Costs of Fisheries Management: The Cases of Iceland, Norway and
Newfoundland
Ragnar Arnason
Department of Economics
University of Iceland
and
Rögnvaldur Hannesson
Centre for Fisheries Economics
The Norwegian School of Economics and Business Administration
and
William E. Schrank
Department of Economics
Memorial University of Newfoundland
May 1999
Introduction
The need for fisheries management stems fundamentally from the fact that fish
resources are common property. It is well known, both from theory and experience,
that common property resources will be overexploited and possibly irreversibly
depleted unless subjected to appropriate fisheries management. Due to the pervasive
external effects involved in the fishing activity, fisheries management is clearly
beyond the reach of any single agent. Fisheries management requires either collective
action at the industry level or outside intervention.
Taking it for granted that the purpose of fisheries management is to increase the flow
of net economic benefits from the fishing activity, the costs of operating the fisheries
management system itself are obviously among those that have to be subtracted to
arrive at the net benefits of fishing. This means that the cost of management will, in
general, influence the optimal management of the fishery. In spite of these rather
obvious truths, the cost of fisheries management has hitherto received scant attention
in the academic literature on fisheries economics.1 A possible explanation for this
omission is the implicit assumption that management costs are generally small
relative to their benefits and consequently of minor importance. Examination of the
actual fisheries management costs presented in this study shows that this assumption
is far from the truth.
The existence of significant fisheries management costs raises the question of how
these costs should be financed. Who should pay and why? This is a well known
problem in public finance and the pricing of public services (see e.g. Samuelson 1969,
and Atkinson and Stiglitz 1980). More recently the same question has been
increasingly framed in terms of who should be the provider of management services,
the government or the industry (Andersen, Sutinen, and Cochran 1998, Arnason
1999).
Although largely absent from the academic literature, management costs and how
they should be financed are receiving increasing attention in practical fisheries
management worldwide. In New Zealand and Australia a significant part of the cost
of fisheries management is recovered from the industry, and in Australia attempts are
under way to increase cost recovery.2 Management cost recovery is a component of
the Icelandic ITQ fisheries management system. It has recently been introduced in
certain fisheries in Canada and the United States (Milazzo, 1998), and it has been
considered in Great Britain (Hatcher and Pascoe, 1998).
1
Thus, the most influential theoretical studies in fisheries economics (Gordon 1954, Scott 1955, Smith
1968, Plourde 1970, Clark and Munro 1975) as well as the textbooks (Clark 1976, Anderson, 1986 and
Hannesson, 1993) all derive optimal harvesting programs ignoring the cost of implementing these
programs. Empirical modeling, presumably taking its cue from the theoretical models, also largely
ignore the costs of management (Arnason, 1990, Bjørndal 1987, Ólafsson et al. 1994, Placenti et al.
1992), and Schrank, Roy and Tsoa (1986). Noteworthy exceptions are Sutinen and Andersen (1985)
and Anderson and Lee (1986).
2
About one half of the costs of the Australian Fisheries Management Authority, which deals with the
Commonwealth fisheries of Australia, is classified as “recoverable”, and it is the policy of the
Commonwealth government to recover all of these (DPIE, 1994). In New Zealand about 5 percent of
the value of fish landings is collected for the purpose of cost recovery. This covers a large part,
although not all, of New Zealand’s fisheries management costs.
2
A common argument for cost recovery is that the industry itself is the main
beneficiary of management and hence should pay for it.3 This approach seems to
derive from ideas of justice and fairness. A more economic approach to this problem
would focus on the resource allocation effects of different methods of financing
management costs. From this perspective, recovering management costs from the
industry has certain obvious advantages. For instance, it might provide a much needed
link between the provision and use of fisheries management services. Currently, the
fishing industry is the user and, presumably, the primary beneficiary of these services
while the predominant provider of the services is the government, which also, in most
countries, bears most of the costs. It stands to reason that a closer link between the
cost of providing fisheries management services and the benefits or otherwise of using
them would tend to further efficiency in the use of economic resources for
management purposes.
When links between the costs and benefits of fisheries management are largely
absent, what is it that determines the level of fisheries management services? Will
they be under-provided or over-provided? These are crucial questions, which we will
not try to answer in this paper. However, the information on fisheries management
costs in Iceland, Norway and Newfoundland, presented in the last part of this paper,
may throw some light upon this issue.
The fisheries of Iceland, Norway and Newfoundland are all sub-Arctic North Atlantic
fisheries, based on largely the same species employing similar fishing technologies,
but somewhat different in value.4 Nevertheless, it turns out that the level of
management costs, both in absolute terms and as a percentage of the total value of
landings, differs a great deal between them. To us these large differences constitute
prima facie evidence of how a weak link between payment of the costs and the
enjoyment of the benefits of fisheries management services may cause deviations
from the appropriate provision of these services. Thus, Newfoundland has by far the
highest fisheries management costs measured as a percent of the value of landings. In
spite of this, Newfoundland seems unlikely to have enjoyed the greatest benefits from
fisheries management, as indicated for instance not only by the recent collapse of her
most important groundfish stocks but also by the apparently low economic rents
generated by her fisheries. By contrast, while the resource rents in the fisheries of
Norway and Newfoundland probably are low or nonexisting the high prices of
individual transferable quotas in the Icelandic fisheries indicate the existence of
substantial economic rents (Arnason, 1996). Yet fisheries management costs are
decidedly the lowest in Iceland.
Components of fisheries management
Governments spend money on fisheries for purposes other than fisheries management.
Grants and subsidies are examples of expenditures which are not due to fisheries
management. The same applies to expenditures on navigational aids such as
3
See, e.g., Haynes, Geen and Wilks (1986), and Milazzo (1998).
Actually, the Norwegian fishery is the largest with a landed value close to one billion USD on the
average. The landed value of the Icelandic catches has been close to 800 million USD and the landed
value in Newfoundland about 200 million USD (Arnason et al. 1999, Hannesson, 1999, Schrank and
Skoda, 1999).
4
3
lighthouses, positioning systems, fishing harbors, and search and rescue operations at
sea. It is appropriate, therefore, at this point to discuss briefly what kind of activities
constitute fisheries management, the cost of which is the focal point of this paper.
Fisheries management essentially comprises the following set of activities:
 Research (biological and economic)
 Formulation, dissemination and implemention of management policy and
rules
 Enforcement of management rules.
Any sensible fisheries management must be based on an understanding of the marine
environment in which a fish stock is located and an assessment of the size and
productivity of the stock at each particular time. Also, since the purpose of fisheries
management is to increase the economic return from the fishery, it must be based on a
thorough understanding of the economics of the fishing activity and measurement of
the relevant economic parameters. To achieve the double aim of preservation of the
fish stocks and maximization of the economic return from the fishery, total catch and
fishing effort must be constrained either directly or indirectly. Fisheries management
techniques are, among other things, methods for constraining either total catch,
fishing effort, or both. Enforcement of these constraints is, for obvious reasons, an
integral part of the fisheries management activity.
Fisheries management as a public good
Fisheries management services exhibit many of the characteristics of public goods.
Public goods have two characteristics, non-rivalry in consumption and nonexcludability. Non-rivalry in consumption means that two or more persons can use the
good simultaneously without interfering with one another’s use of the good, while
non-excludability means that no one can be excluded from using the good. 5 As
already stated, fisheries management services consist primarily of (i) information
generation, (ii) the establishment of fisheries management rules and (iii) the
enforcement of these rules. Information, once generated, can be used by anyone
without reducing it. Thus, the informational or research part of fisheries management
is close to being a pure public good. Very much the same applies to the design of a
management system and its enforcement. No-one participating in the industry can be
excluded from enjoying the benefits. Also, the benefits are little if at all diminished by
the number of participants.
Given the public goods characteristics of fisheries management, the market system by
itself is ill suited to provide these services. Non-excludability essentially means that it
is difficult to charge for the services. Therefore, private industry can hardly survive in
5
A lighthouse is a good example, and a pertinent one in this context, of a public good; it does not harm
other boats if an additional boat uses a lighthouse as a navigational aide, and it would not be possible
(nor desirable) to exclude anyone from navigating with the aid of the lighthouse. Pure public goods
exhibit the full measure of these two characteristics. In the real world there may not be many pure
public goods. Thus, for instance, a public park is a public good but usually not a pure one. It can be
enjoyed simultaneously by more than one individual, but beyond a certain point an additional
individual would diminish the others' enjoyment of the park.
4
this area. Moreover, non-rivalry in use means that it is doubtful that it would be
economically appropriate to charge for these services.
It does not necessarily follow from these arguments, however, that the government
should actually provide fisheries management services.6 As pointed out above, it is
normally the fishing industry that primarily benefits from fisheries research and
management. Therefore, it is in its own interest to ensure that these services are
provided. Indeed, there is a presumption, often referred to as the Coase Theorem7, that
under the appropriate conditions agents will overcome externality problems by
negotiating the appropriate collective action, provided this maximizes the overall net
benefits.
In our view, this argument does not really apply in fisheries. There are two reasons
why the industry cannot be expected to undertake the appropriate level of information
collection and fishery regulations on its own initiative, even if such activities are
beneficial to the industry. First, the industry usually lacks the legal authority to deal
with the problems that must be solved in order to make fishery regulations successful.
This is most obvious for fish stocks that migrate between the jurisdictions of different
states or into the high seas; such problems must be dealt with at the intergovernmental level. Also, the industry typically is not authorized to bar new entrants
or to impose restrictions on its members.8 Such attempts would probably run afoul of
competition or anti-trust regulations, and there are indeed examples of such cases
from the United States.9 Second, and more fundamentally, information provision and
regulation, as discussed above, exhibit strong public goods characteristics that invite
free riding behavior on behalf of industry members.10 For these two reasons,
imposition of fisheries management and information generation from above may be
necessary to overcome the problems of under-provision of these services if their
provision were to be left to the industry itself.
Government services are not costless, however. A bureaucracy is needed to deal with
regulations, gathering and processing of information, etc. Professionals must be hired
to do stock assessment and process information gathered about fish stocks, and the
necessary equipment, such as research vessels, must be in place. The cost of these
activities must be defrayed somehow. The sums involved are not trivial. In the
Commonwealth fisheries of Australia the expenditure on fisheries management has
been estimated at 28 million Australian dollars in 1991/92 while the total value of
landings was about ten times that (273 million).11 Fisheries management costs in the
6
Provision of fisheries management services by government does not necessarily imply that these
services are being paid for by public funds.
7
Put forward by Professor Ronald Coase, of the University of Chicago (Coase, 1960).
8
This is changing, however, in some countries. The governments of the United Kingdom and the
Netherlands have delegated some of their management prerogatives to industry bodies (the so-called
Producers’ Organizations). Similar developments have occurred on both coasts of Canada.
9
White (1954) describes how the Atlantic Fishermen’s Union in New England limited the supply of
fish in order to regulate the price. This limitation would have had a conservation effect, except insofar
as it involved discarding of fish at sea. The Supreme Court of Massachusetts ruled against this
practice.
10
Balland and Platteau (1997) discuss the possibility of under-provision of fisheries management in a
self-regulating industry.
11
Hundloe (1992). In addition, there are fisheries under the jurisdiction of the individual states. These
are much more important than the Commonwealth fisheries; the total landed value of Australian
fisheries was 1170 million Australian dollars in 1990/91.
5
United Kingdom are reported to have been about 45 million pounds in 1996/97, which
corresponds to about 7.5% of the value of all landings of fish (Hatcher and Pascoe
(1998). Government expenditure in the United States on fisheries management
amounts to 15 percent of the gross revenue (Milazzo, 1998, pp. 62-63). The
expenditure on fisheries management in Norway has been about 8% of the value of
landings in recent years while in Iceland it has been about 3%, and in Newfoundland
15-25%. Even if the definition of costs, undoubtedly, is not identical in these studies,
if only because of different accounting practices across countries, these figures clearly
show that (i) fisheries management costs are high and (ii) vary substantially from one
country to another.
Cost recovery from industry
We suggest three important reasons why cost recovery from the fishing industry has
been moving up on the public agenda in several countries. First, the increasing
financial burden of various social obligations undertaken by governments in
industrially developed countries, combined with the reluctance among the general
public to pay higher taxes, has been putting government finances under an increasing
strain. This has given rise to an increasingly critical scrutiny of the public services
that are being provided and how they are being financed. Second, related to the first
reason, is the public demand for more efficiency in production in general. The
incentive effects associated with paying for public services from general government
revenue may be undesirable, as there is no link between the value of the services
provided and the cost of providing them. If those who benefit from a particular
activity are also the ones who pay for it there would be a link between the value of
these activities and their cost. Establishing such a link, therefore, is likely to enhance
economic efficiency by providing incentives to determine whether and to what extent
a particular service is worthwhile. The third reason for the increasing interest in
management cost recovery from the fishing industry is the growing realization that
many fisheries, far from being a subsistence industry, can actually yield substantial
economic rents, provided they are properly managed. Therefore, there is no need to
subsidize them by providing them with management services free of charge. In fact,
due to the common property problem, such supports may even be counterproductive.
From this perspective, it is no surprise that cost recovery is furthest along in fisheries
where an efficient fisheries management system has already been adopted.12
As far as efficiency is concerned, the question of whether management costs should
be recovered from the industry may be said to have two major aspects:
(i)
(ii)
the optimal taxation aspect,
incentive effects.
Cost recovery as optimal taxation
The benefits of fisheries management materialize in the form of a greater net
production of goods and services. This need not mean a greater production of fish.
12
Such as New Zealand, Australia, Iceland and some fisheries in Canada.
6
Economic overexploitation means that too much manpower, equipment and other
means of production have found their way to the fishing industry. Sometimes,
perhaps often, this means that the long run productivity of fish stocks has been
harmed to the extent that more fish could be caught in the long run by using less of
these factors of production. But economic overfishing always means that in the long
run more of goods and services other than fish can be produced by reducing the input
of manpower, capital, etc., in the fishery and directing it elsewhere. However, in the
short run there may not be much economic gain, because of immobility of labor and
capital.
The general level of taxes, and how they are levied, has an impact on the real side of
the economy. Both direct taxes on incomes, and indirect taxes such as the value
added tax, affect work effort and whether it is directed to production of marketed
goods and services or to activities out of reach of recorded market transactions. Taxes
on the products of specific industries, or income generated in such industries, affect
the allocation of resources by making such industries less profitable than otherwise,
thus reducing the level of production in such industries.
Would it be better, from the point of view of optimal taxation, to have the fishing
industry pay its management costs? Defraying these costs from general government
revenue adds to the general burden of taxation and the deadweight loss associated
with that taxation. Having the industry pay these costs through a tax on incomes in
the industry or a levy on its production would make it less profitable and discourage
the use of factors of production in the industry. In fisheries which are imperfectly
managed and where there is still a tendency to use too much manpower and capital
this would be a desirable effect, as it would mitigate against excessive use of factors
of production. Consider, for example, the case where a purely “biological”
management regime is introduced, for the purpose of achieving maximum sustainable
yield. One way of keeping total landings within the maximum sustainable yield limit,
used, for example, in the United States and Canada, is to stop the fishery when that
limit has been reached. Rebuilding fish stocks through such management would
eventually make the industry more profitable, but without any entry regulations the
industry would expand, until it would once more break even. This expansion would
amount to an increase in the real costs of the industry in the form of excessive fishing
gear, investment in unnecessary boats, etc., and a waste of resources for the economy
as a whole. If the industry were to pay for the cost of management it would incur
financial costs that would replace some of the real costs it would otherwise incur
before it reaches open access equilibrium. Having the industry pay the costs of
management would thus save some real resources for society.
Curiously, perhaps, this argument for having the industry pay the management costs
becomes weaker or evaporates altogether when the industry is regulated by individual
transferable quotas. In this case the limit on the total catch would ensure resource
conservation while the transferability of quotas would provide incentives for
maximizing the value of the catch and minimizing the cost of taking it. Cost recovery
from the industry would have no bearing on the size of the industry; entry into the
industry would be effectively closed by the quota system itself. Yet there is another
argument favoring cost recovery in ITQ fisheries; in an economically efficient
industry rent would be generated, the amount of which would depend on the
productivity of the stock, efficiency of the fleet, and the market price of fish, besides
7
other factors. If designed appropriately, cost recovery would only reduce the rent
captured by the firm, without having any effect on the economic efficiency in the
industry. From the point of view of optimal taxation this would constitute a gain; the
tax burden on the general public could be reduced with no detrimental real effects on
the fishing industry.
Incentive effects of cost recovery
It has already been mentioned that paying for government services out of general
government revenue provides a weak link or no link at all between what these
services are worth to the user and what they cost. This leads to well known problems
of the appropriate supply of public services for which the user does not have to pay.
Excess demand for fisheries management services is perhaps not particularly likely to
come from the industry even if they are free of charge; in fact some industry
participants tend to see at least some of these functions as an unwelcome intrusion
into their business practices. The drive for increased fisheries management may be
more likely to come from government ministries and agencies responsible for
management, with the restraint being provided by ministries of finance concerned
with the overall government budget.
Having the industry pay for fisheries management would establish a link between
what fisheries management is worth to the industry and what it costs. Clearly, the
industry would be interested in maximizing the value of the services that it gets for its
money and in minimizing what it pays for any given amount of services. It is likely
that the industry would demand, and in all probability get, influence over management
decisions if it would have to pay the management costs.
This raises the question of compatibility between the interests of the industry and the
interests of society at large. It has already been noted that fisheries management is a
public good, benefiting the industry as a whole and the society of which the industry
is a part. But is there a perfect harmony between the interests of the industry and
those of society at large? Does the public derive benefits from fisheries management
which are distinct from what the industry derives?
It goes without saying that the industry will only be interested in management
services that benefit the industry directly. Having the industry pay the full cost of
management and granting it a commensurate influence over how the money is spent
will therefore lead to negligence of management activities that are of benefit to the
public at large but of little or no benefit to the industry.
Are the interests of the industry compatible with the public interest?
Marine research is to fisheries what geological research is to petroleum and other
mineral industries. It can be argued that marine research has utility far beyond the
fishing industry. Nonetheless, the marine research typically funded by ministries
responsible for fisheries and their subordinate institutions is typically targeted for the
benefit of the fishing industry. There seems little doubt that the industry has an
incentive to contribute to that kind of research, but even marine research that is
designed to meet the needs of the fishing industry may have benefits for a larger
8
audience as well. It can be argued, therefore, that this kind of research would be
underprovided if the industry alone were to be responsible for it.
Stock assessment is a kind of marine research that is specifically intended to benefit
the fishing industry by providing estimates of current stock abundance and making it
easier to evaluate the consequences of today’s catches on the future availability of
fish. This type of research, however, is of limited direct benefit to the public at large.
Provided the industry takes a long term interest in its resource base it would have a
strong interest in accurate and timely stock assessments. Therefore, having the
industry pay for stock assessment is likely to provide incentives for providing such
assessments at the lowest possible cost and to focus research priorities on whatever is
most useful for the industry. The industry itself might even take an active part in the
stock assessment process by letting its own vessels take samples of fish, fish at
random for assessment purposes, etc. In fact such activities have become routine in
Iceland, where parts of the fishing fleet conduct random sampling under the direction
of fisheries biologists for short periods every year.
In order to ensure efficient utilization of the resources various regulations are
necessary; setting of total allowable catches when appropriate, regulations of gear
design (e.g., mesh size), protection of juveniles and spawning stock, etc. As for stock
assessment, this is potentially an area where “user says, user pays” would have a
beneficial effect. Assuming that firms have a sufficiently long-term perspective, or
equivalently a rate of time discount that is not excessive, it is in the interest of the
industry to put in place regulations necessary for ensuring that the growth potential of
the fish is utilized optimally and that the present catch of fish does not diminish future
productivity of the stock unduly. A plethora of fisheries regulations now in place in
various countries are put in place for a quite different purpose, however. There are
regulations that stipulate the size and design of boats, which gear may be used where,
what type of boats may fish where, etc. Such regulations more often than not serve no
purpose of efficiency; it would seem immaterial whether a fish is pulled up on a hook
or caught in a net, except that some types of gear are more selective than others and
hence use the growth potential of the fish more efficiently. Neither would it seem
important, as far as efficient use of resources is concerned, whether a fish is taken by
a small or a big boat. Such regulations may be of use in limiting controversies among
different parts of the industry, but often they are just a way of favoring one industry
group against another. While it would seem to be in the overall interest of the industry
to eliminate such regulations, their very existence is often a sign of an industry
fragmentation and controversy that would prohibit it from acting in concert, which
adds an additional reason why governments need to be involved in fisheries
management and detracts from the relevance of the Coase Theorem.
Surveillance and enforcement are obviously needed to make any regulation effective.
It has been argued that the industry should not pay the cost of such undertakings, any
more than other industries pay for law enforcement on land; law enforcement being a
collective good to be provided by the state.13 In our view this argument misses the
point. The purpose of commercial fishing is to maximize the net economic benefits
from the fishery. It follows that the overriding (and perhaps the only) criterion for
13
See Hundloe (1992), pp. 34-36, and Roy (1998), p. 22.
9
fisheries management payment arrangements is that it be as economically nondistorting as possible.
Recording landings is a part of surveillance whenever there are limits to how much
can be caught, whether it be at the aggregate or vessel level. Monitoring landings
serves a wider purpose, however. Catch data, both aggregate landings and samples
derived from these for age structure analysis, are an important input for stock
assessment and usually play a major role therein, except for direct acoustic methods.
Accurate landings data may therefore be crucial for an accurate stock assessment.
Indeed, one of the criticisms levied at management by catch quotas is that it distorts
landings data, due to the incentives to highgrade and to underreport. It is, therefore,
strongly in the collective interest of the industry to collect accurate and timely
landings statistics. In some fisheries in Canada fishermen have been willing to pay
for supervision of landings, recognizing the collective good character of this activity
and the incentive of each individual in a quota managed fishery to cheat.
Some fisheries management costs may not be due to the activities of the industry but
to competing claims on fish resources. Interference of marine mammals with the
catches of fish, and a desire on behalf of some groups and governments to preserve
these animals, have in recent times given rise to a number of regulations. It is
conceivable that preservation of marine mammals and other environmental demands
will impose further constraints on the activities of fishing fleets and how much fish
they will be allowed to catch. The benefits of these constraints are external to the
industry while such preservation would impose costs on the industry in the form of
catchable fish being eaten by seals or sea birds and in the form of costly fishing gear
that avoids the incidental catching of these animals. To the extent such claims are
deemed legitimate, the role of the industry as a rule maker must be more proscribed
than otherwise, with fisheries management becoming a public concern for a much
broader range of players than those who are active in the industry. To the extent the
industry would be obliged to pay for this kind of management such payment would
amount to a special tax on the industry earmarked for environmental benefits for the
public at large, rather than a payment for privileges the industry enjoys.
Similarly, other non-use benefits of marine resources, and the management necessary
to safeguard the resources for these purposes, are of no concern, and are possibly
detrimental to, the industry. An example of such a non-use value is the viewing of
fish as wildlife, for which purpose areas have been set aside as marine parks. Having
the fishing industry pay for such activities would again amount to a special tax on the
industry for the benefit of other user groups. In fact, it appears that management of
marine parks could be taken care of by government bodies distinct from those dealing
with commercial fisheries, as is done, for example, in Australia.
The Cost of Fisheries Management in Iceland, Norway and Newfoundland
As noted above, actual fisheries management costs are usually far from trivial
compared to the landed value of the catch. To throw more light on this we shall in
this section report on our examination of fisheries management costs in Iceland,
10
Norway and Newfoundland, studies more fully documented elsewhere.14 Our basic
sources of data are government expenditures on the fisheries as recorded in the
accounts of the relevant ministries. In all three countries these expenditures are
extensive and varied. Our definition of fisheries management, however, is restricted to
tasks performed to deal with the problems posed by the common property character of
the resources. Thus, we have attempted to exclude from our estimates of fisheries
management costs all other expenditures on the fisheries such as port and lighthouse
operations, weather forecast services, communication services, quality control,
supports for processing and marketing of fish products, etc.
In our study, we have adopted common definitions of cost categories as far as
possible, so as to make the figures comparable. Different reporting and accounting
practices in the three different countries involved make it impossible, however, to
achieve this fully. Another problem is that the fisheries of Newfoundland are
managed by the federal government in Ottawa. We have omitted overhead costs of
the federal government from the figures for Newfoundland while all overheads of the
local administration in Newfoundland have been included. Since some of the local
overhead costs are not due to fisheries management as we have defined the term, there
are biases in opposite directions, the net effect of which is unclear but probably
negative, since significant Ottawa costs relate to fisheries management in
Newfoundland.
Management costs (Mill. USD)
Catch value (Mill. USD)
120
1600
1400
1200
1000
800
600
400
200
0
1989
1996
1995
1994
1993
1992
1991
1990
1989
0
1996
20
Norway
1995
40
Iceland
1994
Nfld
1993
60
Nfld
1992
Iceland
1991
Norway
80
1990
100
Figure 1
Management costs and catch value in Iceland, Norway and Newfoundland in US
dollars, at each year’s prices and exchange rates.
Figure 1 shows the management costs and the value of the catch in Norway, Iceland
and Newfoundland in a common currency (US dollars), at each year’s prices and
exchange rates. The value of the landings is by far the lowest in Newfoundland,
being about a quarter of the value of the landings in Iceland, while the value of the
Norwegian landings is higher than in Iceland, except for 1990 when they were about
the same. The management costs, on the other hand, are highest in Norway and
14
These studies are further documented in Arnason et al., (1999), Hannesson (1999), and Schrank and
Skoda (1999).
11
lowest in Iceland, with Newfoundland in between.15 Figure 2 shows the costs of
management, measured as a percentage of the total value of landings. Measured in
this way, the management costs are highest in Newfoundland and lowest in Iceland.
As previously mentioned, the cost figures for Newfoundland are probably too low
because of the omitted central government costs. The management costs in
Newfoundland varied between 15 and 26 percent of landed value over the period
1989 - 1996. Norway’s management costs are more than twice as high as the
Icelandic costs, again expressed as percent of the value of landings. While the
Icelandic costs have been rather stable around 3 percent of landed value, the
Norwegian costs have fallen considerably, from 13 percent in 1990 to about 8 percent
in 1994-1996.
Cost as a share of catch value
Percent
30
25
20
Nfld
15
Norw ay
10
5
Iceland
1996
1995
1994
1993
1992
1991
1990
1989
0
Figure 2
Management costs measured as percent of the value of landings.
15
The cost data for Newfoundland are reported for fiscal years, which begin on April 1, while the
catches are reported for calendar years. The cost data are related to the catch value in the calendar year
in which the fiscal year begins. The cost and catch data for Norway and Iceland refer to calendar years.
12
2000
300
1500
Costs
Costs
100
40000
Costs
500
Catch
0
30000
20000
10000
0
1990
1991
1992
1993
1994
1995
1996
95-96
93-94
50000
1000
0
91-92
60000
Catch
400
200
Catch
Iceland (Mill. krónur)
Catch
60
50
40
30
20
10
0
89-90
Costs
Newfoundland (Mill. Can. $)
800
700
600
500
400
300
200
100
0
10000
6000
Costs
Catch
4000
Catch
8000
2000
1996
1994
1992
0
1990
Costs
Norway (Mill. kroner)
Figure 3
Management costs and value of landings in domestic currency.
Figure 3 shows management costs and the value of landings for each country in
domestic currency. This allows us to make a quick comparison of trends. The fall in
the cost/catch value ratio in Norway is due primarily to an increase in the value of
landings. In Iceland management costs have risen more than the value of the catch.
This increase is explained by increased research and enforcement activity while
landed values have remained fairly steady. The gyrations in the Newfoundland cost
ratio are due primarily to variations in the value of landings, and the high cost ratio in
Newfoundland is due to the comparatively low value of the landings rather than the
level of the costs being higher than in the other two countries (cf. Figure 1).
Costs by categories
Figures 4 - 7 give breakdown of management costs into major categories, both in
absolute amounts (US dollars) and as shares of catch value. Again, it is necessary to
stress that the cost categories may not be entirely comparable across the three
countries. The correspondence is probably closer for the Norwegian and Icelandic
data than the Newfoundland data. One common pattern of the cost categories in
Figures 4 - 7 is that absolute expenditures are generally greatest in Norway while the
13
expenditures measured as a fraction of the catch value are highest in Newfoundland. 16
Hence it does not appear possible to explain differences in expenditure between the
three countries by different emphasis on management tasks to be carried out, not at
any rate at this level of aggregation.
Coast guard/Enforcement and
surveillance
Iceland
5.00
0.00
Figure 4
Costs of enforcement and surveillance in US dollars.
exchange rates.
1996
1996
1994
1992
Iceland
Norway
1994
Norw ay
Nfld
10.00
1992
Nfld
15.00
1990
Percent of catch value
60
50
40
30
20
10
0
1990
Mill. USD
Coast guard/Enforcement and
surveillance
Each year’s prices and
The single most expensive fisheries management undertaking in the three countries is
monitoring and enforcement at sea (Figure 4). In Norway and Iceland this is done by
the Coast Guard while in Newfoundland the Department of Fisheries has had its own
enforcement and monitoring vessels. Recently, however, the Canadian Coast Guard
has been reorganized and put under the control of the Department of Fisheries and
Oceans. Norway spends the equivalent of about 50 million dollars annually on Coast
Guard activities related to fisheries,17 more than twice the amount that is spent in
Newfoundland. Nevertheless, the lower value of the Newfoundland landings blows
up the Newfoundland expenditure in relative terms. Iceland’s expenditure is roughly
one-half of Newfoundland’s, and lower still in relative terms. The high surveillance
cost in Norway may only partly be explained by the size of the Norwegian exclusive
economic zone; it is much larger than that of Iceland, but not much larger than the
Canadian zone around Newfoundland. The exclusive economic zone of mainland
Norway is 875.000 km2, the zone around Jan Mayen is 292.000 km2, and the zone
around Spitzbergen is 836.000 km2. For comparison, the Icelandic zone is 758.000
km2 and the Canadian zone around Newfoundland outside the 12 mile limit is 1.5
million km2.
The second largest cost item is marine research (Figure 5). Note, however, that we
have defined marine research narrowly as research related to stock assessment and
16
This is due to the relatively low landed catch values in Newfoundland. It should be noted that this
low value of landed catch is not due to the dramatic decline of the groundfish fishery off
Newfoundland, as this has been fully compensated by an increase in Newfoundland's shellfish catches.
17
For Norway, 75 percent of the activities of the Coast Guard are assumed to be related to the fisheries,
a figure provided by the Coast Guard. The same allowance has been made for the Icelandic Coast
Guard.
14
prediction. To this end we have attempted to exclude research of a less applied
nature. In Norway the expenditure on marine research is not much more than onehalf of the expenditure on the Coast Guard. In Newfoundland the expenditure on
marine research has in some years been almost as high as the expenditure on
surveillance and enforcement, but expenditure on marine research has been falling in
recent years. In Iceland the expenditure on marine research is roughly comparable to
the expenditure on the Coast Guard.18
Marine research
Norway
Iceland
1990
1996
1994
1992
Iceland
Nfld
1996
Norway
1994
Nfld
16
14
12
10
8
6
4
2
0
1992
Percent of catch value
40
35
30
25
20
15
10
5
0
1990
Mill. USD
Marine research
Figure 5
Costs of marine research
A third cost category is the activity carried out by the Directorates of Fisheries in
Iceland and Norway, and the regional administration in Newfoundland (Figure 6). In
Norway this expenditure is about the equivalent of 13 million dollars per year. In
1990-92 the cost in Norway was ten times higher or more than the cost in Iceland
while the difference shrank markedly in 1993 and subsequent years. This is due to the
establishment of a Directorate of Fisheries in Iceland (“Fiskistofa”) that took over the
monitoring and enforcement operations of a semi-private institution (“Fiskifélag
Íslands”) and the Ministry of Fisheries. This change led to increased activities and a
corresponding increase in the Icelandic costs. Nevertheless the Norwegian costs are
still about five times the Icelandic costs. It should be noted that we have attempted to
remove the costs of aquaculture management, product quality control and other items
not associated with management of fish stocks from the cost figures for the
Norwegian Directorate of Fisheries. In Newfoundland the cost of regional
administration is roughly mid-way between the cost in Norway and Iceland, and it has
been shrinking over the period considered. Still, relative to the landed value of catch,
the Newfoundland costs are higher than the other two.
18
Note again that only 75 percent of the expenditure on the Coast Guard in Norway and Iceland has
been attributed to the fisheries.
15
10
Norw ay
5
Iceland
1996
1994
1992
1990
0
5.00
4.00
Nfld
3.00
2.00
Norway
Iceland
1.00
0.00
1996
Nfld
1994
15
1992
Mill. USD
20
Directorate of
Fisheries/Regional
administration
1990
Percent of catch value
Directorate of
Fisheries/Regional
administration
Figure 6
Cost of Directorate of Fisheries/Regional administration
4
3.5
3
2.5
2
1.5
1
0.5
0
Norway
1996
1995
1994
1993
1992
1991
Iceland
1990
Mill. USD
Ministry of Fisheries
Figure 7
Cost of Ministry of Fisheries
Finally, there is the cost associated with the Ministries of Fisheries (Figure 7). For
Newfoundland we do not have such data attributed to Newfoundland. For Norway
and Iceland the cost of running these ministries turns out to be very similar, or the
equivalent of about 3 million US dollars per year. Note that we have attempted to
remove expenditure on aquaculture, fish processing and marketing from the
Norwegian data. In Iceland aquaculture is under the auspices of the Ministry of
Agriculture and therefore not included in the data. However, there probably still
remain some cost items in the Icelandic data that relate to fish processing and
marketing rather than management of fish stocks. It is therefore possible that the
Icelandic costs reported above are slightly overestimated.
16
Conclusion
Our comparative study of fisheries management costs in Iceland, Norway and
Newfoundland shows that their fisheries management costs cannot be characterized as
trivial. In Newfoundland they have varied between 15 and 26% of the value of
landings. In Norway they have dropped from 13 to 8%, mainly because of an increase
in the value of landings which may or may not be sustainable. In Iceland fisheries
management costs have remained rather steady at about 3% of the value of landings.
It is important to realize that these numbers have been arrived at on the basis of a
rather narrow definition of fisheries management, namely as activities intended to
counteract the problems caused by fish stocks being common property.
Management expenses of this order of magnitude are by no means insignificant. They
appear even more substantial compared to the attainable economic rents from the
fisheries which are but a part of the landed value of the catches. This clearly has
important implications. First, it is now clear that the implicit assumption in most
fisheries economics models that fisheries management costs are insignificant (and can
therefore be ignored) is not justified. Henceforth, when calculating optimal harvesting
and investment paths one must take the management costs of implementing these
paths explicitly into account.
Second, these high fisheries management costs immediately raise the question of
economic efficiency in the management activity. Can the same level of benefits be
produced at lower costs? Judging from our comparative data on Iceland, Norway and
Newfoundland, where the country with the lowest management expenditures (Iceland)
is probably the one which manages its fisheries most successfully, the answer seems
to be an unequivocal yes.
Third, can fisheries management expenditures of the magnitude discussed be justified
in the sense that the benefits exceed the costs?19 This question we cannot answer. We
may point out, however, that it seems highly doubtful that the current economic rents
in the fisheries of Newfoundland can justify this level of expenditure although
potential rents, in a fully rationalized fishery, may well exceed current management
costs. For Norway the potential rent in the fishing industry in all probability exceeds
the current expenditure of roughly 10% of the value of landings, but there is limited
willingness in political circles to realize that potential.20 The current rents in the
Icelandic fisheries undoubtedly exceed the current 3% level of management
expenditure.
The discrepancy between the costs of fisheries management and the actual benefits
generated by this management is, we believe, fundamentally the result of the absence
of a direct link between those who benefit from the expenditures and those who pay
for them. The general taxpayer has very little incentive to investigate the use of the
small fraction of his tax dollar that is spent on fisheries management. This is all the
more likely the higher is the number of taxpayers contributing the money. The same
perverse incentives apply to members of the fishing industry. They will be happy to
enjoy any perceived benefits of fisheries management without worrying about
19
This can still be the case even when the expenditures are unnecessarily high.
The potential economic rent in Norway’s fisheries has been estimated at 20-30% of the value of
landings, before subtracting management costs (Hannesson and Steinshamn, 1996).
20
17
excessive management expenditures as long as they do not pay for them. Fishermen
are likely, however, to offer less resistance to paying for those components of
fisheries management that they understand to be beneficial to themselves. In the
absence of cost recovery, the resistance to spending more money on fisheries
management will most likely come primarily from conscientious bureaucrats at the
ministries of finance or other institutions concerned with overall public expenditure.
If the fishing industry is a small part of GDP and fisheries management costs are only
a small part of the overall budget that resistance is likely to be small, particularly if
the industry is located in politically sensitive areas, as the case is in Newfoundland
and Norway.
18
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21