Fisheries and Aquatic Resources

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Economics of sustainable catch issues, various regulatory measures to enhance fishery productivity. …

Economics of sustainable catch issues, various regulatory measures to enhance fishery productivity.

John A. Dixon
from materials prepared by
J. Vincent, T. Sterner, J.E. Padilla, and
Marian delos Angeles

johnkailua@aol.com

World Bank Institute

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  • <number>
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    Pelagic fisheries for Canada

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  • 1. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Session 4 Fisheries and AquaticFisheries and Aquatic ResourcesResources John A. Dixon from materials prepared by J. Vincent, T. Sterner, J.E. Padilla, and Marian delos Angeles johnkailua@aol.com World Bank Institute Ashgabad, November, 2005
  • 2. GEF Allocating Scarce Resources:Allocating Scarce Resources: the Fisheriesthe Fisheries •OptimalOptimal fisheries managementfisheries management •““Tragedy of the Commons”Tragedy of the Commons” •Regulation of public fisheriesRegulation of public fisheries •Common property resourcesCommon property resources
  • 3. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF 1. Simple fishery model1. Simple fishery model • Fish growth is anFish growth is an instantaneous, logisticinstantaneous, logistic function of fish stockfunction of fish stock • XXMSYMSY = maximum sustained= maximum sustained yield stockyield stock • Growth is highestGrowth is highest • Catch atCatch at FF** (X(X) or) or lower can belower can be sustained foreversustained forever • Any catch below thisAny catch below this amount (e.g.,amount (e.g., FF11 ((XX)) can be)) can be generated by either of twogenerated by either of two fish stocks, one small andfish stocks, one small and one largeone large • kk = carrying capacity= carrying capacity
  • 4. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Convert to economic termsConvert to economic terms • Change horizontal axisChange horizontal axis from fish stockfrom fish stock ((XX) to fishing effort () to fishing effort (EE)) • Reverses direction ofReverses direction of axis: when stock is low,axis: when stock is low, effort must be higheffort must be high • Change vertical axis toChange 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)) ×× EffortEffort • Rent = TR – TCRent = TR – TC
  • 5. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Optimal managementOptimal management • Suppose only one fisher.Suppose only one fisher. How much effort shouldHow much effort should he apply?he apply? • EE** , where profit (“rent”) is, where profit (“rent”) is maximizedmaximized – MEYMEY: “maximum: “maximum economic yield”economic yield” • Note:Note: MEYMEY is left ofis left of MSYMSY – Optimal harvest (Optimal harvest (HH** ) is) is less than theless than the MSYMSY harvestharvest – But rent is larger than atBut rent is larger than at MSYMSY
  • 6. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Marginal analysisMarginal analysis • Can show thatCan show that MEYMEY point is wherepoint is where marginal revenue (marginal revenue (MRMR) equals marginal) equals marginal cost (cost (MCMC)) • For the marginal unit of effort:For the marginal unit of effort: – Marginal rent = 0Marginal rent = 0 – Average rent > 0Average rent > 0
  • 7. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF
  • 8. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Which approach conserves moreWhich approach conserves more fish?fish? • Goal of traditional fisheries management:Goal of traditional fisheries management: achieveachieve MSYMSY • In contrast, the economist aims forIn contrast, the economist aims for MEYMEY • Relative toRelative 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
  • 9. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF 2.2. Tragedy of the Commons:Tragedy of the Commons: Property rights and environmentalProperty rights and environmental degradationdegradation • Property rights are often not well-defined forProperty rights are often not well-defined for environmental resourcesenvironmental resources – ““Open access”: e.g., no restrictions on who can use the openOpen access”: e.g., no restrictions on who can use the open seasseas – Result: “tragedy of the commons”Result: “tragedy of the commons” • Economics research indicates that unclear propertyEconomics research indicates that unclear property rights and other institutional factors are the fundamentalrights and other institutional factors are the fundamental causes of environmental degradation, and not only morecauses of environmental degradation, and not only more obvious factors like population growth and consumptionobvious factors like population growth and consumption
  • 10. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Tragedy of the CommonsTragedy of the Commons • Now suppose users act independently and maximize individual profitNow suppose users act independently and maximize individual profit – Because fishery is common pool,Because fishery is common pool, MRMRii == ARAR >> cc atat EE** : each user: each user perceives that his profit will rise if he increases his fishing effortperceives that 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 aggregatedeclines: it’s not fixed in the aggregate • Users keep adding effort untilUsers keep adding effort until EE 00 , where, where ARAR == cc – Rent is completely dissipated, and fish stock is severely depletedRent is completely dissipated, and fish stock is severely depleted
  • 11. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF
  • 12. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Stock externalityStock externality • An individual user who adds effort beyondAn individual user who adds effort beyond EE** ignores anignores an externalityexternality that his actions impose onthat his actions impose on other usersother users • The increase in effort causes a decrease in fishThe increase in effort causes a decrease in fish stockstock • As a result, other users catch fewer fishAs a result, other users catch fewer fish • In the aggregate, their profits decrease by anIn the aggregate, their profits decrease by an amount that more than offsets the increase inamount that more than offsets the increase in the individual’s profitthe individual’s profit
  • 13. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Market failure:Market failure: lack of property rightslack of property rights • Fishery isFishery is open accessopen access: fishers (or herders, etc.): fishers (or herders, etc.) are free to use as much as they wishare 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 assumption,When combined with common-pool assumption, result is rent dissipationresult 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: povertyIn developing countries, subsistence wage: poverty
  • 14. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Example: Costa RicaExample: Costa Rica • Illustrates unfolding of “tragedy” afterIllustrates unfolding of “tragedy” after introduction of technology that permitsintroduction of technology that permits harvesting of unexploited fish stocksharvesting of unexploited fish stocks • Gulf of Nicoya was Costa Rica’s mostGulf of Nicoya was Costa Rica’s most important fishery during 1970s and 1980s,important fishery during 1970s and 1980s, but it rapidly became overfishedbut it rapidly became overfished • Analyzed by World Resources Institute inAnalyzed by World Resources Institute in Accounts OverdueAccounts Overdue (1991)(1991)
  • 15. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF EXAMPLE: PHILIPPINES, OVERFISHED SMALL PELAGICS 1948-1991 OPEN ACCESS PERCENT VALUES DEVIATION FROM MEY FISHING EFFORT (HP) 261,600 537,900 +106 CATCH (MT) 569,000 457,000 -20 RVENUES (Mil. Pesos) 7,414 5,958 -20 RENTS (Mil. Pesos) 7,128 0 -100 Indicators TARGET: MAXIMUM YIELD (MEY) ACTUAL: Source: J.E. Padilla
  • 16. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF CODCOD • Cod in Atlantic BanksCod in Atlantic Banks outside Canadaoutside Canada richest in the Worldrichest in the World • Crashed 1992Crashed 1992 • 30 000 fishermen30 000 fishermen unemployedunemployed • No sign of recoveryNo 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
  • 17. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Iceland shows the wayIceland shows the way • World Cod catchWorld Cod catch down 75% since 1968down 75% since 1968 • 200 mile EFZ hopeful200 mile EFZ hopeful • Private transferablePrivate transferable quotas as SHAREs inquotas as SHAREs in TACTAC • TAC decided byTAC decided by biologistsbiologists0 50 100 150 200 250 1940 1960 1980 2000 2020 IndexofCodcatches Canada Iceland WORLD
  • 18. GEF 3. Regulation of public fisheries3. Regulation of public fisheries
  • 19. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Fisheries regulation optionsFisheries regulation options • What are options to address open access?What are options to address open access? • Options are:Options are: 1.1. Command-and-controlCommand-and-control: limit aggregate effort to: limit aggregate effort to EEMEYMEY or aggregate catch toor aggregate catch to HHMEYMEY 2.2. ChargeCharge: set tax on effort or catch, to eliminate: set tax on effort or catch, to eliminate discrepancy betweendiscrepancy between MRMR andand ARAR 3.3. Individual tradable quotaIndividual tradable quota (ITQ): limit aggregate(ITQ): limit aggregate catch tocatch to HHMEYMEY, allocate quotas to fishers, allow, allocate quotas to fishers, allow them to buy and sellthem to buy and sell
  • 20. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Command-and-controlCommand-and-control • Regulating quantity of effortRegulating quantity of effort – How to defineHow to define EEii: vessels? days?: vessels? days? horsepower?horsepower? • Regulating quantity of catchRegulating quantity of catch – E.g., fishery is closed when aggregateE.g., fishery is closed when aggregate catch reaches quotacatch reaches quota – Inefficient: each user increases effort inInefficient: each user increases effort in order to catch fish before the quota is filledorder to catch fish before the quota is filled
  • 21. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF ChargesCharges • Tax on effort: same problem asTax on effort: same problem as regulating quantity of effortregulating quantity of effort • Tax on catch: easier than taxing effortTax on catch: easier than taxing effort (because catch is easier to measure),(because catch is easier to measure), but rarely donebut rarely done – Politically unpopularPolitically unpopular
  • 22. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF ITQsITQs • Seemingly best of the options: limitsSeemingly best of the options: limits aggregate catch to MEY level, in a cost-aggregate catch to MEY level, in a cost- effective wayeffective way – Low-cost fishers outcompete others forLow-cost fishers outcompete others for quotasquotas • See James Sanchirico and RichardSee James Sanchirico and Richard Newell, “Quota-based fisheriesNewell, “Quota-based fisheries management” (management” (ResourcesResources, spring 2003), spring 2003)
  • 23. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF CHARACTERISTICS OF SOME ITQ FISHERIESCHARACTERISTICS OF SOME ITQ FISHERIES New ZealandNew Zealand IcelandIceland CanadaCanada ChileChile Year; species 1986- 32 species 1979-herring; 1974-demersal 1990-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.
  • 24. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF CHARACTERISTICS OF SOME ITQ FISHERIESCHARACTERISTICS OF SOME ITQ FISHERIES NorwayNorway 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 = +;
  • 25. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF World leader: New Zealand (NZ)World leader: New Zealand (NZ) • Diverse: short-lived (squid: 1 year) vs. long-lived (orange roughy: 125+Diverse: short-lived (squid: 1 year) vs. long-lived (orange roughy: 125+ years), inshore (diving) vs. offshore (deep-sea fishing)years), inshore (diving) vs. offshore (deep-sea 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 onDivided EEZ into species-specific management regions, based on populationspopulations – 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 a singleIndividual quotas can be split, leased, subleased, but number that a single company can hold is limitedcompany can hold is limited • Monitoring and enforcement: detailed reporting, satellite tracking, on-Monitoring and enforcement: detailed reporting, satellite tracking, on- board observersboard observers
  • 26. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Issues with NZ ITQ marketsIssues with NZ ITQ markets • Market efficiencyMarket efficiency – Very active markets: annual average of 1,500 quotaVery active markets: annual average of 1,500 quota sales and 9,300 leases through 2000sales 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 profitable,Prices have risen: fisheries becoming more profitable, especially those that were initially overcapitalizedespecially those that were initially overcapitalized – Monthly quota prices for given species haveMonthly quota prices for given species have converged over timeconverged over time
  • 27. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF • Ease of administrationEase of administration – NZ regulators report greater demand for data, lessNZ regulators report greater demand for data, less adversarial relationshipadversarial relationship • Quota values depend on information and integrity of systemQuota values depend on information and integrity of system – Vs. U.S.: ~100 lawsuits pending against National MarineVs. U.S.: ~100 lawsuits pending against National Marine Fisheries ServiceFisheries Service • DistributionDistribution – Big political concern with ITQs in U.S.: will ITQs hurt small-Big political concern with ITQs in U.S.: will ITQs hurt small- scale fishermen?scale fishermen? – NZ: 37% decline in number of quota owners; 25% of quotaNZ: 37% decline in number of quota owners; 25% of quota markets are “concentrated”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, orWhich is better: sustainable but concentrated industry, or unconcentrated but unsustainable industry?unconcentrated but unsustainable industry? Issues with NZ ITQ marketsIssues with NZ ITQ markets
  • 28. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Fisheries policiesFisheries policies in developing countriesin developing countries • Government objective is typically toGovernment objective is typically to increase catch or employment, not toincrease catch or employment, not to maximize rentmaximize rent • Subsidies are common: boats, engines,Subsidies are common: boats, engines, gears, fuel, ice-making equipment, fishgears, 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?
  • 29. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF 4. Common property resources:4. Common property resources: Collective actionCollective action • Is there a need for government regulation?Is there a need for government regulation? • Fishers have an incentive to craft an agreementFishers have an incentive to craft an agreement with the following key features:with the following key features: 1.1. All fishers agree to limit their effort so that the collectiveAll fishers agree to limit their effort so that the collective effort does not exceedeffort does not exceed EEMEYMEY 2.2. The fishers agree to hire someone to ensure that no oneThe fishers agree to hire someone to ensure that no one cheats (common-pool assumption remains)cheats (common-pool assumption remains) 3.3. All fishers receive a share of the rent that remains afterAll fishers receive a share of the rent that remains after paying costs of policingpaying costs of policing • Why doesn’t this self-organization happen?Why doesn’t this self-organization happen?
  • 30. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Common property: collective actionCommon property: collective action • Actually, it does happen: many examples ofActually, it does happen: many examples of common property institutions in developingcommon property institutions in developing countries, and not just for fisheriescountries, and not just for fisheries – Common propertyCommon property ≠≠ Open accessOpen access • Long studied by anthropologists, long ignoredLong studied by anthropologists, long ignored by economistsby economists • Our simple model predicted rent dissipation inOur simple model predicted rent dissipation in part because it didn’t allow cooperation orpart because it didn’t allow cooperation or repeated interaction among fishersrepeated interaction among fishers
  • 31. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF Attributes of long-enduring CPRSAttributes of long-enduring CPRS • 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 modifyingIndividuals affected by rules can participate in modifying themthem:: • MonitoringMonitoring • Graduated sanctionsGraduated sanctions • Conflict-resolution mechanismsConflict-resolution mechanisms
  • 32. Caspian EVE 2005/UNDP and WBI John A. Dixon, Fisheries and Aquatic Re GEF SummarySummary • There are many sustainable managementThere 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., inIn the absence of property rights—i.e., in open access—tragedy of commons results:open access—tragedy of commons results: rent dissipation, stock depletionrent dissipation, stock depletion • Various property rights options exist: not justVarious property rights options exist: not just public or individual private, but also collectivepublic or individual private, but also collective (common property)(common property)