Ragnar Arnason
Sustainable Economics in the
Management of Fisheries and Natural
Resources in the North Atlantic
Nordic conference on the protection of the sea and
living marine resources in the North Atlantic
Tórshavn
21-22 June 2001
Content of Talk
1. How natural resources should be utilized
- All natural resources - not just living marine ones
- General principles of optimal utilization
- Fairly theoretical but (hopefully) still practical
2. Two dimensions:
- Resources under national jurisdiction
- Resources co-utilized by foreign nations
Background
North Atlantic Communities
• Six main communities:
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Northern Norway,
Shetland,
Faroe Islands,
Iceland,
Greenland
Newfoundland
• Small and isolated
• Similar cultural background (except Newfoundland)
• Various degrees of political independence
Dependence on Natural Resources
• Heavily dependent on natural resources
• For production activity (industry)
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Living marine resources (all)
Farmland (all)
Forest and forestry (Northern Norway, Newfoundland)
Oil and minerals (N. Norway, Shetland, Greenland, Newf.l, Faroes)
Hydro- and geothermal energy (N. Norway, Iceland, Newf.l)
Tourism (all)
• For the quality of life
– Pristine and clean natural environment
– Maintenance of cultural traditions and identity
Dependence on natural resources
has not diminished substantially
• New industries depend on natural resources
directly and indirectly
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Power intensive industries
Tourism (pristine environment and culture)
Services and commerce (partly based on natural resource activities)
Even high tech industries (people environment)
• Without their unique natural resources the North
Atlantic communities could hardly exist
Optimal use of natural resources
• Social importance implies the need for
optimal use
• Optimal use = maximization of flow of
benefits from the resources over time
(Nota bene: market and non-market benefits)
• Optimality is crucial
– Anything else implies social waste
Optimal use and Sustainability
• Optimal use may or may not imply sustainability
– Renewable resources only
– Optimality sometimes implies depletion
• However…..
– Maximum present value of benefits usually implies sustainability
– Communities’ desire to last implies sustainability
– International pressure for sustainable resource use
In a sense North Atlantic communities are
custodians of their natural resources
on behalf of the global community
 Sustainability!
Resources under
Domestic Jurisdiction
Good Resource Use
• Optimal utilization paths
– Not constant utilization over time
• Identification of optimal paths
– Science (geology, biology, engineering, economics,
mathematics, statistics, sociology etc.)
• Implementation of these paths
– The art of resource management (system design,
politics, administration, management, enforcement
technology, judicial processes)
Identification of optimal paths
• Find feasible utilization paths
– Science, biology, geology etc.
• Select the optimal path
– I.e. the one that maximizes present value of
benefits over time
– Economics, mathematics, statistics
Optimal non-renewable resource use:
An example
Quantity
Extraction
path
T
Time
Optimal renewable resource use:
An example
Quantity
Extraction
paths
Long term
sustainable
extraction
rate
Time
Implementation of optimal paths
• Management system
– Rules influencing resource use (E.g. turfs, quotas,
taxes, licences etc.)
• Enforcement system
– Methods to enforce the management system
(monitoring, inspection, policing)
• Judicial system
– A system for sanctioning violators
(courts, penalties etc.)
The Management System
Three categories of methods
1. Quantity constraints (commands)
2. Corrective taxes/subsidies (price corrections)
3. Property rights
Quantity Constraints
• Aim: Alter natural resource use by commands
• Examples:
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Restrictions on investments
Equipment requirements
Material restrictions
Restrictions on operating days
Production restrictions
• Generally economically inefficient
– Do not generate social benefits
– Costly to implement
– But may conserve natural resources
The Simplest Natural Resource Model
Marginal
costs
Values, $
Maxmum
Benefits
Marginal
benefits
Q*
Q0
Resource use
Quantity Constraints
Marginal
costs
Values, $
Marginal
benefits
New
marginal
benefits
Q*=Qrestricted
Q0
Resource use
Corrective Taxes/Subsidies
(Green taxes/subsidies)
• Aim: Alter incentives for natural resource use
• Examples
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Tax on pollution (green taxes)
Tax on fish catch
Subsides for pollution abatement equipment
Subsidies for reduction of land improvement
• Can be economically efficient in theory
– But difficult to administer correctly
Nota bene: Increased government revenues?
The effect of corrective taxes
Values, $
Marginal
costs
Marginal
benefits
Tax
Q*
Q0
Resource use
Property Rights
• Aim: Alter incentives for natural resource use
• Examples
– Mining rights
– Territorial use rights (land use)
– Fish quotas (IQs/ITQs)
• Economically efficient in theory (... and practice)
– But often administratively demanding
– Sometimes not feasible to implement
Nota bene: Property rights are in many ways socially natural
Property rights are foundation for the market system
Effects of property rights
Values, $
Marginal
costs
Marginal
benefits
Property
price
Q*
Q0
Resource use
Property Rights and Equity
• The institution of property rights is often
assumed to be inequitable
• However, property rights are compatible
with any desired distribution of benefits
– Initial allocation of property rights
– Taxation and redistribution of resource rents
The International Dimension
Influences from other countries
• None of the North Atlantic communities has
full control over their natural resources
• Examples of external impacts:
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Water and airborne emissions (pollution)
Fishing from common stocks
Mining (from common resources)
Competing uses of resources (transport, military
activities, turism etc.)
International shared resources
• Lead to common property problems
• Just like unmanaged use of domestic
resources
 Potential huge losses
(of all possible economic gains)
The international situation
Values, $
Marginal
costs
Marginal
benefits
Q*
Q0
Resource use
Other international influences
• Political pressure for utilization of resources
– Often induced by environmental organizations
• Amounts to extortion
– Either you do it right, or else
• Extortion is generally economically
inefficient
• Much better to “purchase” conservation
(….from harvesters)
Or, for that matter, “purchase extraction rights
(….from conservationsists)
Q* is trading equilibrium
Values, $
Marginal
costs
Marginal
benefits
Q*
Q0
Resource use
How do deal with international
resources: ?
• Particularly difficult because lack of
management authority (unlike within
nations)
 need super-national authority that unifies
management responsibilities
• If so, we are essentially in the single
country management framework
 Similar management solutions
International resource management
• National property rights as widely as
possible
– Benefits the whole
– But note problems with distribution of benefits
 Often difficult bargaining games
• But technical (and perhaps political) limits
to property rights
 Need also commonly managed areas
 common property rights, international taxes
Conclusions
• North Atlantic communities are heavily
dependent upon continued use of natural
resources
• May also be regarded as custodians of a
global natural resource heritage
 Morally obliged to utilize these resources
as efficiency as possible
This implies two things:
• Implement sensible resource management
system domestically
(i) Property rights
(ii) Corrective taxes/subsidies
• Work toward international agreement on the
sensible use of shared resources
– This should be based on the same general
management principles
End
System of current in the North Atlantic