Fisheries and Aquatic Resources

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

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

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

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

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

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

GEF

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

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

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

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

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

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)

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

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

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

GEF
3. Regulation of public fisheries3. Regulation of public fisheries

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

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

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

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)

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.

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 = +;

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

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

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

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?

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?

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

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

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)

Fisheries and Aquatic Resources

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