access rights live. Where they live may have important

economic and social consequences for regions and communities,by affecting:

• where fish are landed and processed• where vessels are home-ported• where fishing income is spent• where fishing crew are hired• opportunities for young people to learn about and enter into fishing• the extent to which communities are (and perceive themselves as)

fishing communities.

Factors which may affect where holders of access rights include:

• Allocation of rights among residents of different regions and communities

• Migration of rights holders between regions and communities• Transfers of rights between residents of different regions and

communities

Transferability of access rights is controversial.

Most mainstream economists—and many fishermen—argue that transferability is desirable.

• Tietenberg (widely used resource economics textbook):

– “Quotas should be freely transferable among fishermen. . . . With transferability, the entitlement to fish flows naturally to those gaining the most benefit from it because their costs are lower. Transferable quotas also encourage technological progress. Adopters of new cost-reducing technologies can make more money . . .”

• A practical method of facilitating entry and exit from the fishery

• Permit holders benefit from being able to sell to the highest bidder

Other social scientists, in particular anthropologists—and some fishermen--express significant concerns about transferability.

• Windfall gains to initial recipients• Difficulty of entry for new participants• Transfers of access rights away from communities

I have been studying issues associated with transfers ofAlaska salmon limited entry permits.

• 26 Alaska salmon fisheries• Each fishery defined in terms of a geographic area and type of

fishing gear.• Limited entry implemented in mid-1970s• Only permit-holders may deliver commercially harvested salmon• Permits were “initially allocated” for free to persons with a history of

participation in the fisheries• “Point” system for determining who received permits favored local

residents• 11,047 transferable limited entry permits have been initially

allocated, beginning in 1975• Permits are transferable by gift, inheritance or sale

Two types of issues are important to Alaskans with regard to geographic distribution of permit holdings

• Are permit holders Alaskans?• Are permit holders “local residents” who live in the region where the

fishery occurs?

Terminology

People who live in the region where the fishery

occurs

Local residents

Alaskans

Local residents

People who live in other parts of Alaska

Other Alaskans Non-Local

residentsPeople who live outside Alaska

Non-Alaskans

Non-Alaskans

Significant shares of Alaska salmon permits areheld by non-local residents and non-Alaska residents.

These shares have increased over time.

Who Holds Limited Entry Permits for Alaska Salmon Fisheries?

0%

20%

40%

60%

80%

100%

Initial allocation 2008 year-end

Non-AlaskaResidents

Other AlaskaResidents

LocalResidents

Alaska’s Commercial Fisheries Entry Commission (CFEC) has been tracking permit distribution for many years.

FROM THE INTRODUCTION TO THE ANNUAL CFEC PERMIT

DISTRIBUTION REPORT:“. . . Many people remain concerned that

permit transfers might result in undesirable consequences with regard to the distribution of permits. There is a concern that permits will leave the state,

or that permits will disappear from isolated fishing communities which are

local to a limited fishery, thereby eroding the economic base. Because of these

concerns about free transferability, CFEC has produced this updated report

so that the legislature, the administration, and other interested

parties will be kept accurately apprised of the facts. . . “

The causes and implications of changes in the distribution of permit holdings is a big and complex topic.

Typology of Questions

Implications

For permit holdings by local residents

For permit holdings by Alaskans

Causes

Net permit transfers between residents of different regions ? ?Net migration of permit holders between regions ? ?

My research to date has focused on the causes and implications ofnet permit transfers for permit holdings by local residents,particularly in the Bristol Bay drift gillnet salmon fishery.

Typology of Questions

Implications

For permit holdings by local residents

For permit holdings by Alaskans

Causes

Net permit transfers between residents of different regions

Main focus of my research

Net migration of permit holders between regions

My talk today is about research in progress!

• Trends in local permit holdings• Causes of changes in local permit holdings• Review of research literature• A theory of the causes of net permit transfers• Hypotheses based on this theory• Empirical evidence for hypotheses• Policy issues

Fishery code Fishery Gear & Area

Total permits issued*

Total permits fished

Total harvests(000 lbs)

Total earnings ($000)

Average earnings per permit fished

($)

Average permit price

($)

S 01A Purse Seine, Southeast 408 224 159,301 $35,545 $158,187 $50,860S 01E Purse Seine, Prince William Sound 266 115 117,732 $24,248 $199,144 $32,080S 01H Purse Seine, Cook Inlet 82 24 3,253 $1,464 $61,324 $12,680S 01K Purse Seine, Kodiak 375 135 84,246 $20,647 $153,707 $17,600S 01L Purse Seine, Chignik 96 57 10,114 $5,730 $107,723 $142,180S 01M Purse Seine, Ak Peninsula 119 46 40,120 $9,614 $202,690 $31,880S 02K Beach Seine, Kodiak 31 0 0 $0 $0 $7,140S 03A Drift Gillnet, Southeast 477 371 31,032 $16,533 $44,427 $40,100S 03E Drift Gillnet, Prince William Sound 538 503 24,218 $27,385 $54,473 $56,400S 03H Drift Gillnet, Cook Inlet 571 430 12,718 $10,617 $24,372 $30,560S 03M Drift Gillnet, Ak Peninsula 162 124 17,961 $11,069 $89,287 $64,220

S 03T Drift Gillnet, Bristol Bay 1,861 1,454 142,662 $86,176 $59,153 $66,480

S 04D Set Gillnet, Yakutat 167 116 2,068 $1,684 $14,580 $14,720S 04E Set Gillnet, Prince William Sound 30 26 1,171 $932 $36,562 $61,600S 04H Set Gillnet, Cook Inlet 738 486 12,113 $11,143 $22,884 $11,580S 04K Set Gillnet, Kodiak 188 157 15,907 $6,724 $42,658 $46,820S 04M Set Gillnet, Ak Peninsula 113 89 8,159 $4,135 $46,388 $50,820S 04P Gillnet, Upper Yukon 66 6 10 $9 $1,173 $4,800S 04T Set Gillnet, Bristol Bay 985 831 28,695 $16,957 $20,354 $20,720S 04W Gillnet, Kuskokwim 766 463 3,683 $1,371 $2,962 $6,420S 04X Gillnet, Kotzebue 166 44 967 $209 $4,658 $2,400S 04Y Gillnet, Lower Yukon 687 548 2,066 $2,573 $4,627 $8,920S 04Z Gillnet, Norton Sound 158 61 878 $489 $7,730 $4,360S 05B Hand Troll, Statewide 1,100 360 1,016 $2,063 $5,713 $7,860S 08P Fish Wheel, Upper Yukon 130 20 329 $94 $4,800 $5,920S 15B Power Troll, Statewide 961 725 16,566 $28,907 $39,838 $29,440

Total, all salmon fisheries 11,241 7,414 736,986 $326,321

*Includes both permanent and interim permits. Source: CFEC (2009A).

Selected Data for Alaska Salmon Fisheries (Averages, 2004-2008)

Alaska’s salmon fisheries

vary widely with respect

to gear, harvests,

value, permit numbers,

participation, and permit

prices.

There are significant differences between fisheries with respect to the “local” share of initial allocations as well as subsequent trends.

Share of Permanent Permits Held by Local Residents, by Fishery

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

S01A

S01E

S01H

S01K

S01L

S01M

S02K

S03A

S03E

S03H

S03M

S03T

S04D

S04E

S04H

S04K

S04M

S04P

S04T

S04W

S04X

S04Y

S04Z

S05B

S08P

S15B

In general, local permit holdings have declined for most fisheries.The extent of the decline varies widely between fisheries.

Number of Local Permits as a Share of Cumulative Initial Issues to Local Residents, Selected Alaska Salmon Fisheries (%)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Southeast driftgillnet

Cook Inlet driftgillnet

All salmonfisheries

Prince WilliamSound drift gillnet

Bristol Bay driftgillnet

Alaska Peninsuladrift gillnet

Alaska’s salmon fisheries

vary widely with respect

to the causes of changes in local permit

holdings over time.

Net Transfers

Net Migration Other causes

S01A Purse Seine, Southeast 51% 40% -10% -3% -3% -4%S01E Purse Seine, Prince William Sound 70% 38% -31% -12% -18% -1%S01H Purse Seine, Cook Inlet 98% 88% -9% -2% -2% -5%S01K Purse Seine, Kodiak 62% 52% -10% 20% -21% -8%S01L Purse Seine, Chignik 32% 42% 10% 2% 9% -1%S01M Purse Seine, Ak Peninsula 85% 55% -31% -19% -5% -7%S02K Beach Seine, Kodiak 86% 42% -44% -17% -17% -11%S03A Drift Gillnet, Southeast 66% 75% 9% 11% 2% -3%S03E Drift Gillnet, Prince William Sound 65% 47% -18% -7% -9% -1%S03H Drift Gillnet, Cook Inlet 64% 66% 3% 13% -8% -2%S03M Drift Gillnet, Ak Peninsula 61% 25% -36% -33% -1% -3%

S03T Drift Gillnet, Bristol Bay 38% 21% -17% -11% -4% -2%

S04D Set Gillnet, Yakutat 75% 62% -13% 1% -9% -5%S04E Set Gillnet, Prince William Sound 70% 23% -47% -33% -13% 0%S04H Set Gillnet, Cook Inlet 87% 79% -7% -1% -5% -2%S04K Set Gillnet, Kodiak 64% 56% -8% 20% -28% 0%S04M Set Gillnet, Ak Peninsula 85% 64% -22% 7% -22% -6%S04P Gillnet, Upper Yukon 92% 76% -16% 1% -13% -4%S04T Set Gillnet, Bristol Bay 63% 35% -29% -14% -11% -3%S04W Gillnet, Kuskokwim 100% 85% -15% 2% -7% -10%S04X Gillnet, Kotzebue 96% 60% -36% 1% -17% -20%S04Y Gillnet, Lower Yukon 96% 81% -14% 4% -14% -5%S04Z Gillnet, Norton Sound 99% 74% -25% 1% -14% -12%S05B Hand Troll, Statewide 90% 42% -48% -2% -7% -40%S08P Fish Wheel, Upper Yukon 96% 67% -29% 3% -12% -21%S15B Power Troll, Statewide 69% 77% 8% 15% -4% -3%

Source: CFEC (2009B).

Changes in Local Resident Holdings of Alaska Salmon Limited Entry Permits, 1975-2008, by Fishery(All data expressed as percentages of total permits initially issued in the fishery)

Permits initially

issued to local residents

Permits held by local

residents in 2008

Change from initial

issues to 2008

Change Attributable To:

Fishery code Fishery Gear and Area

The Bristol Bay Drift Gillnet Salmon Fishery

• World’s largest sockeye salmon fishery

• 1980-2006 average real ex-vessel value of $154 million (2006 $)

• Historically 20-40% of total value of Alaska salmon fisheries

• Limited entry management since 1975

• About 1900 permits issued

Source: www.cf.adfg.state.ak.us/region2/finfish/salmon/maps/bb_all.php

Bristol Bay drift gillnetter

Bristol Bay catches vary significantly from year to year.Record catches in the early 1990s were followed by much lower catches in the

1997-98 and 2001-2003. Since 2004 catches have rebounded significantly.

Bristol Bay Drift Gillnet Fishery Catches (millions of pounds)

0.0

50.0

100.0

150.0

200.0

250.0

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

mill

ions

of p

ound

s

Real (inflation-adjusted) prices in the Bristol Bay fishery declined dramatically from the late 1980s to 2001 due to competition from farmed salmon and other

factors. Prices have risen slightly since 2001.

Average Real Ex-Vessel Price of Bristol Bay Sockeye Salmon (2006 $)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

$/lb

(20

06 $

)

Falling catches and prices led to a dramatic decline in real ex-vessel value after the late 1980s. Value has rebounded sharply since 2002 to about $75 million

but remains less than half the record values of the late 1980s.

Real Ex-Vessel Value of Bristol Bay Drift Gillnet Fishery (millions of 2006 $)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

197

8

197

9

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

mill

ions

of

2006

$

There are twenty-six small “local” villages in the Bristol Bay region with predominantly Alaska Native populations. Historically these villages

have been heavily economically dependent on the Bristol Bay fishery.

There has been a significant decline in thenumber and share of permits held by local Bristol Bay residents.

Number of Bristol Bay Drift Gillnet Permit Holders, by Residency

0

200

400

600

800

1000

1200

1400

1600

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

num

ber

of p

erm

it h

olde

rs

Local residents Non-local residents

614 in 1978

319 in 2008

Of the 713 permits initially issued to local residents,322 permits (45%) are no longer held by local residents.

Number of Bristol Bay Drift Gillnet Permits Held by Local and Non-Local Residents

0

200

400

600

800

1000

1200

1400

1600

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

num

ber

of p

erm

its

Permits held bynon-local residents

Cumulative numberof permits initiallyissued to non-localresdidents

Cumulative numberof permits initiallyissued to localresidents

Permits held bylocal residents

391

713

While local permit holdings have declined,holdings by both other Alaskans and non-Alaska residents have increased.

Number of Bristol Bay Drift Gillnet Permit Holders, by Residency

0

200

400

600

800

1000

1200

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

num

ber

of p

erm

it h

olde

rs

Bristol Bay residents Other Alaskans Non-Alaskans

Annual changes in local permit holdings have not been uniform.

Annual Change in Local Holdings of Bristol Bay Drift Gillnet Permits

-25

-20

-15

-10

-5

0

5

10

15

20

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

annu

al c

hang

e

Net transfers have been the most important cause of declining local permit holdings over time

Total initial issues, 1975-2008 713Net change due to transfers, migration, and other causes -322

Local permit holdings at end of 2008 391

All causes -322

Net transfers -215Net migration -65Other causes -42

All causes 100%

Net transfers 67%Net migration 20%Other causes 13%

All causes -45%Net transfers -30%Net migration -9%Other causes -6%

Number of local permits

*Causes of change expressed as a percentage of the total of 713 permits initially issued to local residents over the period 1975-2008. Source: CFEC (2009B).

Causes of Change in Local Holdings of Bristol Bay Drift Gillnet Permits, 1975-2008

Causes of change in local permits

Causes of change as % of all causes

Causes of change as % of total initial issues*

Net local permit loss due to transfers declined during the 1990s.There were net gains in local permits due to transfers from 2000-2002.

Net local permit loss resumed in 2003.

Annual Change in Local Holdings of Bristol Bay Drift Gillnet Permits due to Transfers

-20

-15

-10

-5

0

5

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

annu

al c

hang

e

Net local permit loss due to migration began in the 1980sand has continued since then in all but a few years.

Annual Change in Local Holdings of Bristol Bay Drift Gillnet Permits due to Migration

-15

-10

-5

0

5

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

annu

al c

hang

e

The relative importance of transfers and migrationhas changed over time.

Causes of Change in the Number of Local Permit Holders in the Bristol Bay Drift Gillnet Fishery

-25

-20

-15

-10

-5

0

5

10

15

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

net c

hang

e in

num

ber

of lo

cal p

erm

it h

olde

rs

Net transfers Net migration

There has been little theoretical or empirical analysisof inter-regional net transfers of fishery access rights.

• Why inter-regional net transfers occur• How they are affected by economic factors• How they are affected by fisheries management policies

In Alaska, several studies of permit transfers were undertaken in the early 1980s, in response to concerns about local permit loss.

• Langdon (1980) suggested two factors contributing to local permit loss would be:– Lower average earnings of rural permit holders– Less access to capital for potential rural permit buyers

Since the early 1980s:

• The Alaska Commercial Fisheries Commission (CFEC) has carefully documented trends in transfers and permit ownership

• Almost no further analysis has been done of:– The causes of local permit decline– How local permit holdings are likely to change in the future– How local permit holdings are affected by policy

An economic theory of permit transfers

• Permit transfers among individuals• Net permit transfers between groups• Net permit transfers between “local” and “non-local” fishermen

Every individual has a potential benefit from fishingand a potential cost of fishing which determines his potential

net benefit from fishing.

Benefit from fishing

= value of fish sales

+ non-market benefit

Cost of fishing

= Operating cost

+ capital cost

+ opportunity cost

Net benefit from fishing

= Benefit from fishing

- Cost of fishing

B1 C1

Different individuals have different potential benefits, costs and net benefitsfrom fishing.

B2 C2

B3 C3

B4 C4

C2N1

N2

N3

N4

If a permit is required to fish, and permits are transferable, then every individual has a permit valuation driven by his potential net benefit from

fishing and his cost of capital

Benefit from

fishing

Cost of fishing

Net benefit from

fishing

PERMIT VALUATION

=

Maximum pricethe individual

would payto buy a permit

or

Minimum pricefor which

the individualwould sella permit

Interest rate at which individual can borrow

or

Rate of return on alternative investments

Maximum annual willingness to pay

or

Minimum annual willingness to accept

Suppose permits are not initially distributed by sale.They will not necessarily be distributed to the persons

with the highest valuations.

Valuation

Number of permits

Number of persons

Valuations of permit holders

Valuations of non-permit holders

Transfers will allocate permits to the persons with the highest valuations. These transfers are market adjustments to the initial allocation.

Valuation

Number of transfers

Number of permits

Price

PERMIT SUPPLY CURVEDistribution of valuationfor initial permit holders

PERMIT DEMAND CURVEDistribution of valuation

for non-initial permit holders

Permit demand and supplybefore market adjustment

to initial allocation

Market adjustments to the initial allocation may take time.We would expect transfers for market adjustments to the initial allocation to be relatively high at first and to decline over time.

yearsInitial allocation

Number of transfers per year

Transfers due to market adjustments to initial allocation

After adjustments to the initial allocation is complete, permits will be held by the persons with the highest valuations.

Valuation

Number of permits

Valuations of permit holders

Valuations of non-permit holders

Permit price

Number of persons

If all individual permit valuations stayed the same, then after adjustments to initial allocation are complete, there would be no more permit transfers

Valuation

Number of permits

Distribution of valuationfor permit holdersafter adjustments

Distribution of valuationfor non-permit holders

after adjustments

Permit demand and supplyafter market adjustment

to initial allocation

Price

However, individual permit valuations change over time:

• Random changes in individual circumstances– Accidents and illness– Alternative employment opportunities

• Demographic changes– Aging and death of permit holders– Entry into work force of younger non-permit holders

• Changes in environmental, economic, and policy factors– Changes in fish abundance– Changes in fish prices– Changes in fishing costs

Different relative changes in individual permit valuationwill lead to continuing transfers over time.

Valuation

Number of permits

Old price

New price

Transfers due to changes in valuations

Distribution of valuationfor permit holders

after changes in valuation

Distribution of valuationfor non-permit holders

after changes in valuation

Following market adjustments to the initial allocation transfers will continue due to changes in individual permit valuation.

yearsYear of initial

allocation

Number of transfers per year

Market adjustments to initial allocation

Market adjustments to changes in individual

permit valuation

Net permit transfers between groups will occurfor the same reasons as permits transfers among individuals.

Causes of transfersTransfers among

individuals will occur if:Net transfers among groups will occur if:

Adjustments to initial allocation

permits are not initially allocated to persons with

the highest valuations

initial allocation between groups differs from market allocation between groups

Changes in individual valuation

individuals experience different relative changes

in permit valuation

groups experience different relative changes

in permit valuation

Suppose we divide all persons into two groups.We may draw a permit valuation curve for each group.

Valuation

Number of persons

All valuations

V1

Group 2 valuations

Group 1 valuations

V2 V

If the initial allocation to the two groups differs from the market allocation, net transfers will occur between the two groups.

Valuation

V1 V2 V

Number of permits

M1 I1 M2I2

Permit price

Net transfers from Group 1

to Group 2

Net transfers to Group 2

from Group 1

If the two groups experience different relative changes in valuation, further market driven

transfers between groups may occur.Valuation

V1 V2V

NM1 M2

P

M1* M2*V2*

V*

P*

An increase in valuation for Group 2 results in further transfers from Group 1 to Group 2

Alaska salmon harvests have increased sharply since limited entry began in 1975.

Alaska Salmon Harvest Volume (all species)

0

50

100

150

200

250

300

350

400

450

50019

60

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

Source: 1980-2005: CFEC; 2006 & 2007: ADFG Preliminary Estimates

thou

sand

met

ric

tons

Rising salmon prices in the 1980s led to a dramatic increase in harvest values in the years immediately after limited entry was instituted.

Alaska Salmon Real (Inflation-Adjusted) Harvest Value

0

200

400

600

800

1000

1200

1400

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

Source: 1980-2005: CFEC; 2006 & 2007: ADFG Preliminary Estimates

mill

ions

of

2009

$

An economic theory of net permit transfers between“local” and “non-local” Alaska salmon fishermen

• “Local” permit holders face lower fixed costs of fishing– Lower transportation cots– Lower opportunity costs

• Prior to limited entry:– Catch values were low– Only persons with positive net benefits at times of low catch values

participated and received permits– These were more likely to be local fishermen

• After limited entry was imposed:– Catch values increased due to higher catches and prices– Net benefits increased relatively more for “non-local” fishermen– Market adjustments led to net transfers from “local” to “non-local”

fishermen• Following market adjustments to initial allocation net transfers reflect:

– Effects of changes in economic conditions in the fisheries– Differences in the rate of change in size of local and non-local permit-

holder populations

A simple example of the effect of an increase in fishery valuefollowing the implementation of limited entry

• All “local” fishermen face only fixed costs of CL.

• All “non-local” fishermen face only fixed costs of CN.

• CN > CL

Distribution of annual revenue

@ price = $1

Number of Locals

Number of Non-Locals

Before entry is limited, locals fish

if their annual catch > CL

INIL

Distribution of annual revenue

@ price = $1

CL

CN

Before entry is limited, non-locals

fish only if their annual catch > CL

Initial permit allocations reflect the relative geographic distribution of individuals who could fish profitably in the economic conditions

prevailing before entry was limited.

Initial permit allocations reflect who fished before entry was limited.

Distribution of annual revenue

@ price = $2

Number of Locals

Number of Non-Locals

INIL

Distribution of annual revenue

@ price = $2

CL

CN

If prices double, the marginal net benefit of fishery participation increases more for non-locals than for locals.

Marginal net

benefit

Once there is a market for permits, the price of permits reflects the marginal economic value of a permit among all potential

permit holders. If this is higher for non-local residents, permits will be transferred from locals to non-locals until the marginal

economic value is equal for the two groups.Annual revenue

Number of Locals

Annual revenue

Number of Non-Locals

IN

IL

N*N

N*L

Hypotheses:We would expect to see relatively morenet transfers from locals to non-locals:

• In the years immediately following the enactment of the program• In fisheries for which prices increased most rapidly• In years when economic conditions in the fishery have been

improving• From regions where population growth and interest in fishing among

young people is low relative to other regions• From regions where local permit holders are relatively older than

permit holders from other regions

Local permit holders have lower average gross incomes than non-local permit holders.

Average Annual Gross Earnings of Bristol Bay Permit Holders Who Fished

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Other States

Other AlaskaUrban

Other AlaskaRural

Local

Fewer local permit holders stopped fishing when economic conditions declined.

Average Participation Rates of Bristol Bay Permit Holders

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Other States

Other AlaskaUrban

Other AlaskaRural

Local

In general, fisheries with higher average earnings per permit in 1975 had lower local shares of initial permit allocations

Local Share of Initial Permit Allocations and Real Earnings per Permit in 1975

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000

Average real earnings per permit in 1975 (2008 $)

Loca

l sha

re o

f in

itial

per

mit

allo

catio

ns

Note: Number of permits used for

calculation is total initial issues through

2008

In general, the local share of initial permit allocations was lowest for the highest-valued permits by the year for which permit prices are first available

(1979)

Local Share of Initial Permit Allocations and 1979 Permit Prices

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000

Average real permit price in 1979 (2008 $)

Loca

l sha

re o

f in

itial

per

mit

allo

catio

ns

Note: 1979 is the first year for which

estimated permit values are available

for most fisheries

In general, changes in permit prices after 1979 were negatively correlated with changes in local permit ownership due to transfers.

Change in Local Share of Initial Permit Allocations Due to Transfersand Change in Real Permit Price as a % of 1979 Price

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

-400.0% -300.0% -200.0% -100.0% 0.0% 100.0% 200.0% 300.0%

change in real permit price as % of 1979 price

ne

t tr

an

sfe

rs t

o lo

cals

as

a s

ha

re o

f in

itia

l allo

catio

n

1979-1989

1989-2008

In general, the fisheries with the highest permit values have continued to have the lowest share of locally-owned permits.

Local Permit Share and Average Permit Prices, 2008

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000

Average permit price, 2008

Loca

l per

mit

shar

e, 2

008

Set-NetFisheries

Drift-NetFisheries

SeineFisheries

Over time, transfers appear to reflect both adjustment to initial allocations and changes in economic conditions.

Net Permit Transfers vs. Real Permit Price: Bristol Bay Drift Gillnet Fishery

-25

-20

-15

-10

-5

0

5

10

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

net

perm

it t

rans

fers

$

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

Rea

l Per

mit

Pri

ce

Net transfers Real Permit Price (2008 $)

A disturbing paradox:

We want fisheries to be profitable!

We want fisheries to be fished by local residents(and Alaskans).

But the more profitable a fishery is, the more likely permits are to be transferred from local to non-local residents

(and non-Alaskans).

Langdon (1980) argued that continued permit loss was likely and was a major problem:

“. . . Does [the] loss of permits by rural Alaskans . . . represent a serious problem?

If it were the case that the rural population had declined in the recent past, if it were the case that an expanding rural population was migrating to urban centers . . . at a higher rate than the rate of natural increase, if it were the case that employment opportunities in the local regions and on a statewide basis were expanding more rapidly for rural residents than their loss of permits, then one might be able to argue that the decline

merely represents natural attrition due to a greater integration of the rural population into the Alaska economy.

Since most of these ameliorating conditions do not appear to be taking place, the outflow of permits that has occurred and that potentially can

occur must be regarded as a significant threat to the rural Alaskan economic base and the well-being of rural Alaskans.”

From a recent paper by UAA Anthropologist Dr. Steve Langdon:

Alaska designers were cognizant of some local social and economic factors and sought to avoid serious economic hardship to fishermen and damage to Native Alaskan communities when initially awarding permits. There is, however, no evidence that policy makers gave any thought to the potential dynamics of market transferability of permits or the likely

patterns of resulting permit distribution.

More serious is the apparent unawareness of the contradictory objectives established by policy makers themselves for limited

entry . . . An implicit objective of Alaskan limited entry, which was nonetheless “openly discussed in the legislative process,” was to create

a “professionalized, diversified fleet” which would result from keener competition among fishermen. The lack of congruence between this

objective and an objective to sustain “less effective fishermen” in “subsistence-oriented communities” is quite clear. Lack of attention to the structural dynamics of the system and to the contradictory nature of

initial program objectives resulted in no contingency planning for the possible deleterious effects of limited entry on Native Alaska fishermen.

How can we ensure that local residents (and Alaskans)participate in our fisheries?

• To keep permit ownership local, we need to create significant advantages local residents in acquiring permits– to offset the larger size of the outside buyer pool– To offset competitive advantages of outside buyers

• Our ability to do this is limited by:– Political will– Constitutional considerations– Cost

ADDITIONAL SLIDES NOT INCORPORATED

Suppose there are two groups of permit holders,“local” and “non-local,” which differ systematically with respect to fixed

costs of fishing.

Non-local compared to local

Boat size Larger

Catch share higher

Operating cost higher

Transport cost higher

Opportunity cost of labor higher

Cost of borrowing / lower

The relative prices that local and non-local potential sellers (permit holders) would be willing to sell for are affected by many factors:

• How much they can earn from fishing, which is affected by:– How skilled they are at fishing– How aggressively they fish– What kind of boat they have– What kind of boat investments they can afford– What it costs them to go fishing—including the cost of getting

themselves and their crew to Bristol Bay• How much they could earn doing something else if they weren’t

fishing (their “opportunity cost”)• How much they need cash• Non-economic factors such as how much they enjoy fishing• The extent to which they prefer to transfer permits by gift or

inheritance rather than sell

The relative prices that local and non-local potential buyers would be willing and able to pay for permits are affected by many factors:

• How much they could earn from fishing, which is affected by:– How skilled they are at fishing– How aggressively they fish– What kind of boat they have– What kind of boat investments they can afford– What it would cost them to go fishing—including the cost of getting

themselves and their crew to Bristol Bay• How much they could earn doing something else if they weren’t fishing (their

“opportunity cost”)• Their access to capital

– How much they can borrow– What rate they can borrow it at

• Their potential tax benefits in other fisheries from fishing in Bristol Bay• Non-economic factors such as how much they enjoy fishing

Over time, changes keep happening which affect all of these different factors which affect permit transfers

• The relative numbers of local and non-local permit holders change• The relative numbers of local and non-local potential buyers change• The current permit holders get more experienced• The current permit holders get older (and some die)• Catches—and catches people expect in the future—go up and down• Prices—and prices people expect in the future—go up and down• Costs—and cost people expect in the future—go up and down• Opportunities in other fisheries get better or worse

• All these changes may affect local and non-local potential sellers differently

• All these changes may affect local and non-local potential buyers differently

SIMULATION MODEL

EMPIRICAL MODEL

Alaska’s limited entry salmon fisheries provide an extremely rich source of data for analysis of permit transfers

• 26 limited entry salmon fisheries• More than 10,000 limited entry permits• More than 30 years of data for each permit (since late 1970s)• Publicly available data for holder of each permit over time:

– Names and permanent codes for individuals– Permit holder addresses– Linked to vessel data base (vessel name, permanent vessel ID, vessel

characteristics such as length, engine type, horsepower, gear)• Other data publically available for aggregated groups:

– Fishery participation– Catches and earnings– Permit prices

• Additional non-publically available data held by CFEC potentially available for future analysis– All fish deliveries (date, volume, estimated value)

Tentative research conclusion(but more research is needed)

The more profitable a fishery is, the more likely permits are to be transferred from local to non-local residents

(and non-Alaskans).

Changes which make the fishery more profitableor which favor people who are able to invest more in the fishery

tend to increase the probability that permitswill be sold from locals to non-locals.

• As the fishery becomes more profitable:– travel costs are less of a disadvantage for non-locals– Other fishing and work opportunities for non-locals are relatively

less attractive– Permits and boats become more expensive, favoring non-locals

who can borrow more money more easily• Non-locals are more likely to be able to invest more in the fishery

because:– They have more assets they can use as collateral– They are more likely to have friends or relatives who can loan

them money– It is easier for them to do business with banks

POLICY ISSUES