Fisheries and Aquatic Resources

Caspian EVE 2005/UNDP and WBI JohCaspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Resourcesn A. Dixon, Fisheries and Aquatic Resources

GEF

Session 4

Fisheries and Aquatic Fisheries and Aquatic ResourcesResources

John A. Dixon from materials prepared by

J. Vincent, T. Sterner, J.E. Padilla, and Marian delos Angeles

[email protected]

World Bank Institute

Ashgabad, November, 2005

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Allocating Scarce Allocating Scarce Resources: the FisheriesResources: the Fisheries

•OptimalOptimal fisheries fisheries managementmanagement•““Tragedy of the Commons”Tragedy of the Commons”•Regulation of public fisheriesRegulation of public fisheries•Common property resourcesCommon property resources


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1. Simple fishery model1. Simple fishery model• Fish growth is an Fish growth is an

instantaneous, logistic instantaneous, logistic function of fish stock function of fish stock

• XXMSYMSY = maximum sustained = maximum sustained yield stockyield stock

• Growth is highest Growth is highest • Catch at Catch at FF**(X(X) or lower ) or lower

can be sustained can be sustained foreverforever

• Any catch below this amount Any catch below this amount (e.g., (e.g., FF11((XX)) can be generated )) can be generated by either of two fish stocks, by either of two fish stocks, one small and one largeone small and one large

• kk = carrying capacity = carrying capacity


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Convert to economic termsConvert to economic terms• Change horizontal axis Change horizontal axis

from fish stock ( from fish stock (XX) ) to fishing effort (to fishing effort (EE))

• Reverses direction of axis: Reverses direction of axis: when stock is low, effort when stock is low, effort must be highmust be high

• Change vertical axis to Change vertical axis to moneymoney

• Total revenue (Total revenue (TRTR) ) • = Price (= Price (PP) ) × Catch (× Catch (HH))

• Add total cost function:Add total cost function:• TC = Unit cost (TC = Unit cost (cc) ) × Effort× Effort

• Rent = TR – TCRent = TR – TC


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Optimal managementOptimal management

• Suppose only one Suppose only one fisher. How much effort fisher. How much effort should he apply?should he apply?

• EE**, where profit (“rent”) , where profit (“rent”) is maximizedis maximized– MEYMEY: “maximum : “maximum

economic yield”economic yield”• Note: Note: MEYMEY is left of is left of MSYMSY

– Optimal harvest (Optimal harvest (HH**) is ) is less than the less than the MSYMSY harvestharvest

– But rent is larger than But rent is larger than at at MSYMSY


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Marginal analysisMarginal analysis

• Can show that Can show that MEYMEY point is where point is where marginal revenue (marginal revenue (MRMR) equals ) equals marginal cost (marginal cost (MCMC))

• For the marginal unit of effort:For the marginal unit of effort:– Marginal rent = 0Marginal rent = 0– Average rent > 0Average rent > 0


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Which approach conserves Which approach conserves more fish?more fish?

• Goal of traditional fisheries management: Goal of traditional fisheries management: achieve achieve MSYMSY

• In contrast, the economist aims for In contrast, the economist aims for MEYMEY• Relative to Relative to MSYMSY, at , at MEYMEY::

– Fish catch is lowerFish catch is lower– Fishing profits are higherFishing profits are higher– Fishing effort is lowerFishing effort is lower– Fish stock is higherFish stock is higher

• MEY more fish is conservedMEY more fish is conserved


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2. 2. Tragedy of the Commons: Tragedy of the Commons: Property rights and Property rights and environmental degradationenvironmental degradation

• Property rights are often not well-defined for Property rights are often not well-defined for environmental resourcesenvironmental resources– ““Open access”: e.g., no restrictions on who can use the Open access”: e.g., no restrictions on who can use the

open seasopen seas– Result: “tragedy of the commons”Result: “tragedy of the commons”

• Economics research indicates that unclear Economics research indicates that unclear property rights and other institutional factors are property rights and other institutional factors are the fundamental causes of environmental the fundamental causes of environmental degradation, and not only more obvious factors degradation, and not only more obvious factors like population growth and consumptionlike population growth and consumption


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Tragedy of the CommonsTragedy of the Commons

• Now suppose users act independently and maximize individual profit Now suppose users act independently and maximize individual profit – Because fishery is common pool, Because fishery is common pool, MRMRii = = ARAR > > cc at at EE**: each user perceives : each user perceives

that his profit will rise if he increases his fishing effortthat his profit will rise if he increases his fishing effort– But if all users do this, But if all users do this, ARAR declines: it’s not fixed in the aggregate declines: it’s not fixed in the aggregate

• Users keep adding effort until Users keep adding effort until E E 00, where , where ARAR = = cc– Rent is completely dissipated, and fish stock is severely depletedRent is completely dissipated, and fish stock is severely depleted


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Stock externalityStock externality

• An individual user who adds effort beyond An individual user who adds effort beyond EE** ignores an ignores an externalityexternality that his actions that his actions impose on other usersimpose on other users

• The increase in effort causes a decrease in The increase in effort causes a decrease in fish stock fish stock

• As a result, other users catch fewer fishAs a result, other users catch fewer fish• In the aggregate, their profits decrease by In the aggregate, their profits decrease by

an amount that more than offsets the an amount that more than offsets the increase in the individual’s profit increase in the individual’s profit


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Market failure: Market failure: lack of property rightslack of property rights• Fishery is Fishery is open accessopen access: fishers (or herders, : fishers (or herders,

etc.) are free to use as much as they wishetc.) are free to use as much as they wish– No property rights: no one is excludedNo property rights: no one is excluded– ““Everybody’s property is nobody’s property”Everybody’s property is nobody’s property”

• When combined with common-pool When combined with common-pool assumption, result is rent dissipationassumption, result is rent dissipation– ““Too many boats chasing too few fish”Too many boats chasing too few fish”– Fishers earn only opportunity cost of laborFishers earn only opportunity cost of labor– In developing countries, subsistence wage: In developing countries, subsistence wage:

povertypoverty


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Example: Costa RicaExample: Costa Rica

• Illustrates unfolding of “tragedy” after Illustrates unfolding of “tragedy” after introduction of technology that permits introduction of technology that permits harvesting of unexploited fish stocks harvesting of unexploited fish stocks

• Gulf of Nicoya was Costa Rica’s most Gulf of Nicoya was Costa Rica’s most important fishery during 1970s and important fishery during 1970s and 1980s, but it rapidly became overfished1980s, but it rapidly became overfished

• Analyzed by World Resources Institute Analyzed by World Resources Institute in in Accounts OverdueAccounts Overdue (1991) (1991)


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EXAMPLE: PHILIPPINES, OVERFISHED SMALL PELAGICS

1948-1991

OPEN ACCESS

PERCENT VALUES DEVIATION

FROM MEY

FISHING EFFORT (HP) 261,600 537,900 +106CATCH (MT) 569,000 457,000 -20

RVENUES (Mil. Pesos) 7,414 5,958 -20RENTS (Mil. Pesos) 7,128 0 -100

IndicatorsTARGET:

MAXIMUMYIELD(MEY)

ACTUAL:

Source: J.E. Padilla


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CODCOD

• Cod in Atlantic Banks Cod in Atlantic Banks outside Canada outside Canada richest in the Worldrichest in the World

• Crashed 1992Crashed 1992

• 30 000 fishermen 30 000 fishermen unemployedunemployed

• No sign of recovery No sign of recovery after 10 years!after 10 years!

Canada

0

100

200

300

400

500

600

1940 1950 1960 1970 1980 1990 2000 2010


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Iceland shows the wayIceland shows the way

• World Cod catch World Cod catch down 75% since down 75% since 19681968

• 200 mile EFZ 200 mile EFZ hopefulhopeful

• Private transferable Private transferable quotas as SHAREs quotas as SHAREs in TACin TAC

• TAC decided by TAC decided by biologistsbiologists

0

50

100

150

200

250

1940 1960 1980 2000 2020

Inde

x of

Cod

cat

ches Canada

Iceland

WORLD

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3. Regulation of public 3. Regulation of public fisheriesfisheries


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Fisheries regulation Fisheries regulation optionsoptions• What are options to address open What are options to address open

access?access?

• Options are:Options are:1.1. Command-and-controlCommand-and-control: limit aggregate effort : limit aggregate effort

to to EEMEYMEY or aggregate catch to or aggregate catch to HHMEYMEY

2.2. ChargeCharge: set tax on effort or catch, to : set tax on effort or catch, to eliminate discrepancy between eliminate discrepancy between MRMR and and ARAR

3.3. Individual tradable quota Individual tradable quota (ITQ): limit (ITQ): limit aggregate catch to aggregate catch to HHMEYMEY, allocate quotas to , allocate quotas to fishers, allow them to buy and sellfishers, allow them to buy and sell


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Command-and-controlCommand-and-control

• Regulating quantity of effortRegulating quantity of effort– How to define How to define EEii: vessels? days? : vessels? days?

horsepower?horsepower?

• Regulating quantity of catchRegulating quantity of catch– E.g., fishery is closed when aggregate E.g., fishery is closed when aggregate

catch reaches quotacatch reaches quota– Inefficient: each user increases effort in Inefficient: each user increases effort in

order to catch fish before the quota is order to catch fish before the quota is filledfilled


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ChargesCharges

• Tax on effort: same problem as Tax on effort: same problem as regulating quantity of effortregulating quantity of effort

• Tax on catch: easier than taxing Tax on catch: easier than taxing effort (because catch is easier to effort (because catch is easier to measure), but rarely donemeasure), but rarely done– Politically unpopularPolitically unpopular


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ITQsITQs

• Seemingly best of the options: limits Seemingly best of the options: limits aggregate catch to MEY level, in a aggregate catch to MEY level, in a cost-effective waycost-effective way– Low-cost fishers outcompete others for Low-cost fishers outcompete others for

quotasquotas

• See James Sanchirico and Richard See James Sanchirico and Richard Newell, “Quota-based fisheries Newell, “Quota-based fisheries management” (management” (ResourcesResources, spring , spring 2003)2003)


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CHARACTERISTICS OF SOME ITQ FISHERIESCHARACTERISTICS OF SOME ITQ FISHERIESNew ZealandNew Zealand IcelandIceland CanadaCanada ChileChile

Year; species

1986-32 species

1979-herring;1974-demersal1990-all

1991-all

1992-Red shrimp & cod

ITQ Allocation; Cost

Fishers;Initially free

Vessels;Free

Vessels;Free

Fishers;Auction

Basis Historical Historical,Capacity

70% historical;30%capacity

Auction

Property rights

Perpetual, full rights, except lobster, restricted based on share or permit holdings

Annual revocable vehicle quota;Restricted concentration & employment

Restricted based on concentration

Valid 10 years; restricted to share or permit holdings; annual auction of 10%

Enforcement

Auditing Auditing Catch Monitoring Weak; self monitoring

Payment Violation a criminal offense

Costs paid by industry

Penalties; forfeiture of quotas; informers get share

Graduated finds

Economic Results

Output=0; Employment=0;Fish Quality=+; Quota price=+

Catches=+/0; Effort=- ;Catch quality=+;Profits=+

Catch=0; Prices=+; Employment=- ;Concentration restricted

n.a.


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CHARACTERISTICS OF SOME ITQ FISHERIESCHARACTERISTICS OF SOME ITQ FISHERIESNorwayNorway AustraliaAustralia US: East CoastUS: East Coast US: FloridaUS: Florida

Year; species 1973 - Herring, mackerel, blue whiting, capelin

1984; southern blue fin tuna

1990; surf clam and ocean quahog

1992-Spiny lobster

ITQ Allocation; Cost

Vessels;Free

Fishers;Free

Vessels;Free

Fishers;Fixed price

Basis Capacity 75% Historical,25% Capacity

80% historical;20%capacity

Historical

Property rights

Restricted transfer subject to approval by Ministry of Fish

Freely tradable Quotas full property

Restricted to concentration share

Enforcement Catch Monitoring Coastal surveillance, cage tags, logbooks

Monitoring of trap tags; inadequate

Payment Graduated finds Costs paid by industry

Economic Results

Rents increased Catches/Effort=+;Rents=+;Capital used= -

Efficiency, Catch/Vessel, Rent,= +; Excess capacity = -

Number of traps= -;Landings = stable;Value of permit = +;


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World leader: New Zealand World leader: New Zealand (NZ)(NZ)

• Diverse: short-lived (squid: 1 year) vs. long-lived (orange Diverse: short-lived (squid: 1 year) vs. long-lived (orange roughy: 125+ years), inshore (diving) vs. offshore (deep-sea roughy: 125+ years), inshore (diving) vs. offshore (deep-sea fishing)fishing)– Introduced in 1986: 26 speciesIntroduced in 1986: 26 species– Today: 45 species; 85% of NZ’s commercial catchToday: 45 species; 85% of NZ’s commercial catch

• Divided EEZ into species-specific management regions, based Divided EEZ into species-specific management regions, based on populationson populations– 1 for hoki, 11 abalone1 for hoki, 11 abalone– In 200, 275 quota marketsIn 200, 275 quota markets

• Total quota based on MSYTotal quota based on MSY– Individual quotas can be split, leased, subleased, but number that Individual quotas can be split, leased, subleased, but number that

a single company can hold is limiteda single company can hold is limited• Monitoring and enforcement: detailed reporting, satellite Monitoring and enforcement: detailed reporting, satellite

tracking, on-board observerstracking, on-board observers


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Issues with NZ ITQ marketsIssues with NZ ITQ markets

• Market efficiencyMarket efficiency– Very active markets: annual average of 1,500 Very active markets: annual average of 1,500

quota sales and 9,300 leases through 2000quota sales and 9,300 leases through 2000• 44% of total catch leased in 200044% of total catch leased in 2000• Market capitalization: ~ US$2 billionMarket capitalization: ~ US$2 billion

– Small & medium companies use quota brokers; Small & medium companies use quota brokers; large companies have quota managers on stafflarge companies have quota managers on staff

– Prices have risen: fisheries becoming more Prices have risen: fisheries becoming more profitable, especially those that were initially profitable, especially those that were initially overcapitalizedovercapitalized

– Monthly quota prices for given species have Monthly quota prices for given species have converged over timeconverged over time


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• Ease of administrationEase of administration– NZ regulators report greater demand for data, less NZ regulators report greater demand for data, less

adversarial relationshipadversarial relationship• Quota values depend on information and integrity of Quota values depend on information and integrity of

systemsystem– Vs. U.S.: ~100 lawsuits pending against National Vs. U.S.: ~100 lawsuits pending against National

Marine Fisheries ServiceMarine Fisheries Service

• DistributionDistribution– Big political concern with ITQs in U.S.: will ITQs hurt Big political concern with ITQs in U.S.: will ITQs hurt

small-scale fishermen?small-scale fishermen?– NZ: 37% decline in number of quota owners; 25% of NZ: 37% decline in number of quota owners; 25% of

quota markets are “concentrated”quota markets are “concentrated”• But: most owners continue to be small or medium cos.But: most owners continue to be small or medium cos.• Which is better: sustainable but concentrated industry, Which is better: sustainable but concentrated industry,

or unconcentrated but unsustainable industry? or unconcentrated but unsustainable industry?

Issues with NZ ITQ markets Issues with NZ ITQ markets


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Fisheries policiesFisheries policiesin developing countriesin developing countries• Government objective is typically to Government objective is typically to

increase catch or employment, not to increase catch or employment, not to maximize rentmaximize rent

• Subsidies are common: boats, engines, Subsidies are common: boats, engines, gears, fuel, ice-making equipment, fish gears, fuel, ice-making equipment, fish culture…culture…– How do such subsidies affect effort? catch?How do such subsidies affect effort? catch? crowding? pollution? fishers’ income?crowding? pollution? fishers’ income?


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4. Common property 4. Common property resources: Collective actionresources: Collective action

• Is there a need for government regulation?Is there a need for government regulation?• Fishers have an incentive to craft an Fishers have an incentive to craft an

agreement with the following key features:agreement with the following key features:1.1. All fishers agree to limit their effort so that the All fishers agree to limit their effort so that the

collective effort does not exceed collective effort does not exceed EEMEYMEY

2.2. The fishers agree to hire someone to ensure that no The fishers agree to hire someone to ensure that no one cheats (common-pool assumption remains)one cheats (common-pool assumption remains)

3.3. All fishers receive a share of the rent that remains All fishers receive a share of the rent that remains after paying costs of policingafter paying costs of policing

• Why doesn’t this self-organization happen?Why doesn’t this self-organization happen?


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Common property: collective Common property: collective actionaction

• Actually, it does happen: many examples of Actually, it does happen: many examples of common property institutions in developing common property institutions in developing countries, and not just for fisheriescountries, and not just for fisheries– Common property Common property Open access Open access

• Long studied by anthropologists, long Long studied by anthropologists, long ignored by economistsignored by economists

• Our simple model predicted rent dissipation Our simple model predicted rent dissipation in part because it didn’t allow cooperation in part because it didn’t allow cooperation or repeated interaction among fishersor repeated interaction among fishers


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Attributes of long-enduring Attributes of long-enduring CPRSCPRS

• Recognition of rights to organizeRecognition of rights to organize• Clearly defined boundaries: resource and usersClearly defined boundaries: resource and users• CongruenceCongruence

– Appropriation rules and resource conditionsAppropriation rules and resource conditions: : – Distribution of benefits of appropriation and costs of rulesDistribution of benefits of appropriation and costs of rules::

• Collective-choice arrangementsCollective-choice arrangements– Individuals affected by rules can participate in modifying Individuals affected by rules can participate in modifying

themthem::• MonitoringMonitoring• Graduated sanctionsGraduated sanctions• Conflict-resolution mechanismsConflict-resolution mechanisms


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SummarySummary• There are many sustainable management There are many sustainable management

points for renewable resourcespoints for renewable resources• Economic (rents) and ecological (stocks) Economic (rents) and ecological (stocks)

characteristics vary among those pointscharacteristics vary among those points• In the absence of property rights—i.e., in open In the absence of property rights—i.e., in open

access—tragedy of commons results: rent access—tragedy of commons results: rent dissipation, stock depletiondissipation, stock depletion

• Various property rights options exist: not just Various property rights options exist: not just public or individual private, but also collective public or individual private, but also collective (common property) (common property)

Documents

Fisheries and Aquatic Resources