Ragnar Arnason
Department of Economics, University of Iceland
Principles of Fisheries Management
DRAFT
A paper prepared for the
Workshop on
Policy and Planning for Coastal Fisheries Resources
University of South Pacific,
Suva, Fiji, January 28 to February 8 2008.
2
Table of Contents
Page
B. Fundamentals of Fisheries Management
3
1. The fisheries management regime
4
2. The fisheries management system
Technical appendix 1
7
2.1 Biological fisheries management
2.2 Direct economic restrictions
Technical appendix 2
Technical appendix 3
16
23
2.3 Taxes and subsidies
Technical appendix 4
39
2.4 Property rights
Technical appendix 5.
Technical appendix 6.
Technical appendix 7.
49
2.5 Fisheries Management Systems: Conclusions
89
3. Monitoring, Control and Surveillance
3.1 Monitoring
3.2 Enforcement
3.3 The Cost of MCS
Technical appendix 8
91
92
95
96
4. Fisheries Judicial System
4.1 The simple theory of violations
4.2 Conclusions
Technical appendix 9
105
105
113
.References
116
C. Cases of Fisheries management
References
119
153
3
B.
Fundamentals of Fisheries Management
Theoretical fisheries economics, outlined in Section A above, shows that unmanaged
fisheries from a common property resource are economically wasteful. In fact,
according to the theory, such fisheries generally manage to squander most or all of the
attainable economic rents from the fisheries. This theoretical prediction is confirmed
by the experience from unmanaged common property fisheries worldwide. Virtually
without exception such fisheries are characterized by excessive fishing fleets and
fishing effort, overexploited fish stocks and small or no economic rents (FAO, 1993,
Arnason, 1993, OECD, 1997).
Thus, theoretical evidence and empirical evidence go hand in hand on this
matter. Both clearly demonstrate the need for some judicious interference in the
fisheries process if the potential economic benefits of the fisheries are to be realized.
This judicious interference or fisheries management is the subject of this chapter.
The chapter is organized broadly as follows. We begin by defining the concept
of a fisheries management regime consisting of (i) the fisheries management system,
(ii) the monitoring, control and surveillance system and (iii) the fisheries judicial
system. Following this, in section 2, the various options for a fisheries management
system are discussed and their efficiency properties evaluated. The monitoring,
control and surveillance system is considered in section 3 and the fisheries judicial
system in section 4. Finally, in section 5, we consider some pertinent aspects of the
complete fisheries management regime.
4
1.
The fisheries management regime
All fisheries, whether they are explicitly managed or not, are subject to an overall
framework of social institutions. We refer to this institutional framework as the
fisheries management regime. Essentially, the fisheries management regime is a set of
social prescriptions and procedures that control the fishing activity. In some cases, the
fisheries management regime is quite intricate, involving several formal organizations
and activities. In others it is quite simple; consisting merely of a few social customs
and prescriptions. Irrespective of their complexity, however, all fisheries management
regimes must logically comprise the following three basic components:



The fisheries management system.
The monitoring, control and surveillance system.
The fisheries judicial system.
Figure 2.1
Components of the Fisheries Management Regime
The fisheries management system (FMS) specifies the regulatory framework
for the fishing activity. It consists of all the rules that the fishing activity must obey
such as gear and area restrictions, fishing licences, catch quotas etc. In many
countries, most fisheries rules are based on explicit legislation. In others, they are
primarily based on social customs and conventions.
The primary task of the monitoring, control and surveillance (MCS) system is
to observe the fishing industry’s activities and to enforce its adherence to the rules of
the fisheries management system. Its secondary, but nevertheless very important, task
is to collect data about the fishery that can be used to improve both the fisheries
management and fisheries judicial systems as well as the monitoring, control and
surveillance system itself.
The fisheries judicial system (FJS) is usually a part of the general judicial
system. It should be noted, however, that in most societies, formal judicial processes
are complemented by informal ones. The function of the fisheries judicial system is to
process alleged violations of fisheries management rules and issue sanctions to those
5
deemed to have violated the rules. The fisheries judicial system thus complements the
monitoring, control and surveillance activity in enforcing the fisheries management
rules.
These three components of the fisheries management regime are strongly
interdependent. For example, the fisheries rules specified by the fisheries management
system define the necessary monitoring, control and surveillance activity as well as
the focus of the fisheries judicial system. Similarly, the extent and quality of the
monitoring control and surveillance system have obvious implications for the fisheries
judicial system and the relevance of the various rules contained in the fisheries
management system.
All three components of the fisheries management regime are crucial to its
success. They are, so to speak, links in the same chain. If one of them fails, the
fisheries management regime as a whole fails. Thus, for instance, a perfectly designed
fisheries management system will accomplish nothing is not supported by a strong
monitoring, control and surveillance system. Fishing firms, just like any other profit
maximizing firms, are not for long going to follow rules that are not enforced. Indeed,
the laws of competition inform us that in an environment of non-enforcement of rules,
firms that nevertheless follow the rules will soon be driven out of business by the
superior performance of the firms that break the rules. For this reason, a fine fisheries
management system will be useless if it is not supported by the appropriate
monitoring, control and surveillance activity. Similarly, a well designed fisheries
management system, supported by a good monitoring, control and surveillance
activity will accomplish very little if the fisheries judicial system fails to provide the
necessary back-up for these two systems. If violators of the fisheries management
rules are left unpunished, even when spotted and apprehended, they will of course
have little incentive to follow the rules.
Hence, it should be clear that to achieve full benefits from fisheries
management, all three components of the fisheries management regime  the
fisheries management system, the monitoring, control and surveillance activity and
the fisheries judicial system  must be appropriately designed, fully functional and
well coordinated. This crucial point cannot be overemphasized. Any one of the three
basic components of the fisheries management system, however well designed and
implemented, will generate precious little social benefits unless supported by the other
two components.
We therefore conclude that the design and implementation of an effective
fisheries management regime requires full attention to all three of the basic
components of the fisheries management regime. Moreover, to co-ordinate the
activities of these three components, a single entity must be in charge of the fisheries
management regime as a whole.1 Without a strong coordinating force of this nature,
the overall effectiveness of the fisheries management regime is likely to be
substantially reduced. This coordinating arrangement may be illustrated with the help
of an organizational chart as in Figure 2.2 below.
1
This is not intended to exclude the possibility that the actual co-ordination be effected by means of
prices generated by the market system.
6
Figure 2.2
Fisheries management regime: Organizational chart
Fisheries Management Regime
Coordinator
Fisheries Management
Rules
Design and modification
Monitoring, control
and Surveillance
Function
Fisheries Judicial
Processes
In many countries, the co-ordination of the fisheries management regime is
provided by a Ministry of Fisheries or a Department of Fisheries within another
ministry. Note, however, that from an organizational point of view, this coordination
function can really be performed by any agency provided it is equipped with the
necessary powers. Thus, it does not even have to be a government agency.
7
2. The fisheries management system
The fisheries management system is basically a set of rules about how the fishery (or
fisheries) should be conducted. These rules may be formal for instance in the form
of published law and regulations  or they may be informal  a part of the social
culture governing fishing behaviour. In most fisheries both types of fisheries
management rules, the formal and the informal, apply. Sometimes they conflict in
which case the formal fisheries management system may experience adherence
difficulties. Generally, the more commercially advanced the fishery, the more
important is the role of formal, explicitly expressed fisheries management rules. It is
important to realize, however, that even in advanced fisheries where formal fisheries
management rules are dominant, there are usually still in existence informal fisheries
management rules stemming from an earlier culture but continuing to exert their
influence on the behaviour of the fishermen.
This book is about the design of and implementation of fisheries management
regimes. It follows that we must inevitably proceed in terms of formal fisheries
management rules. This doesn't mean, however, that we should ignore the existence
of the informal ones especially as they may impinge on the effectiveness of the formal
ones.
Desirable properties
The purpose of the fisheries management system is to contribute to the generation of
net economic benefits flowing from the fishery. As discussed in Section A, the crucial
component of this objective is the generation of net economic profits or fisheries
rents. After all, it is precisely these rents, properly measured, that define society's
ability to improve the economic welfare of its members.
This fundamental objective, however, is not as straight-forward as may
appear. On closer examination it involves a number of different considerations. Thus,
for instance, what is of concern is not the fisheries rents generated by the fishery, but
the remaining fisheries rents, when the cost of operating the fisheries management
system have been subtracted. It is convenient to refer to the fisheries rents less the
cost of fisheries management as net fisheries rent. Thus, the cost of operating the
fisheries management system, enforcing the rules and so on, is of great relevance. The
same applies to the data requirements of the fisheries management system. data
collection and analysis is costly. Therefore, the less data demanding the fisheries
management system is the better.
Another important attribute of the fisheries management system is its
robustness. By this we mean its ability to generate fisheries rents, preferably the
maximum ones, under a variety of conditions. Some fisheries management systems
may work relatively well under certain conditions but poorly under others. Thus, for
instance, the unmanaged competitive fishery generally manages to generate
considerable fisheries rents during the early development phase of the fishery when
the fish stocks are large and fishing capital employed is still moderate. This is
illustrated in Figure 2.3. Accordingly, one might conclude that this fisheries
management system is reasonably efficient under these conditions, i.e. large fish
8
Figure 2.3
Competitive and optimal adjustment paths
from a virgin stock equilibrium
Fishing
effort, e
e  0
ec
stocks and low fishing capital.
With time, however, as, the
fishery matures, the stock
declines and the fishing capital
becomes excessive, the
unmanaged fishery becomes
severely suboptimal as
illustrated in Figure 2.3 and is
further discussed in Chapter A,
section 1.4. This particular
fisheries management system
is, in other words, not robust.
Finally, the distribution
of the benefits generated by the
Optimal
fisheries management system
equilibrium
is clearly of great relevance for
its ability to generate economic
Virgin
Biomass, x
stock
benefits. A fisheries
management system that is
technically excellent but is
perceived to be highly unfair in
terms of its distribution of benefits and costs may encounter social hostility and, for
that reason, may not turn out to be very effective if nevertheless implemented. More
generally, an important attribute of the fisheries management system is its overall
social acceptability. A technically good fisheries management system that is not
socially acceptable may be of little practical use.
Competitive
equilibrium
x  0
For later reference, it is useful to summarize some of the desirable properties
of fisheries management systems as follows:
(a)
(b)
(c)
(d)
(e)
(f)
Effectiveness in generating net fisheries rents
Robustness in the face of variable conditions.
Low cost of operation.
Minimal data needs.
Perceived fair distribution of benefits.
General social acceptability.
The fisheries management system: Definitions
Fisheries management represents the application of specific fisheries management
instruments or tools. Typical fisheries management tools are, for instance, fishing gear
restrictions, limitations on the number of allowable fishing days during the year, area
closures and so on. A particular application of a fisheries management tool, e.g.
setting the allowable number of fishing days to a certain number, is called a fisheries
management measure.
9
Thus, the fisheries management tools are like variables or, more precisely,
control variables and the fisheries management measures the values that can be
chosen for these control variables. Thus, the fisheries management tools are in a sense
more fundamental than the fisheries management measures. Moreover the number of
the latter is probably infinitely higher. Therefore, at least for classification purposes, it
is convenient to define fisheries management systems in terms of the management
tools they incorporate rather than the particular applications of these tools, i.e. the
actual fisheries management measures chosen. .
Definitions
Fisheries management tool
A variable influencing the fishery that can be adjusted by the
fisheries manager
Fisheries management measures
A particular application of a fisheries management tool
Fisheries management system
A particular collection of fisheries management tools.
The number of possible fisheries management systems
It should be clear that for most fisheries the number of possible fisheries management
tools is quite high. Examples of fairly broad categories of fisheries management tools
are provided in the Table 2.1. Clearly, it is possible to construct a more finely divided
list with substantially more fisheries management tools.
10
Table 2.1
Some fisheries management tools: A list
1
Fishing gear restrictions
2
Fishing area restrictions
3
Fishing time restrictions (Certain dates excluded from fishing)
4
Fish size restrictions
5
Total harvest restrictions (Total allowable catch, TAC)
6
Individual harvest restrictions (Individual catch quotas)
7
Taxes and subsidies (The fishing activity subject to taxes or subsidies)
8
Fishery access restrictions (Fishing licences)
9
Fishing vessel restrictions (Restrictions on vessels' size, power, equipment etc.)
10
Fishing effort restrictions (Limited total fishing time)
11
Sole ownership (exclusive ownership over a fish stock or a part of it)
12
Territorial use rights in fisheries (TURFs)
Now, fisheries management systems consist of particular combinations of one
or more these tools. Thus, obviously, the number of possible fisheries management
systems increases very fast with the number of available fisheries management tools.
Thus, with only two tools the number of possible fisheries management systems
(including no management whatsoever) is four. However, with 12 fisheries
management tools as in Table 2.1, the number of possible fisheries management
systems (including no management) is 4096.2 With 20 fisheries management tools the
number of possible fisheries management systems become 1.048.576! Given this high
number of possibilities, it comes as no surprise that identical fisheries management
systems are rarely found around the world.
Classification of fisheries management systems
As we have seen the number of possible fisheries management systems is very great.
Most of them may, however, be grouped into two broad classes: (i) Direct fisheries
management and (ii) indirect fisheries management as illustrated in Figure 2.4.
2
The number of possible fisheries management systems is given by the 2 n, where n is the number of
management tools. See technical appendix 1.
11
Figure 2.4
Fisheries management systems: A classification
Direct
Fisheries Management
Biological
Economic
Indirect
Fisheries Management
Taxes
Property
Rights
Direct fisheries management attempts to control components of the fishing
activity directly by commands or, more often, restrictions that must be adhered to.
Indirect economic fisheries management, by contrast, attempts to induce the fishing
firms to behave differently by modifying the operating conditions of the fishery
without imposing direct constraints. Thus, under indirect fisheries management, the
fishing firms are generally free to select whatever level of fishing activity they please
as long as they are willing to bear the consequences.
The difference between direct biological and economic fisheries management
lies in what they seek to control. Direct biological fisheries management attempts to
alter the biological yield of the fishery. Thus, under biological fisheries management,
for instance, the sustainable yield curve is normally shifted. Direct economic fisheries
management attempts to alter the behaviour of the fishing firms by direct restrictions
on economic inputs, such as the allowable number of fishing days, vessel size etc.
Thus, direct economic management generally affects the cost structure of the fishery
directly.
Indirect fisheries management alters the operating conditions of the fishing
industry. There are, of course, many ways to do this. Most, however, belong to two
main categories; (a) taxes (and subsidies) which basically alter the prices facing the
fishing industry, and (b) property rights, which alter the nature of the external effects
imposed by the fishing firms on one another.
Most fisheries management tools are fall quite naturally into one of the
fisheries management categories in Figure 2.4. The main exception is the total
harvesting restriction or total allowable catch (TAC). There may be some doubt
whether this should be regarded as a biological or direct economic restriction.
However, since a TAC restriction does not shift the sustainable yield curve but
certainly shifts economic costs (at least in time) it is here regarded as an economic
restriction.
12
Table 2.2 allocates the fisheries management systems listed in Table 2.1 to the
four fisheries management categories.
Table 2.2
Fisheries management systems: Classification
Direct biological
fisheries
management
Direct economic
fisheries
management
Gear restrictions
Area restrictions
Total allowable
catch, TAC
Vessel restrictions
Time restrictions
Effort restrictions
Taxes
Property rights
Taxes/subsidies
Access licences
Individual harvest
quotas
Sole ownership
Minimum size
restrictions
Territorial use rights
Thus, it appears that the particular classification of fisheries management
systems illustrated in Figure 2.4 is fairly complete as well as practical. Consequently,
this is the one we will adopt in the discussion that follows.
It should be realized, however, that actual fisheries management systems may
combine elements from different management categories in Figure 2.4. Thus, it is not
uncommon to see fisheries management systems that combine biological management
tools with direct economic restrictions. Some even add property rights elements to the
mix. We refer to these fisheries management systems as hybrid as opposed to pure
fisheries management systems. In the analysis that follows we will for the most part
restrict our attention to pure fisheries management systems. Generally the properties
of hybrid systems are easily deducible from the properties of the pure systems.
Another possible typology for fisheries management systems is to divide
fisheries management tools into (i) input controls, (ii) output controls and (iii)
technical measures as in OECD (1997). Under this classification, the fisheries
management tools listed in Table 2.1 would be classified as in Table 2.3.
Table 2.3
Fisheries management systems: Input/output classification
Input controls
Output controls
Technical measures
Access licences
Total allowable catch, TAC
Gear restrictions
Effort restrictions
Individual harvest quotas
Area restrictions
Vessel restrictions
Sole ownership
Time restrictions
Territorial use rights
Minimum size restrictions
13
Note that according to this classification, the "technical measures" are what was
called "biological fisheries management" in the first classification. "Input controls"
correspond approximately to "direct economic restrictions" and "output controls"
include the "property rights" management from the first classification as well as the
TAC restriction. In this input/output classification system there is no obvious place
for taxes and subsidies. Apart form this, the two classification schemes are not
dissimilar.
Tools of analysis
In the following subsections we will examine the properties of the various pure
fisheries management systems defined in Figure 2.4 and Table 2.2. In particular we
will focus on their ability to generate net economic benefits For this purpose we will
employ the tools developed in Chapter A. In particular we will make use of the
sustainable fisheries model (Fig. 1.14) and the dynamic fisheries model (Fig. 1.28).
Now, the impact of fisheries management can be represented as shifts in the different
curves in these diagrams. Hence, it may be useful to briefly review these tools here.
Figure 2.5
The sustainable fisheries model
Revenues
$
Costs
e*
ec
Effort, e
xc
The
sustainable fisheries
model is illustrated
in Figure 2.5. It
consists of three
sustainable
relationships
represented as
curves in the
diagram; a
sustainable revenue
curve, a cost curve
and a sustainable
biomass curve.
As these
curves are drawn in
Figure 2.5,
competitive
equilibrium is found
Sustainable
biomass,
at fishing effort ec
x
and biomass level xc.
Optimal sustainable
fishing, however,
occurs at fishing effort level e* and biomass level x*. Now, fisheries management is
going to shift one or more of these curves (at least as perceived by the fishing firms).
Consequently, the competitive equilibrium is going to be shifted as well.
Biomass
x*
The dynamic fisheries model is illustrated in Figure 2.6. It consists of two
equilibrium relationships, the biomass equilibrium curve, x =0, and the economic
equilibrium curve, e =0. In what follows, it is important to realize that the fishing
14
industry is losing money anywhere to the left of the economic equilibrium curve and
is making profits anywhere to the right of the curve.
Competitive
equilibrium is found at
the intersection of
these two curves at
fishing effort level ec
and biomass level xc.
By contrast, optimal
equilibrium is found at
a lower effort level,
e*, and higher
biomass level, x*.
Figure 2.6
The dynamic fisheries model
Fishing
effort, e
e  0
ec
x  0
e*
xc
x*
Biomass, x
Fisheries
management shifts
either or both of the
two equilibrium
curves. Hence the
competitive
equilibrium is going to
be shifted as well.
In the dynamic
fisheries model, however, the main thing is not equilibrium but the adjustment paths
toward this equilibrium. A few samples of these adjustment paths are illustrated in
Figure 2.6. Obviously, as the fisheries management shifts the competitive equilibrium,
the dynamic adjustment paths will be altered as well. In fact, by the appropriate
combination and modification of fisheries management over time it is apparently
possible to produce any dynamic path of the fishery.
15
Technical appendix 1
The number of possible fisheries management systems
Define the fisheries management system as any collection of fisheries management
tools.
Let the number of possible fisheries management tools be n.
Consider all the fisheries management systems consisting of m of these tools.
Then, according to the mathematical theory of combinations (Apostol, 1969), the
number of possible fisheries management systems containing m tools , is:
n
L(m,n)=   = n!/m!(n-m)!
m
Now, m can be any number from zero (no fisheries management tool applied,
i.e. an unmanaged fishery) to n. Therefore, the total number of possible fisheries
management systems is:
n
L(n) =
 L( m ) .
m 0
On this basis it is possible to show (Apostol, 1969) that the total number of fisheries
management systems as a function of n is:
L(n) = 2n.
16
2.1
Biological fisheries management
Biological fisheries management is designed to improve the biological yield of the
resource. Biological fisheries management, in other words, consists of methods to
increase biomass growth for any given level of biomass and, consequently, to effect
an upward shift in the sustainable yield function and downward shift in the
sustainable biomass function as illustrated in Figure 2.7.
How can
biomass growth be
increased for a given
level of biomass? One
way to do this is by the
Sustainable
appropriate altering of
yield,
y
the yearclass or cohort
composition of the
biomass.3 Focussing
harvesting on older,
more slowly growing
cohorts and avoiding
harvesting younger,
Effort, e
faster growing cohorts
tilts the cohort
composition of the
biomass toward faster
growing cohorts.
Consequently, overall
Initial
New
biomass growth will be
Sustainable
increased and the
biomass,
x
sustainable yield
function will be shifted
upward as illustrated in
Figure 2.7. This of course, is exactly parallel to standard practice in most livestock
farming and, in fact, forestry. The older more slowly growing individuals are
slaughtered or harvested, while the younger fast growing individuals are left to grow.
Figure 2.7
Shifts in the sustainable yield and biomass functions
In many cases the difference in growth and, consequently the shift in the
sustainable yield function, can be quite substantial. Note, however, that there must be
a natural limit to how far upward the sustainable yield function can be shifted. This
upper bound or envelope has been referred to as the eumetric sustainable yield curve
in the literature (Beverton and Holt, 1957, Turvey, 1964)
There are several ways to induce the harvesting selectivity necessary to
appropriately modify the cohort structure of the biomass. Among the most common
are the following:
3
Other ways could be habitat improvement, selective feeding, stock reduction of competitors and so
on.
17
Gear restrictions: These include mesh size and hook size restrictions (these must
usually exceed a certain lower limit in order to protect younger fish), special
gear selectors (such as metal grids) and other stipulations concerning the
design of the gear.
Area closures: This consists of closing certain areas disproportionately populated by
fast growing cohorts to fishing. These areas could for instance be spawning
grounds, nursery grounds or areas of particularly high juvenile density.
Time closures: This consists of closing the fishery (or parts of it) for a certain period
of time during which fast growing individuals are particularly vulnerable to
fishing.
These are the most common methods of biological fisheries management. Note that
they are not mutually exclusive. They can, and often are used in combination. In
particular, time and area closures are frequently used together in biological fisheries
management.
For completeness we also mention a fourth biological fisheries management
option:
Culling/thinning: When new cohorts are especially large, their weight gain and natural
mortality may be adversely affected by limitations of food and space. Hence, it
may enhance biomass growth to reduce their size. This is culling or thinning
and it is common in many areas of farming. Therefore, this method, although
rare in ocean fishing, appears to constitute a natural part of biological fisheries
management. Note, however, opposite to the other, more standard methods
mentioned above, it is not a constraint. It actually requires a positive action,
namely an increased fishing effort on, usually, immature fish.
Biological fisheries management, properly conducted, is clearly capable of
increasing the sustainable yield from a stock of fish. It is important to realize,
however, that it does not alter the underlying economic forces operating in the fishery.
In particular it does not remove the common property problem that is at the root of the
fisheries problem. Therefore, if biological fisheries management manages to enhance
biomass growth and increase the sustainable yield, competition between the fishermen
for harvest shares will result in a correspondingly increased fishing effort and
capitalization of the fishing fleet. More vessels will be introduced into the fishery
until all fisheries rents have disappeared again. Thus, from the perspective of
economic benefits, biological fisheries management appears useless.
This basic conclusion can be further illustrated with the help of our sustainable
fisheries diagram developed in Chapter A.
18
Figure 2.8
The Equilibrium Effects of Biological Fisheries Management
New
equilibrium
$
Initial
equilibrium
e0 e 1
Effort, e
x0
x1
Sustainable
biomass,
x
Initial
New
Figure 2.8 illustrates what happens to the sustainable fishery under successful
biological fisheries management. First the sustainable biomass function shifts
downward indicating that at every level of fishing effort (except zero), the sustainable
biomass is now larger than before. Similarly, the sustainable yield function shifts
upward, indicating that at every level of fishing effort (except) zero the sustainable
yield (harvest) is now higher than before. There is no shift in the fishing cost function.
Consequently, at the initial fishing effort level, e0, corresponding to the initial
equilibrium in the fishery, profits will be experienced. The existence of these profits
will attract increased fishing effort. New firms will enter and old ones will expand
fishing effort. This process will continue until a new competitive equilibrium is
established at fishing effort level, e1, where there are no profits. At this new
equilibrium, however, the sustainable yield is higher than before and biomass is
slightly increased.4
4
Under biological fisheries management this always happens if the profit function is concave.
19
So apparently, biological fisheries management implies a shift in the
equilibrium position of the fishery to a higher sustainable harvest, biomass and fishing
effort level. However, there is no increase in the flow of sustainable economic rents
from the fishery. They are zero as before. These results are summarized in table 2.4.
Table 2.4
Effects of biological fisheries management
on equilibrium values
Fishing effort
Yield (harvest)
Biomass
Risk of stock collapse
Fisheries rents
+
+
+
?
0
The increase in yield may benefit fish consumers (through reduced prices).
Biomass has increased. However, it is not clear whether the risk of a biomass collapse
is now greater or smaller than before. Finally, fisheries rents have not increased. Thus,
it appears that the only clear economic benefit of biological fisheries management
consists of the increase in consumer surplus stemming from an increase in the
sustainable supply of fish. This, however, is most likely small. Moreover, for the
fishing industry as such or, alternatively, a fish exporting entity (nation or a
community) this is not much of a benefit.
These results apply in equilibrium. What about the adjustment path toward the
new equilibrium? Is it possible that there will be significant economic benefits along
this path?
The dynamic path can be studied with he help of the dynamic fisheries model
developed in Chapter A and replicated in Figure 2.6. Obviously, biological fisheries
management shifts the biological equilibrium curve upward as illustrated in Figure
2.9. What is perhaps less obvious is that the economic equilibrium curve will be
shifted the right. The reason is that biological fisheries management, increased mesh
sizes, closed areas and closed seasons, if at all binding, must initially subtract from
the ability of the fishing fleet to harvest. Thus, for any given biomass and fishing
effort level, the biological harvesting restrictions imply the fleet will harvest less. In
other words, the catchability coefficient of the harvesting function is reduced. It is
only later on when the biomass increases that the harvest rates start to expand again.
Thus, biological fisheries management implies the shifts in the equilibrium curves
illustrated in Figure 2.9
20
Figure 2.9
Dynamic Effects of Biological Fisheries Management
Fishing
effort, e
New
equilibrium
ec
Initial
equilibrium
e*
xc
x*
Biomass, x
In Figure 2.9, the initial equilibrium curves are indicated by the dashed lines
and the new ones, after the introduction of the biological fisheries management, by
the solid curves. As is clear from the diagram, both equilibrium fishing effort
(substantially) and biomass (slightly) are increased as a result of the biological
management. This corresponds with the results from the sustainable fisheries model
discussed above.
The adjustment path from the initial equilibrium to the new one begins by a
(relatively brief) period of operating losses to the fishing industry and, consequently,
contracting effort. This of course is caused by the new biological fisheries
management measures that constrain the activity of the fishing fleet. With the growth
of biomass, however, the fishery moves to the right side of the economic equilibrium
curve and becomes profitable. As a result, fishing effort starts to expand again and the
fishery follows the usual cyclical path toward the new equilibrium with no profits.
So, along the adjustment path toward the new equilibrium profitability
fluctuates beginning with a short period of relatively small negative profits followed
by a relatively long period of substantial profits followed by a snort period of small
loss and so on. This path of profits is further illustrated in Figure 2.10.
21
The question, of course, is what is the present value of profits for the complete
adjustment path. If this is
positive, the economic
Figure 2.10
contribution of biological
Biological fisheries management: Typical
fisheries management is
evolution of profits
positive too and vice versa.
Looking at the example in the
Profits
diagram, it seems that this
present value may be positive.
Whether it actually is positive
or negative in particular cases
depends however entirely on the
empirical situation; the initial
Time
relative shifts in the biomass
and economic equilibrium
curves and the ensuing relative
adjustment speeds of biomass
and fishing effort. Depending on these variables, the present value of fisheries rents
along the adjustment phase toward a new equilibrium may be positive or negative.
Nevertheless, it should be said that for judiciously chosen fisheries management, i.e. a
relatively large shift in the biomass equilibrium curve, and a relatively small shift in
the economic equilibrium curve, it is likely that this present value is positive.
Example
Biological fisheries management: Dynamic adjustment paths
Consider our usual very simple fisheries model with the biomass growth function
x = x - x2 –,
where, as usual x is biomass.
Let the harvesting function be:
y = ex,
where y represents fishing effort and e fishing effort.
And let costs be
c = e,
where c denotes costs.
Thus profits are:
 = ex - 0.7e,
where  represents profits.
Finally, let fishing effort evolve according to the adjustment function
e = .
22
Now, imagine a biological fisheries management that shifts the equilibrum biomass curves
upward and the economic equilibrium curve slightly to the right as discussed is the main text. Let the
corresponding shift in equilibrium values be as follows:
Competitive equilibrium values
Initial
0.69
0.78
Biomass
Fishing effort
Final
0.70
0.87
The dynamic adjustment path of fishing effort and biomass from one initial equilibrium to the
new one and the corresponding path of fisheries rents over time are described in the next two diagrams.
0.95
0.1
0.05
Profits
Fihing effort
0.9
Z n  2 0.85
prof ( n )
0
0.8
0.75
0.65
0.7
Zn 1
Biomass
0.75
0.8
0.05
0
20
40
n
Time
As can be seen from the diagram, fisheries rents are initially slightly negative as predicted by
theory. Then they turn positive and subsequently converge to zero in a cyclical fashion. Maximum
fisheries rents along the adjustment path are about 8% of revenues and maximum losses are about 5%
of revenues. Assuming 5% annual rate of discount (time measured in quarters), the present value of the
adjustment path is positive. amounting to 0.3% of revenues.
The costs of management
It is important to realize that biological fisheries management is inevitably costly. It
requires quite extensive biological research to identify the appropriate biological
management measures and monitor the results. It requires some administrative
activity to set and modify the biological management measures. It requires
monitoring, control and surveillance (enforcement) activity which, at least, in the case
of area restrictions must take place at sea (or remotely). Finally, it requires some
judicial activity to process alleged violations. All these activities are costly.
According to recent research (Arnason, Hannesson, Schrank, 2000), the cost of these
kinds of activities may easily amount to at least 5% of the gross revenues of the
fishery.
23
Conclusions
We have seen that there are very little, if any, long run benefits of biological fisheries
management. There is no increase in sustainable fisheries rents. The sustainable
biomass is likely to increase somewhat. The sustainable yield will grow so fish
processors and consumers may enjoy some increase in producers' and consumers'
surplus. Finally, there will be an increase in fishing effort which in an persistent
unemployment situation may be beneficial.5 During the disequilibrium phase, alnong
the adjustment path toward the new equilibrium, however, some economic rents may
be generated, provided the biological fisheries management measures are reasonably
well designed.
These gross economic benefits, whatever they are, must be set against the
costs of operating the biological fisheries management regime, i.e. the management
costs. Comparing the rather substantial research and management costs associated
with biological fisheries management with the rather meager gross benefits of
biological fisheries management, it seems decidedly unlikely that the net economic
benefits will be positive. Hence we must conclude that fisheries management based
exclusively on biological fisheries management will most likely produce a negative
economic return. This management, therefore, cannot be recommended except as a
last resort, where the only alternative is the biological destruction of the fish stocks.
2.2
Direct economic restrictions
Direct economic restrictions are designed to improve the economics of the fishery.
Consequently they tend to concentrate on the various fisheries inputs such as
allowable fishing time, vessels size, gear volume etc. in order to reduce fishing effort.
Note that as already discussed (section B.2) we include restrictions on the total
allowable catch (TAC) in the category of direct economic restrictions. One important
reason is that to implement the TAC it is generally necessary to resort to direct
economic restrictions such as limited fishing time.
Direct economic restrictions subtract from the efficiency of the fishing fleet.
As a first approximation, it is convenient to regard this as an increase in the cost of
producing a given fishing effort.6 This means that the cost of a given sustainable
harvest is shifted upward as illustrated in Figure 2.11
5
6
Persistent unemployment actually implies that the market price of labour is too high which in turn
implies that the price system in general is distorted. Consequently, the guidance of the market
system is flawed and private decisions, including fisheries decisions, generally suboptimal.
For details, see the technical appendix.
24
There is a great variety of possible direct economic restrictions. Generally,
however, they are all designed to reduce fishing effort in some way. The motivation is
typically the observation that the fisheries problem is caused by too much fishing
effort. Hence, what is more natural than to reduce fishing effort by restricting some of
its more obvious
manifestations? The
Figure 2.11
problem, however, is that
Shifts in the cost function
this method of direct
restrictions does not remove
Revenues
the basic source of the
and costs,
New
fisheries problem, the
costs
$
common property
arrangement of the fishery
Initial
and the externality it
costs
produces. Therefore, in
spite of being constrained
in various ways, the
members of the fishing
industry still have the same
Fishing effort, e
incentive as before to
compete with each other for
catch.
Now, fishing effort consists of a great number of variables. One subset of
these variables is of course the number of fishing days. Another is the fishing vessel
and its numerous components, such as size, engine power, speed, hull design, fishing
equipment, hold capacity, catch conservation equipment, landing equipment and so
on. A third component of fishing power is the fishing gear itself, its size, design and
fishing ability. A fourth component is the fish finding capability of the vessel; fish
finding equipment, external fish finding supports (such as airplanes, satellite
intelligence, special search vessels etc.), the fish finding knowledge of the captain and
the crew and so on. A fifth component of fishing effort is the crew itself, it number,
training and general ability. Not the least important among the crew is the captain. A
sixth component of fishing effort it the ratio of fishing time to total operating time that
the vessel is able to achieve. This depends on many factors many of which have been
mentioned above, namely fish finding ability, crew training, vessel speed and landing
equipment. Other variables that can increase this crucial ratio are the location of the
vessel relative to the fishing grounds and on-sea supports such as resupply,
maintenance, and, even more importantly, the offloading of catch and its transport to
shore by alternative vessels.
The above are just some of the more obvious examples of the various
components of fishing effort. A complete list would be extremely long containing
virtually thousands of individual components of fishing effort. The crucial point,
however, is that most of these components of fishing effort are technical substitutes,
i.e. they can to a certain extent replace each other. Thus, if one or more of them are
constrained, others can step in their place. Thus, for instance, if fishing days are
restricted, this can be counteracted by increased number of vessels. If both fishing
time and the number of vessels are restricted, this can be counteracted by the
employment of larger vessels. If the size of the vessels is also restricted, this can be
25
counteracted by more powerful engines, better fishing finding equipment, better
trained crew and so on. The crucial point is, that due to the multi-component nature of
fishing effort, it is virtually impossible to control fishing effort.
The most common direct economic restrictions employed are listed in the
following table:
Table 2.5
Examples of common direct economic restrictions
Categories
Specific restrictions
Fishing time
Number of fishing days
Number of days at sea
Fishing capital
Vessel size (length breath, GRT)
Vessel hold capacity
Engine power
Vessel speed
Various fishing equipment
Fish finding equipment
Fishing gear
Type of fishing gear
Volume of fishing gear
Number of gear units (traps, nets)
Let us now turn our attention to the impact of direct restrictions using our
standard sustainable fisheries model. The reader should be reminded that in analysing
the effect of direct economic restrictions we are, as always, relying on the cetering
paribus assumption, i.e. assuming that no other conditions of the fishery change.7
First, it is clear that direct economic restrictions, by increasing the cost of fishing
effort, will in general reduce equilibrium fishing effort and thus, increase the
equilibrium biomass. This is illustrated in Figure 2.12. Second, it is likely, although
by no means certain, that direct economic restrictions will increase the equilibrium
catch and the fishery revenue. This case is also illustrated in Figure 2.12. In this case,
the shift in the cost of (effective) fishing effort leads to a reduction in fishing effort
from e0 to e1, a substantial increase in sustainable yield and an increase in biomass
from x0 to x1.
7
Technically we may say that apart from the direct economic restrictions that are modified, no
exogenous variable is altered.
26
Figure 2.12
Equilibrium Effects of Direct Economic Restrictions
Final
equilibrium
$
Initial
equilibrium
e1
e0
Effort, e
x0
x1
Sustainable
biomass,
x
The other, less likely, case, could occur if the economic restrictions are
extremely severe and/or the initial equilibrium is fairly close to the maximum
sustainable yield. This is illustrated in Figure 2.13,
27
Figure 2.13
Equilibrium Effects of Direct Economic Restrictions: Fall in Sustainable
Yield
Final
equilibrium
$
Initial
equilibrium
e1
e0
Effort, e
x0
x1
Sustainable
biomass,
x
Irrespective, of whether the sustainable yield increases or not, direct economic
restrictions do not lead to an improvement in net economic returns from the fishery.
The fundamental reason is that the competitive forces that brought about the initial
situation of a no-profit fishery are not at all affected by direct economic restrictions.
The imposition of the restrictions, leading to an upward shift in the equilibrium effort
curve (Figures 2.12 and 2.13), merely means that the fishery has become less
profitable than before. In other words, it is experiencing losses. Hence, to avoid these
losses, there is a contraction in fishing effort. This may occur in either or both of the
following two ways: (i) firms (presumably the least efficient ones) will be forced by
financial losses to leave the industry, (ii) firms will find it to their advantage to reduce
fishing effort. This process of adjustment will continue until the industry finds a new
equilibrium (at effort level, e1) where there are no profits. At this point there is not
incentive either to increase or decrease fishing effort. The industry has found a new
equilibrium.
As in the previous section, it may be helpful to summarize these results as in
Table 2.6:
28
Table 2.6
Effects of direct economic restrictions on
equilibrium values
Fishing effort
Yield (harvest)
Biomass
Risk of stock collapse
Fisheries rents
?
+
0
As in the case, of biological management, direct economic restrictions will
increase the equilibrium fish stock biomass. Another benefit, not necessarily the
outcome of biological fisheries management, is that the risk of a biomass collapse is
now distinctly smaller than before (see Figures 2.12 and 2.13). On the other hand, the
main benefit of biological fisheries management, increased sustainable yield (and
hence consumer surplus), is not certain to happen under direct economic restrictions.
Finally, just as in the case of biological fisheries management, the muost crucial
variable, fisheries rents, have not increased. Thus, it appears that the only clear
economic benefit of direct economic restrictions is a reduction in the risk of a stock
collapse. There are, however, significant countervailing costs, as we will see.
The fishery cannot jump instantaneously from the initial equilibrium with
direct economic restrictions to the new one with the direct economic restrictions
imposed. Instead the fishery will have to travel between these two points along an
adjustment path, that may easily take considerable time. Obviously, therefore, what
happens to economic fisheries rents along this path is of substantial consequence.
The dynamic adjustment path of the fishery from the initial equilibrium to the
new one is illustrated in Figure 2.14.
Figure 2.14
Direct Economic Restrictions: Dynamic Adjustment Paths
Fishing
effort, e
Initial
equilibrium
e0
e1
Final
equilibrium
x0
x1
Biomass, x
29
Direct economic restrictions make a given level of fishing effort less profitable
than before. Therefore, a given level of fishing effort can only be sustained without
losses if the biomass level is increased. This is why the equilibrium biomass curve,
e =0, shifts to the right in the diagram and the new equilibrium is found at a lower
effort level and higher biomass than before, in accordance with Figures 2.12 and 2.13.
The adjustment path from the initial equilibrium to the new one begins with a decline
in fishing effort. This is natural as following the imposition of the direct economic
restrictions (such as restricted fishing gear or fewer fishing days), the initial fishing
effort level will be uneconomical. Following the initial reduction in fishing effort,
biomass begins to increase making fishing effort gradually more economical.
Eventually, the fishery becomes profitable and fishing efforts expands anew. Thus,
the adjustment path between the two is a spiral suggesting cyclical movement of
biomass and fishing effort and, consequently yield (harvest) and economic rents.
Figure 2.15
Direct economic restrictions: Typical evolution of profits
Profits
Time
The cyclical movement of economic rents (or profits) along the adjustment
path toward the new equilibrium is illustrated in Figure 2.15. Initially, along this path,
profits are highly negative. This is the period of declining fishing effort.
Subsequently, profits turn positive and continue toward the long term equilibrium of
zero in a cyclical manner.
The present value of profits along this path cannot be determined in general. It
depends on the particular situation. However, given the initial period of high negative
profits, the odds are the present value of profits along the adjustment period is
negative as suggested in the numerical example below. Interestingly enough, the
abolition of existing direct economic restrictions will in all likelihood produce the
reverse effect, i.e. net benefits along the adjustment path to the new equilibrium.
30
Example
Direct economic restrictions: Dynamic adjustment paths
Consider our usual very simple fisheries model with the biomass growth function
x = x - x2 –,
where, as usual x is biomass.
Let the harvesting function be:
y = ex,
where y represents fishing effort and e fishing effort.
And let costs be
c = e,
where c denotes costs.
Thus profits are:
 = ex - 0.7e,
where  represents profits.
Finally, let fishing effort evolve according to the adjustment function
e = .
Now, imagine direct economic restrictions that shift the equilibrum effort curve to the right as
discussed is the main text. Let the corresponding shift in equilibrium values be as follows:
Competitive equilibrium values
Initial
0.63
0.91
Biomass
Fishing effort
Final
0.70
0.87
The dynamic adjustment path of fishing effort and biomass from one initial equilibrium to the
new one and the corresponding path of fisheries rents over time are described in the next two diagrams.
0.05
Biomass & effort
Fihing effort
0.95
0.9
Zn 2
0.85
0.8
0.6
0.65
Zn 1
Biomass
0.7
0.75
0
prof ( n )
0.05
0.1
0
20
n
Time
40
31
As can be seen from the diagram, fisheries rents are initially highly negative as predicted by
theory. Then they turn positive and subsequently converge to zero in a cyclical fashion. Maximum
fisheries rents along the adjustment path are about 6% of revenues and maximum losses are about 11%
of revenues. Assuming 5% annual rate of discount (time measured in quarters), the present value of the
adjustment path is negative amounting to alightly less 0.3% of revenues.
The costs of management
Direct economic restrictions, just as biological fisheries management and, for that
matter, any fisheries management, is inevitably costly. It requires research to identify
the appropriate management measures, administrative processes to compare the
options, make a decision and implement it, and usually a good deal of monitoring and
enforcement activity to see to it that the measures are satisfactorily adhered to. As
discussed in section 2.1, all of these activities are quite costly and can amount to a
significant fraction of the gross revenues of the fishery (Arnason, Hannesson and
Schrank 2000).
Distortion of inputs
In virtually every fishery, fishing effort, as already discussed, can be produced with a
great number of economic inputs.8 At any point, fishing firms will produce their profit
maximizing amount of fishing effort with what is to them the optimal combination of
inputs. Faced with direct economic restrictions on the use of one or more of these
inputs, fishing firms will rearrange their combinations of inputs. This, in general
means that they will to a certain extent replace the constrained inputs with some other
inputs.9 Thus, in addition to directly restraining the use of some inputs, direct
economic restrictions will distort the use of other inputs. While this is certainly cost
minimizing given the direct restrictions (as well as nullifying some of their impact), it
may imply a long term social cost. Some of the inputs used excessively to counteract
the restrictions may take the form of capital inputs. Thus, the capital structure of the
fleet may be distorted by the economic restrictions.10 In the extreme case,
technological advances can not be implemented. Thus, when, the direct restrictions
are abolished, as they must be one day, the fishing fleet may be severely distorted,
even to the point where much of the existing capital is useless. This represents an
added potential cost of direct economic restrictions.
8
9
10
One of the simplest fishery conceivable is an abalone fishery where the fishermen dive from raft to
collect abalone from underwater rocks. Nevertheless, the number of of distinct economic inputs in
this fishery that can substitute for each other is very high. Let’s for instance assume that the
fisheries authorities get it into their head to limit the number of dives. Then, the fisherman can
compensate by one or more of the other (i) train himself to be able to dive longer and deeper, (ii)
select his diving areas with greater care so that he can pick more abalone in each dive, (v) select the
best fishing times, (iv) discover a new technique to pick abalone (e.g. from submarines, plows,
using scuba gear etc.). (v) increase the number of trips if only dives per trip are controlled. This
example should make it clear that it is very difficult to control all the various means, the fishermen
have to generate fishing effort.
This is argued in some detail in Technical Appendix 4.
Too powerful vessels to beat limited fishing days, misshapen vessels to beat length restrictions etc.
32
Conclusions:
Direct economic restrictions do not remove the common property problem that is at
the root of the fisheries problem. Therefore they do not produce any long term
economic gain. In addition, there are generally considerable costs associated with
operating a system of direct restrictions. First, imposing direct restrictions probably
involves some net costs along the adjustment path to the new equilibrium. Second,
designing, imposing and enforcing direct economic restrictions represents a net cost
of most likely quite significant magnitude. Third, direct economic restrictions are
likely to distort the technical composition of the fishing fleet compared to what would
be most efficient and thus implies a certain capital cost in the future when the
restrictions are abolished.
Counteracting these costs are a higher level of biomass and most likely less
risk of a stock collapse an d possibly higher sustainable yield of fish. These benefits,
however, appear small compared to the economic costs mentioned above.
Thus, direct economic restrictions can hardly be recommended for fisheries
management except possibly in the extreme case where the alternative is the collapse
of the fish stocks. In this sense direct economic restrictions fall in the same category
as biological fisheries management. If anything, however, direct economic restrictions
due to their net costs along the adjustment path and input distortive effect, may be
even more harmful than biological fisheries management.
33
Technical Appendix 2
Direct restrictions: Analysis
Consider the following general fisheries model:
(1)
x =G(x)-Y(e,x),
(2)
(e,x)  Y(e,x) – C(e)
where x represents biomass, e fishing effort and x x/t, where t refers to time. The
functions, G(x), Y(e,x), C(e) and (e,x) represent the biomass growth, harvesting, cost
and fisheries profit functions respectively all having the usual properties (See chapter
A).11 In particular, we take all first derivatives of these functions to be positive.
Competitive equilibrium is defined by the conditions:
e = (e,x) = 0.
Solving system (1) and (2) with these conditions imposed yields the
corresponding equilibrium values for fishing effort, e, and biomass, x, provided such a
solution exists. As demonstrated in Chapter A, in a stable equilibrium, Gx(x)-Yx(e,x)<0
and Ye(e,x) – Ce(e)<0.
Consider now direct fisheries management. This may be represented as shift
parameters in the three basic functions, G(x), Y(e,x) and C(e). Let us represent this as
follows:
G(x,),
Y(e,x,),
C(e, ),
where  may be regarded as biological management and  economic management.
Without loss of generality we take all first derivatives to be positive.
Note that we have assumed that direct economic restrictions affect both the
harvesting function and the cost function. Analytically, it is easier to consider only
one type of effects. This we can do by the appropriate definition of fishing effort. For
this, there are basically two options which we refer to as options (a) and (b) below:
(a) Fishing effort is defined as the biologically effective fishing effort (e.g. fishing
mortality).
It follows that that the harvesting function, Y(e,x), is independent of management
restrictions. On the other hand, it should be clear that the quantity of economic
inputs necessary to produce a given level of effective fishing effort depends on
the management restrictions. Formally:
11
Note that without loss of generality the price of fish has been normalized to unity.
34
e=E(z,,),
where z represents economic inputs and  direct economic management measures.
The first derivatives of the function E(z,) may plausibly be assumed to exist
and to be:
Ez > 0, E,E< 0.
Hence, the inverse function
z=E-1(e, ,),
also exists. Substituting this function into the cost identity yields:
c  wz = w E-1(e, ,)  C(e,,),
where C(e, ,) is the cost function for effective fishing effort and w represents
the unit price of inputs.
It is now easy to derive:
c/e = w/Ez>0,
c/ = -wE/Ez >0
c/ = -wE/Ez >0.
So, the cost function is increasing in both effective fishing effort and the direct
restrictions. The latter means that the cost function shifts upward in (cost,effort)space if direct restrictions are imposed.
(b) Fishing effort is defined as (some index of) economic inputs.
In this case, the harvesting function depends on the direct economic restrictions.
Y(e,x,),
and the cost function is simply the identity:
c  we  C(e)
In what follows we will adopt option (a).
Comparative statics
Under this specification we have for equilibrium:
35
(3)
G(x,)- Y(e,x) =0,
(4)
Y(e,x) – C(e,,) = 0
Differentiating we can derive the following expressions for the impact of the
fisheries management parameters,  and , on the equilibrium values of x and e:
x/ =
x/ =
e/ =
e/ =
G  (Ye  Ce )  C Ye
 0,

C   Ye

> 0,
Y x  G  C  (G x  Y x )
= ? (>0 if C small enough),

(G x  Y x )  C 

<0,
where  is the determinant of the matrix:
 Ye 
 G x  Yx ,

 = (Gx-Yx)(Ye – Ce)+ YxYe >0.
Y
,
Y

C
x
e
e

Dynamics
Now we investigate shifts in the biomass and economic equilibrium curves in
(biomass,effort)-space. These curves are defined by:
(5)
x = G(x,)-Y(e,x) = 0,
(6)
e = (e,x)  Y(e,x) – C(e,,) = 0.
Differentiating (5) we find:
x/ =
 G
>0, provided Gx-Yx<0, i.e. the system is stable.
(G x  Y x )
e/ =
G
>0,
Ye
So the biomass equilibrium curve shifts upward and to the right when direct
biological restrictions are imposed.
Differentiating (6) we find:
36
C
>0,
Yx
C
e/ =  >0,
Ye
x/ =
x/ =
e/ =
C
Yx
C
Ye
>0,
>0,
So, the economic equilibrium curve shifts to the right when direct management
restrictions are imposed.
37
Technical appendix 3
Direct economic restrictions and the optimal combination of inputs
Imagine a fishing firm having a profit function:
(e,x)  Y(e,x) – C(e),
where x represents biomass and e fishing effort. The functions, Y(e,x), C(e) and (e,x)
represent the harvesting, cost and fisheries profit functions respectively.
Now let us assume that fishing effort is produced by the concave increasing
production function:
e=E(z),
where z represents the vector of economic inputs. Let the unit price of each of these
inputs be given by the vector of input prices, w.
For each level of fishing effort, the firm would like to select the minimum cost
combination of economic inputs. More formally:
Min wz s.t. e=E(z).
Write the solution to this problem as the vector function:
z = Z(e, w)
Notice that this expression gives the optimal use of the inputs for any level of fishing
effort and input prices. hence, any
deviation from this rule is socially costly.
For constant input prices and a homothetic
effort production function (such as the
Input 2
Hi
Cobb-Douglas production function) the
gh
er
fis
optimal combination of any two inputs is
hi
ng
ef
constant. This is illustrated in the following
fo
rt
diagram.
Now consider the case where some
of the inputs are constrained by e.g. direct
economic restrictions. Let the restricted
input be represented by the vector z°. Then
the optimal combination of the remaining
inputs given this constraint is given by the
function:
Optimal
combination
of inputs
Input 1
z = Z°(e, w, z°).
Generally, therefore, not only the restricted inputs will be altered but also the
unrestricted ones. The reason is that in order to counteract the effects of the input
38
ing
ish
f
er
gh
Hi
restrictions the fishing firm will in general alter its use of the other inputs. Thus, the
firm will move off the optimal
combination of inputs. The result is a
distortion in input use as illustrated in
Input,
Distorted
z2
the next diagram. In the diagram, the
combination
of inputs
use of input 1, z1, is restricted. To
partially compensate for this more of
input 2, z2, is used. As a result input
Distortion
combination becomes distorted as
indicated in the diagram. This, by itself
Optimal
combination
represents an economic loss.
of inputs
ort
eff
At the same time, unless there
is perfect substitutability between the
two inputs, the optimal level of fishing
effort for the firm is reduced.
z°1
Input, z1
39
2.3 Taxes (and subsidies)
The fisheries problem stems fundamentally from the fact, that fishing appears more
profitable to individual fishermen than it is for the fishing industry as a whole. As a
result, individual fishermen invest, fish and harvest in excess of what would be
collectively optimal. This situation can be changed by imposing a tax on the fishing
activity. A tax on the fishing activity renders it less financially rewarding to the
fishermen. Hence they will normally find it to their advantage to reduce the level of
their operations. It can be shown that with the correct tax the fishing activity  the
amount of fishing capital, the level of fishing effort, the harvesting volume and so on
 will be socially optimal.12
It is worth noting that the correct tax may in general be either positive or
negative. A negative tax represents a subsidy. A subsidy on the harvesting of
particular species may be for instance be justified in the multispecies framework in
order to reduce the stock size of a species that cannot be profitably harvested by itself
but adversely affect the stocks of other more valuable species (e.g. by predation or
food competition). This arrangement  a ‘fisheries subsidy’  parallels subsidies or
payments for the control of pests, mice, insects etc., often seen in association with
economic activity on land.
This idea of corrective taxes (and subsidies) is an old one in the theory of
economic policy and management. It was first rigorously formulated by the English
economist Pigou in 1912. Pigou was concerned with what has since become known as
the problem of externalities, i.e. the situation where one agent’s activities affect
another’s opportunities without a commensurate payment. The reason for nonpayment is generally the lack of the appropriate property right for which payment
could be charged. Pigou’s proposed solution was to impose a tax equivalent to this
missing payment on the producer of external effects and thus induce him to bring his
activities into line with what would be socially optimal. Ever since this arrangement
has been known as Pigovian corrective taxes.
The Pigovian theory of corrective taxes is directly applicable to the fisheries
problem. In fisheries, one fisherman’s harvest reduces the available fishable stock
and, consequently, the opportunities of all other fishermen to harvest. He, in other
words, imposes an externality on all the other fishermen.13 This external effect can, in
principle, be corrected by the appropriate Pigovian corrective tax.
A fisheries corrective tax can in principle be imposed on either the outputs
(the harvest) or the inputs. We will now briefly discuss each one in turn.
The simplest and most effective way to implement corrective taxation in a
fishery is to tax the catch value. The effect of this is to reduce the net revenues of the
industry and thus make the fishery less profitable for the fishermen. In the framework
of our sustainable fisheries model, this is equivalent to shifting the sustainable
revenue curve downward as illustrated in Figure 2.16.
12
13
See Technical appendix 5.
More generally, he may also impose externalities on other users of fish stocks such as
conservationists.
40
There are
many ways to tax the
output value of a
fishery. Figure 2.16
illustrates the effect
Revenues;
Costs
No Tax
of a proportional tax
$
on revenues (landed
value).14 This tax
may for instance be
Tax
imposed as a certain
Revenues
proportion of landed
With Tax
value or, what
essentially amounts
ec
e*
Effort, e
to the same thing, a
xc
proportion of the
landed price. In any
Biomass
x*
case, the effect of the
tax is to shift the
sustainable revenue
Sustainable
curve downward
biomass,
according to the size
x
of the tax.15 This will
of course alter the
equilibrium position
of the fishery as illustrated in Figure 2.16.In the initial position, before the tax is
imposed, the industry equilibrium is at fishing effort ec, and biomass xc where there
are no economic rents. After the imposition of the tax, with lower net revenues, the
industry equilibrium is at a lower fishing effort level e*. The corresponding
equilibrium biomass stock level is increased to x*, and, depending on the particulars
of the initial situation, most likely also the volume of harvest.
Figure 2.16
Optimal Tax on Landed Values
In the new equilibrium, (e*,x*), the industry is not making any more profits
than in the initial equilibrium (ec,xc). There are substantial rents, however,
indicated by the line marked ‘Tax’ in the diagram. These rents are collected as
tax payments from the industry. This is an important point. In a fishery
managed by taxes, the equilibrium taxation revenue is equivalent to the
fisheries rents generated.
Theorem
Taxes equal fisheries rents
In a fishery managed by taxes, taxation revenue is equivalent to fisheries rents.
14
15
If revenues are written as py, where p is price and y the landed quantity, revenues with the
proportional tax imposed tax would be (1-t)py, where t is the tax rate and the tax income would be
tpy.
Thus, in the extreme case of 100% taxation, the revenue curve would simply follow the horizontal
axis.
41
As, the diagram in Figure 2.16 is drawn, the tax is optimal in the sense that it
is equivalent to the maximum fisheries rents that can be extracted from the industry.
Both lower and higher tax rates would generate lower tax revenues. In fact, as can be
seen from the diagram,
a slightly higher tax
Figure 2.17
rate (lowering revenues
Tax revenues (fisheries rents) as a function of the tax
still further) would
rate
make the fishery
unprofitable at any
effort level, so it would
Tax income
end and the tax
(fisheries rents)
income, consequently,
fall to zero. In most
real fisheries, this drop
in tax revenue or
fisheries rents at too
high tax rates would
100%
happen long before the
Tax rate, t
100% tax rate and be
quite precipitous. Thus,
typically, the tax
revenue as a function of the tax rate would evolve as illustrated in Figure 2.17.
Tax on the use of economic inputs would, in principle, albeit not necessarily in
practice, yield the same results. The effect of such a tax is to move the fisheries cost
function upward by the amount of the tax. Again, the tax returns must be fisheries
rents. If the correct tax
is selected, the tax is
Figure 2.18
selected, fisheries
Optimal Tax on Inputs
rents will be
maximized. In other
Costs
With Tax
words, the fishery is
$
optimal. This is
illustrated in Figure
Costs;
2.18. In this diagram
No tax
Tax
there is a tax on
Revenues
fishing effort. Having
to pay this tax, the
industry is
ec
e*
Effort, e
unprofitable at the old
fishing effort level, ec.
xc
Therefore, fishing
Biomass
effort contracts until
x*
the industry finds a
new equilibrium at
fishing effort, e*. If, as
Sustainable
biomass,
in the diagram, the tax
x
is correct, this effort
42
level is optimal for the fishery. Thus, the fishery outcome  fishing effort, harvest
and biomass  is identical to that under the output tax in Figure 2.16 The same
applies to the level of economic rents reflected in the tax revenue and the profitability
of the fishing industry, namely zero. Finally, the schedule of tax returns (economic
rents) as a function of the tax rate would exhibit the same general characteristics as
that for the output tax, illustrated in Figure 2.17, including the possibly discrete drop
at sufficiently high tax rates. The exact shape of this schedule for the input tax regime
will, however, be different from the output tax regime.
In reality the situation is not this simple. Fishing effort is not a observable
variable suitable for taxation. Fishing effort, as we have already seen, It is generated
by a large set of economic inputs such as vessel characteristics, fishing gear, days at
sea, crew size and so on. In practice, it is only a few of these inputs, generally the
more easily measurable ones, that can be taxed. Thus, we are faced with the practical
problem that only some fisheries inputs can be taxed but fishing effort as such cannot.
This, essentially brings us into the framework of the previous section, direct economic
restrictions. For the fishing industry will, of course, attempt to substitute the taxed
inputs with untaxed ones. This will counteract the purpose of the tax, at least to a
certain extent. Secondly, and more seriously, it will distort the input mix of the
industry and make it less efficient. Within the framework of Figure 2.18, therefore,
the effect of tax on some (but not all) the inputs, will be to shift the basic fisheries
cost function, i.e., before the tax is imposed, upward. This latter effect represents a
real economic loss reducing the maximum net fisheries rents that can be extracted
from the industry. For this reason, fisheries management by taxing fisheries inputs is
in general greatly inferior to taxing fisheries output, i.e. the volume or value of the
harvest.
So, it emerges that a tax on fishing, especially tax on landings, can in principle
achieve the main goals of fisheries management, reduce fishing effort, increase the
fish stocks reduced the risk of stock collapse and, most importantly, generate fisheries
rents. These results are summarized in Table 2.7.
Table 2.7
Effects of landings tax on equilibrium
values
Fishing effort
Yield (harvest)
Biomass
Risk of stock collapse
Fisheries rents
?
+
+
The results listed in Table 2.7, apply in equilibrium. What about the
adjustment path from the initial equilibrium without taxation to the final one? This, it
turns out, depends very much on how the tax regime is implemented.
Unlike most direct (biological and economic) fisheries management tools, the
fisheries tax is essentially a quantifiable instrument in the sense that the tax rate can
be continuously varied. By varying the tax rate over time, the adjustment path of the
43
fishery from the old to the new equilibrium can be controlled. Thus, in principle, it
would be possible to follow the optimal adjustment path by more or less continuous
variations of the tax rate.
To simplify matters, however, let us consider the extreme, but perhaps not so
unrealistic, case of a once and for all imposition of the optimal long run tax rate on an
initial situation of bionomic equilibrium. In our usual diagram for dynamic analysis
(in (biomass, fishing effort)-space), the immediate effect of this is to shift the
economic equilibrium curve to the right as illustrated in Figure 2.19. The initial
equilibrium, consequently, is one of severe economic losses to the industry.
Consequently,
there will be a
Figure 2.19
contraction in
Tax on landings: Dynamic adjustment of the fishery
fishing effort
leading to
increase in the
Fishing
biomass size
effort, e
which, combined
with falling
fishing effort,
will ultimately
Initial
equilibrium
make the fishery
e0
profitable again
giving rise to a
e1
cyclical
Final
adjustment of the
equilibrium
with tax
fishery to the new
equilibrium as
illustrated in
Figure 2.19.
x
x0 1
Biomass, x
Essentially the path of the fishery is similar to the one for direct economic
restrictions discussed in section 2.2. Thus, the industry experiences substantial losses
during the initial phase and the present value of profits to the industry during the
complete adjustment phase to the new equilibrium of zero profits is almost certainly
negative. There is an importance difference, however. Economics rents, i.e. net
economic benefits, are earned throughout the adjustment phase. And the sustainable
rents, in the new equilibrium, can be very substantial. Thus, there is an important
difference between industry and social profitability under the fisheries taxation
regime. Social profitability is positive, generally substantially so, if the tax is
anywhere close to being optimal. Fishing industry profitability, on the other hand, is
probably negative and at best zero. The difference is accounted for by the tax
proceeds. This is illustrated in Figure 2.20.
44
Figure 2.20
Evolution of tax returns (fisheries rents) and
industry profits
Tax income
(fisheries rents)
$
0
Time
Industry
profits
Example
Tax on landings: Dynamic adjustment paths
Consider, once again our very simple fisheries model with the biomass growth function
x = 2x -1 x2 – 0.3,
where, as usual x is biomass.
The profit function as before is:
 = ex - 0.7e,
where e represents profits and  profits .
Let fishing effort evolve according to the adjustment function
e = 5.
Finally, assume a rate of discount of 10% (0.1).
Under these specifications, the competitive and optimal (rent maximizing) equilibrium levels of
biomass and fishing effort are:
Competitive and optimal equilibrium values
Biomass
Fishing effort
Competitive
0.7
0.871
Optimal
1.262
0.5
45
The optimal tax rate, i.e. the one that will sustain the optimal fishery as an industry equilibrim
is 0.445. Imposing this tax at the initial competitive equilibrium generates a fishery adjustment path as
described in the next diagram:
Fihing effort
0.871
Zn 2
0.092
1
0.5
0
0.5
0.7
1
1.5
Zn 1
Biomass
2
1.546
The corresponding path of fishning industry profits, tax evenues and economic rents is
illustrated in the following diagram. As can be seen from this diagram, taxes initially exceed ffisheries
rents by a wide margin. Thus initially most of the tax revenue is met by the corresponding losses to the
industry. Subsequently, however, fisheries rents starts to pick up, industry losses diminish and the paths
of tax revenue and fisheries rents converge.In the new equilibrium, fisheries rents and taxes are
identical and industry profits (after tax) are zero.
Assuming a rate of discount of 10%, the present value of economic rents along the ajustment
phase is 1.73 (units of fish) or about 3 times the annual revenues. The present value of tax returns are
higher or 2.09 (units of fish). The difference is exactly made up by industry losses of 0.36 (units of
fish).
Management costs
A taxation regime is generally subject to substantial management costs. There are first
of all certain costs, associated with merely determining the appropriate tax rate,
especially if it is supposed to be close to the optimal one. To do that requires
extensive knowledge of both the biological and economic conditions of the fishery.
Then there are the collection and enforcement costs. For instance, if there is a tax on
the value of landings, the volume an unit price of landings needs to be monitored in
order to assess the tax. In most cases this requires expensive monitoring activity at
landing sites if not aboard the vessels themselves. Then the tax must be collected
which requires the set up of the appropriate collection mechanism. Finally, there will
generally be significant legal costs associated with the apprehension and prosecution
of alleged violators.
These management costs represent the use of real economic resources.
Consequently, they have to be subtracted from the gross tax proceeds to generate net
tax proceeds or, equivalently, net fisheries rents.
Government waste
In most cases the tax proceeds are collected by the government or a similar agency
and become a part of the government’s overall income. This can both be an advantage
46
and a disadvantage. It is an advantage in the sense that this new income provides the
government with an economically efficient tax base. Thus, it provides the government
with tax base that, unlike most traditional tax-bases, is not only non-distortive but
actually economically beneficial. This is particularly important in the case of severely
underdeveloped nations which tend to have weak tax bases. Secondly, the tax income
provides the government with the opportunity to reduce or end other, presumably
economically distortive, taxation such as excise or income taxes.
The disadvantage is that increased tax income received by the government (or
a similar agency) is potentially subject to misuse and waste. Hence, it is possible that
the fisheries rents saved from being wasted in the fishing industry by the fisheries tax
system, simply end up being wasted by the government. It is now well established
(Sutinen and Anderson 1985, Andersen et al. 1998) that there are three fundamental
reasons for government waste; (i) inappropriate incentives, (ii) asymmetrical
distribution of the costs and benefits of government actions and (iii) rent seeking. This
will be further discussed in a later section [SECTION NUMBER]. Without going into
detail at this stage, let us just state that any income received by the government or a
similar agency, including fisheries tax revenues, is potentially subject to wasteful use.
This, then is a cost, like any other that must be associated with fisheries management
by means of taxation and, consequently, subtracted from any net economic fisheries
rents the regime manages to generate.
Conclusions
Fisheries management by means of taxation has some attractive advantages.
– It works in principle. I.e. the tax if correctly determined and administered can
bring the fishery to its optimal point.
– It is difficult to totally mismanage a taxation system. Any tax returns must
represent fisheries rents. Hence, the amount of tax returns (especially if they are
reasonably stable) provide a measure of the efficiency of management. Thus, if
the tax returns are low, then the tax rate is either too low or too high.
– The fisheries management tax is economically beneficial. At the same time
generates income for the government. It thus provides the opportunity of replacing
less efficient taxes with an economically beneficial one. This is an added sidebenefit of the fisheries tax.
Unfortunately, there are also some significant disadvantages.
– For an initially overexploited fishery, the taxation regime entails a difficult
adjustment period for the fishing industry with high losses and, quite possibly,
widespread bankruptcies. This can only be avoided if the tax rate is set at a very
low level initially and increased extremely slowly thereafter or if the industry
receives countervailing lump sum subsides. Neither alternative is attractive. The
former really means the continued sacrifice of economic fisheries rents for a
substantial length of time. The second, as any other subsidy, implies administrative
costs and risks of misuse. Besides, unless successfully implemented as a lump
sum16, the subsidy may even thwart the purpose of the tax.
16
I.e. totally unrelated to the fishing activity of the firms in question.
47
– A taxation regime, is in general socially unpopular. This seems to be partly for the
economic hardship it entails. However, the general opposition to this type of
management seems often to be more deep-rooted. In any case, there must be a
reason why a fisheries management taxation regime has not been implemented in
any significant ocean fishery around the world.
– Fisheries management by means of taxation requires a great deal of rather costly
enforcement.
– It is extremely difficult, if not impossible in practice to determine the correct
amount of the tax. To be able to calculate the optimal tax, the authorities must be
in command of all the data about all the fishing firms. It must know everything
about the fish stocks and its population dynamics over time and it must continually
monitor all the relevant prices including those for fish landings and fisheries
inputs. Finally, the taxation authority must be able to assimilate all this data and
calculate the optimal tax virtually instantaneously. For the optimal tax must be
continuously adjusted over time in the light of altered conditions. Obviously, no
real fisheries manager can meet these requirements. Hence the tax is bound to be
less than optimal. The question therefore is how suboptimal will the tax set by real
world authorities be?
– In many societies, it is legally, administratively and politically difficult to vary
taxes over time. However, as we have seen, the optimal tax must be continuously
altered. Therefore, in practice, the tax must be sub-optimal also for this reason.
– It can be shown (Arnason, 1990), that the optimal tax varies across firms basically
according to their size. Thus, a small firm should pay a higher tax per unit of catch
than a small firm.17 Unfortunately, in most cultures, this type of a tax schedule
violates standard notions of fairness.
– Fisheries taxation generates income for a centralized authority. Under certain
circumstances, this may be an advantage. However, any such income is also
potentially subject to government waste. In the extreme case, fisheries rents
initially wasted but saved by a successful fisheries management by means of
taxation is eventually wasted by misguided government spending.
In summary: Fisheries management on the basis of taxation has some quite
attractive theoretical as well as practical properties. At the same time, the method, is
subject to a several disadvantages. Broadly these disadvantages suggest that it is
extremely unlikely that a fishery can be anywhere close optimally managed on the
basis of taxation. On the other hand, fisheries management on the basis of taxation
seems to be quite robust in the sense that it the manager has to be particularly inept not
to be able to generate substantial part of the maximum attainable fisheries rents with
the help of this method. We therefore conclude, that fisheries management on the basis
of taxation remains an interesting possibility for effective fisheries management.
17
What could be the practical relevance is this effect? For a roughly equally sized firms the difference
in taxation is negligible. However, if some firms have a significant fraction (5%) of the industry
while others have a very small fraction (0.1%), say the difference in the optimal tax rate becomes
significant.
48
Technical appendix 4
The optimality of taxes
Imagine a fishing firm having a profit function:
(e,x)  Y(e,x) – C(e),
where x represents biomass and e fishing effort. The functions, Y(e,x), C(e) and (e,x)
represent the harvesting, cost and fisheries profit functions respectively. Note that
without loss of generality, the price of fish has been set to unity.
Now impose a tax, , on the output of this fishery. With the tax, the profit
function becomes:
(e,x,)  (1-)Y(e,x) – C(e).
Profit maximization by the firm leads to a path of fishing effort that can be
described by the function:
e°(t) = F(x(t),(t)),
where t refers to time. Now, provided, the profit function is sufficiently smooth, this
function will in general be continuous and monotonically decreasing in the tax rate, .
Moreover, an infinite tax rate will generate an infinitely negative fishing effort
(F(x(t),)  -) and in infinite negative tax rate will generate an infinite effort level
(F(x(t),-)  ). It follows that any fishing effort level can be generated by the
appropriate choice of the taxation instrument.
Let’s now assume that the optimal fishing effort at time t is e*(t). It follows
from the above, that there exists a tax rate, *(t), that will generate precisely this level
of fishing effort according to the equation:
e*(t) = F(x(t),*(t)).
49
2.4
Property Rights
The market is known (Debreu 1958, Varian 1992) to have certain very attractive
efficiency properties. Secure and well defined property rights are fundamental to the
proper operation of the market (Arnason, 2000). Lack of property rights manifests
itself as externalities or, more precisely, technical externalities (Bator, 1958).
Technical externalities occur when one agent’s actions affect another’s opportunities
without compensation (i.e. without the agreement of both parties). With complete
property rights this cannot happen. A negatively affected person would of course
receive compensation for the violation of his property and a positively affected person
would be pleased to pay for an increase in the actions that he benefits from.
The fisheries problem may be regarded as being caused by externalities. Since
fish stocks are limited, each fisherman's catch reduces the harvesting opportunities of
all other fishermen. This is a typical technical externality. As all other technical
externalities, it arises because of lack of property rights. In this case, there are
inadequate property rights in the fish stocks from which the harvest is taken.
So, in a very fundamental sense, the fisheries problem is caused by a lack of
property rights. It follows that it would disappear, if only the appropriate property
rights could be defined, imposed and enforced. This, however, is precisely the
problem. For it turns out that there are substantial technical and social problems to
defining, imposing and enforcing sufficiently good property rights in many fisheries,
especially off-shore ocean fisheries. For this reason, fisheries managers have often
been forced to resort to resort to rather weak and indirect property rights such as
access licences and harvesting quotas. In some cases, however, these indirect (or
quasi-) property rights can solve a good part of the fisheries problem. Before we
discuss such options, it is useful to briefly consider the essential contents of a good
property right.
2.4.1 Property rights: Content, dimensions and quality
To understand property rights and their economic function , it is necessary to
appreciate the following two fundamental attributes of property rights:


A property right is not a single variable. It is a multi-dimensional phenomenon
composed of a number of characteristics
Property rights are not equally good. The quality of a given property right lies on a
scale that ranges from zero  no property right quality at all  to a perfect
property right.
We will now briefly consider these two fundamental attributes of property rights in
more detail.
Property rights, really consists of a collection of different characteristics. The
number of distinguishable characteristics that make up a property rights is
very high. However, according to Scott (1996, 2000) the most crucial
characteristics are:
50




Security
Exclusivity
Permanence
Transferability
Let us now briefly discuss the content of these characteristics.
Security, or quality of title
A property right may be challenged by other agents  individuals, firms or the
government. Security, here, refers to the ability of the owner to withstand such
challenges and maintain his property right. It is perhaps best thought of as the
probability that the owner will be able to hold on to his property right. Probabilities
range from zero to unity. A security measure of unity means that the owner will hold
his property with complete certainty. A security measure of zero means that the owner
will certainly lose his property.
Excusivity
This characteristic refers to the ability of the property rights holder to utilize and
manage the subject of the property right (the asset) without outside interference. An
individual's personal things such as his clothes, generally have a very high degree of
exclusivity. A right to the enjoyment of a public park has almost zero exclusivity. An
ITQ holder has a right to a specified volume of harvest from a given stock of fish over
a certain time period. Given the conventional legal protection, this right as such is
virtually 100% exclusive. No-one else can take this catch. However, the question of
exclusivity also refers to his ability take this harvest in the way he prefers. Any
government fishing regulations clearly subtract from this ability. The same applies to
the actions of other fishermen that may interfere with his ability to harvest his quota
in various ways. Thus, an ITQ right generally provides substantially less than 100%
exclusivity to the relevant asset, i.e. the fish stock and its marine environment. It
should be noted that enforceability, i.e., the ability to enforce the exclusive right, is an
important aspect of exclusivity.
Permanence
Permanence refers to the duration of the property right. This can range from zero, in
which case the property right is worth nothing, to infinite duration. Leases are
examples of property rights of a finite duration. By convention, the label "ownership"
usually represents a property right in perpetuity or for as long as the owner wants.
Note that there is an important difference between an indefinite duration, which
merely doesn't stipulate the duration of the property right, and property right in
perpetuity which explicitly stipulates that the property right lasts forever. The duration
of a property right may seem related to security; if a property right is lost then, in a
sense, it has been terminated. Conceptually, however, the two characteristics are quite
distinct. Thus, for instance, a rental agreement may provide a perfectly secure
property right for a limited duration.
Transferability
This simply refers to the ability to transfer the property right to someone else. For any
scarce (valuable) resource, this characteristic is economically important because it
51
facilitates the optimal allocation of the resource to various competing uses as well as
users. An important feature of transferability is divisibility, the ability to subdivide the
property right into smaller parts for the purpose of transfer.
Following Scott (1988), it is helpful to visualize these characteristics of
property rights as measured along continuum from, say zero to unity. Thus, all four
characteristics may be represented as axes in four-dimensional space.18 This is
illustrated in Figure 2.21.
A given
property right may
exhibit all four
characteristics to a
Exclusivity
greater or lesser extent.
It is convenient to
measure this on a scale
from zero to unity. A
measure of zero means
that the property right
Security
Permanence
holds none of the
characteristic in
question. A measure of
unity means that the
property right holds the
characteristic
Transferability
completely. Given this
we can draw a picture
of perfect property
rights as a rectangle in the space of the four property rights characteristics illustrated
in Figure 2.21. The outcome is illustrated in Figure 2.22.
Figure 2.21
Characteristics of property rights
Figure 2.22
A perfect property right
Exclusivity
Security
Permanence
Transferability
18
We refer to the
map of the property
rights characteristics as
in Figure 2.22, as the
characteristic footprint
of a property right.
Obviously, the
characteristic footprint
of a perfect property
right represents the
outer limit for the
quality of all property
rights. It follows that the
corresponding
characteristic footprint
of any actual property
right in the same space
Obviously, more property rights characteristics would simply mean more axes.
52
of characteristics must be completely contained within this rectangle. This is
illustrated in Figure 2.23
Figure 5 illustrates the characteristic footprint of some actual property right
within the
characteristic
Figure 2.23
footprint of a
The quality map of a property right
perfect property
right. As the reader
Actual property right
can see, the actual
Perfect property right
Exclusivity
property right
illustrated in Figure
2.23 has rather little
security and even
less transferability.
On the other hand,
Security
Permanence
it has good
exclusivity and
almost perfect
permanence.
Transferability
The difference between the two characteristic footprints (a) our example of the
actual property right and (b) the perfect property right provides an idea of the relative
quality of the actual property right. We can use this to devise a measure of the quality
of a property right. One such measure, the so-called Q measure, is defined in Arnason
(2000). According to this measure the overall quality of a property right ranges
between zero and one, i.e. Q[0,1], with zero indicating no property right and unity a
perfect property right.
Now, as already pointed out, property rights are a necessary for the operation
of the market system. The market system, in turn, furthers economic efficiency and
production. We may take it for granted that the higher the quality the property right
the more scope for the operation of market forces and the more efficient the
associated economic activity. Hence, an overall measure of the quality of property
rights can be a useful tool for economic managers in general and fisheries managers in
particular, to assess, in broad terms, the probable efficiency of the management
system in place and to determine where economic problems may reside.
53
Technical appendix
The Q-measure of the quality of property rights.
Given the multi-dimensional nature of property rights, it is useful to construct an
aggregate numerical measure of the quality of a property right.
Let us for convenience refer to measure of the quality of property rights as the
Q-measure. What properties should the Q-measure satisfy? First, is should clearly be
increasing in all property rights characteristics. Second, it is convenient to restrict its
value to the same numerical range as the characteristics, namely the closed interval
[0,1], which "0" indicating zero quality property rights and "1" perfect property rights.
Third, since it appears that a positive level of some property rights characteristics, e.g.
security and permanence, is necessary for the property right as a whole to be worth
anything, a zero value of any of these characteristics should imply a Q-measure of
zero as well. We refer to these particular property rights characteristics as essential.
Fourth, the Q-measure should be flexible with respect to the individual weights of the
various property rights characteristics.
The following Q-measure seems to satisfy all these requirements:
N
Q  ( xiai )  ( w1 
i 1
M
w
j  N 1
2, j
 x j j ),
a
This Q-measure comprises M characteristics. The first N, xi, i = 1,2…,N, are
essential property rights characteristics, i.e. those that render the property right
worthless if they are zero. The remaining M-N property rights characteristics, i.e. xj, j
= N+1,N+2,…,M, are non-essential. The exponents, aI, i = 1,2…,M are all positive.
So are the weights, w1 and w2,j, which moreover sum to unity.
It is easy to check that this Q-measure satisfies all four of the requirements
stated above provided of courser that individual characteristics are measured on the
interval [0,1]. It is, moreover, flexible in the sense that it can account for any number
of essential and nonessential characteristics.
In our special case of four property rights characteristics, the Q-measure may
be taken to be:
Q  SEP(w1+ w2T), , , , , w1, w2>0 and w1 + w2 =1
where S denotes security, E exclusivity, P permanence and T transferability. The first
three characteristics are considered essential.
A priori, it doesn’t seem unreasonable to assume linear homogeneity (constant
returns to scale) of Q with respect to the first three property rights characteristics, i.e.
S, E and P. In that case we have the added restriction. ++=1.
54
2.4.2 Fisheries Management by Means of Property Rights
A great number of different property rights can be defined in fisheries. Quite a few
variants have actually been put into use. The spectrum, however, seems to be
adequately covered by the following alternatives:
(1) Access (fishing) licences
(2) Territorial use rights in fisheries(TURFs)
(3) Individual harvesting quotas, especially individual quotas (IQs) and individual
transferable quotas (ITQs).
(4) Community property rights
(5) Sole owner rights
These alternatives are not independent. TURFs are really a variant of sole owner
rights defined over an area. Community property rights really refers not to the form
but the holder of the right. The property right itself can take any form; sole owner
rights, territorial user rights, harvesting quotas or access licences. Thus, from this
perspective, the fundamental forms of the property rights are basically just three; sole
owner rights, harvesting quotas and access licences. An attempt to represent these
relationships is found in Figure 2.24.
Figure 2.24
Property rights alternatives and their relationships
Sole owner
rights
TURFs
Quota
rights
Access
licences
Community
rights
Access licences
Access (or fisheries) licences give the holder the right to pursue a particular fishery,
or set of fisheries, for a certain duration of time. Other restrictions regarding the
permissible fishing area, vessel type, fishing gear etc. are frequently added. These,
however, may obviously be regarded as direct economic restrictions extraneous to the
access licence as such. So in what follows we will ignore them.
Access licences, by conferring a right to the holder, constitute a property right.
To the extent that they are tradable in the market they will command a market price.
This price will depend on a number of variables, but generally the more restrictive the
issue of licences the higher the price ceteris paribus.
55
Access licences, however, are quite weak property rights, at least as far as the
fish stocks are concerned. Access licences only constitute a right to fish. The fish
stocks are still the common property of all holders of access licences. Thus, access
licences rank extremely low in the crucial property rights characteristic of exclusivity.
As a result the overall quality of the property right is quite low (see Technical
Appendix 6).
So, the holders of access licences are still to a large extent subject to the
common property problem. Therefore, in order to improve or even maintain their
share in the fishery they are forced to invest in fishing capital and expand fishing
effort far above what would be optimal. Moreover, just as in the unmanaged fishery,
they will continue to do so until all attainable economic rents have been dissipated.
Only at this point will the fishery find an equilibrium.
Under a system of access licences, however, the common property problem
may be somewhat alleviated. In an unmanaged fishery, fishing effort and
capitalization expands for two reasons; (i) entry of new fishing firms and (ii)
expansion in the operations of existing fishing firms. Under an access licence regime,
the first factor is obviously eliminated. In addition, if licences are for fishing vessels,
which is most common, the number of vessels cannot increase. Thus, access licences,
provided of course they are properly implemented, remove an important component
of the process by which fishing effort expands in an unmanaged fishery.
Unfortunately, however, the consequence will normally not be that the fishery will
manage to preserve the fish stocks and some fisheries rents in equiibrium. Usually,
this only means that the process toward stock reduction and complete rent dissipation
will be slower and less severely cyclical. After all, each licenced firm still finds itself
competing with all the others for a share in the catch. Therefore, it has an incentive to
expand operations (e.g. by enhancing the fishing power of its licenced vessels) as long
as average industry profits are positive. An equilibrium is only reached when all
industry profits have disappeared.19
Under access licences there is another, albeit perhaps not a very realistic
possibility for a significant economic improvement. If the group of licence holders is
sufficiently small and stable, there is a chance that they will be able to collectively
reach an agreement to pursue the fishery in a jointly beneficial manner. This, if put
into effect, is analytically equivalent to fisheries management based on communal
property rights to be discussed below. However, to make a distinction between the
two let us refer to collective fisheries management by licence holders as group
management. The two main obstacles to this kind of outcome are first, the difficulty
in actually reaching an agreement, especially if the number of licence holders is
significant and second, the difficulty of actually enforcing whatever agreement can be
reached.
Thus, most likely, access licences will not alter the competitive equilibrium of
the fishery compared to no management whatsoever. There is a slight chance,
however, especially if they are relatively few and the social distance between them
small, that licence holders will manage to set up reasonably efficient group
19
For more formal derivation of the above assertions see Technical appendix 5.
56
management in the fishery. For this reason, there is a degree of uncertainty regarding
the outcome of fishery management based on access licences. These results are
summarized in Table 2.8.
Table 2.8
Effects of access licences on fisheries
equilibrium values
(Possible but unlikely outcomes are
indicated by brackets “[ ]”)
Fishing effort
Yield (harvest)
Biomass
Risk of stock collapse
Fisheries rents
0
0
0
0
0
[-]
[?]
[+]
[-]
[+]
We conclude that access licences, while probably some improvement on open
access fishery, constitute very weak property rights and are, consequently, not very
promising as a fisheries management system.
Territorial use rights.
Under a system of territorial use rights in fisheries (TURFs), certain areas of the
ocean and/or the ocean floor are allocated to fishing entities, individuals and firms,
which subsequently have exclusive rights to the resources in the area. It may be the
case that these owners only hold exclusive rights to a part of the marine resources in
the area, e.g. shellfish, while other resources, e.g. pelagic species are accessible to
others.
Obviously, for TURFs to constitute a reasonably high quality property right,
the fish stocks in question must be sufficiently stationary. If the stocks can be
subjected to outside fishing pressure on leaving the area temporarily, the property
right will be correspondingly undermined.20 For this reason, TURFs are primarily
applicable to relatively (compared to the size of the territory) sedentary fish stocks
such as shellfish and certain crustaceans. For the same reason as well as reasons of
social history TURFs have usually been confined to relatively inshore areas.
Examples of fisheries that have been managed on the basis of TURFs are mussel,
oyster, scallops and even lobster fisheries.21
To the extent that the fish stocks in question, are sufficiently confined to the
territory, TURFs constitute a very good property right. Under these conditions, the
quality of the TURF property right approaches that of a farmer holding a certain plot
20
21
This applies for instance to the case of migratory fish stocks temporarily leaving fisheries
jurisdictions.( Munro 1979, Arnason and Bjorndal 1991).
Exclusive mussel and oyster areas are common, for instance in the Bay of Biscayne, France and
Pudget Sound, USA. Exclusive ocean quahog areas are found in Iceland. Exclusive scallop areas
are found e.g. in New Zealand and Iceland. Exclusive lobster rights exist in Maine, USA. Japan?
[Check all this and find references].
57
of land. Indeed, in many cases of territorial use rights, the owners find it to their
advantage to improve the habitat of their fish resources (e.g. oysters in Pudget sound,
scallops in New Zealand) and even feed them, just as a farmer husbands his animals.
In other cases, territorial use rights holders act more like ranchers or game keepers.
So, TURFs, when they are applicable, are fairly close to ideal property rights.
In fact, as property rights they are quite similar to typical land based property.
Unfortunately, however, given the migratory behaviour of most species of fish ,
territorial use rights are not really applicable to many ocean fish stocks. No doubt,
however, their use in many inshore waters might be substantially expanded.
Sole ownership
The common property problem can of course be solved by establishing sole
ownership over the resource (Scott 1955). Under sole ownership, there can be no
externality and therefore no damaging competition for catch shares. In fact, under sole
ownership, the fishery becomes like the normal property on land. Thus, conceptually
sole ownership of a fishery is similar to a TURF except the sole ownership does not
have to be territorially based. The position of the sole owner of a fishery is very much
like that of a game farmer or a ranch farmer with a herd of semi-wild animals. The
main difference, is that the sole owner of a fishery is usually not in the same position
as the rancher or the game farmer to improve the habitat and biomass growth of his
resource.
A sole owner of a fishery will have both the incentive and the means to
manage his property in the most efficient manner. This does not mean, however, that
he will not have any difficulties in achieving this. He will, of course encounter the
usual problems of enforcing his property right. Indeed, it most probably he will have
to deal with the classic problem he poaching. He may also have some persistent
management problems. If the fishery is a reasonable size he will need a fleet of
fishing vessels to pursue the fishery, each with its own captain and crew. His problem
will be to control and co-ordinate these fisheries units so as to maximize his overall
benefits.22 In this respect his situation will not be unlike that of the typical fisheries
manager trying to manage a fishery operated by several individual agents. The
difference is that sole owner will typically have much more power over the
conducting of the fishery than the typical fisheries manager. After all he can simply
fire captains and crews that misbehave. Also he will generally not be subject to the
vagaries of the political process like the typical fisheries manager. And, of course, the
sole-owner will not overinvest in capital. In spite of these important differences,
however, the sole owner’s management problem is in many respects similar to the
classical fisheries problem. He needs to set up a system that will induce his fisheries
units to operate in the most efficient way. For this purpose he may well chose to adopt
some of the fisheries management techniques discussion in this chapter.
More fundamentally, however, there are certain limitations concerning
property rights quality of a sole-ownership of a fishery. All fish stock exist as a
component of a complex of fish stocks embedded in a common ecosystem. It follows
22
This is the well known principal-agent problem (Kreps, 1990, Varian.1984).
58
that the size of other fish stocks are going to influence the growth of the particular
stock subject to sole ownership. So, the sole owner of a particular stock of fish is, in
fact, not insulated from the external effects imposed on him by the activity of other
fishermen harvesting other species. These external effects can only be solved by sole
ownership over the complete ecology. Of course, a farmer on land, not the least
ranchers and game farmers, encounter similar problems. The problem of species
interactions, however, appear to be of relatively greater magnitude in the ocean.
Nevertheless, while these cross-species effects in the ocean may be quite significant,,
they are probably in most cases much smaller than the direct effects of the fishery on
the stock itself.
There are some historical examples of sole ownership of fisheries. Thus, for
over four decades following World war II, the Icelandic large whale fishery was
conducted by a single company (Hvalur ltd)under an exclusive licence. The company
did the biological research, set a TAC every year and operated a fleet of vessles to
harvest it.. The company was highly profitable and, as far as can be seen, the fishery
was operated on a sustainable basis (Palsson, 1991). This arrangement only ended in
in 1988 because of the global ban on whaling. More recently, the Icelandic ocean
quahog fishery has been put under a similar management regime. [MORE
EXAMPLES, Japanese fishing rights, Aquarium fish licence in the Maldives. etc.].
Given the obvious economic advantages of sole ownership of fisheries, it is
somewhat curious that this method of fisheries management is not more common
around the world. Historical evolution may provide a partial explanation. Fisheries,
especially ocean fisheries have usually been exploited by many harvesters. Indeed,
typically, most of these harvesters have been small. Consequently, social cultures and
values supporting this state of affairs have evolved. The idea of exclusive property
rights over marine resources is relatively new. It goes counter to most people’s
perception of the proper social arrangement. In addition, there is the question of
income distribution and fairness. Giving sole owner rights to one agent in an already
established fishery may obviously threaten the livelihood of other fishermen. Even
those, not directly affected will generally find tend to find it unfair that most of the
fishing firms will have to give up their business to establish the exclusive rights of a
single firm.
However, on closer examination, the unfairness of a sole ownership of a
fishery is perhaps more apparent than real. At the very least, it does not have to be
unfair. For instance, sole ownership can be awarded on the basis of competitive
bidding. In this way, all current participants have a chance. More importantly, via the
auctioning process, the complete fisheries rents may be collected. Therefore it is
possible to more than compensate those that leave the fishery for their financial
losses. Moreover, even a sole owner will need vessels and fishermen. Hence,
normally, current fishermen will be able to sell him their vessels and equipment and
many existing fishermen will find work in his operations. Finally, sole ownership may
be awarded for a limited duration only.23 Thus, whatever problems emerge may be
reversed in due course.
23
Sole ownership of limited duration raises problems of economic efficiency in connection with the
state of the resource at the end of the sole ownership period. With sole ownership of limited
duration, it is undoubtedly necessary to set clear terminal conditions as to the state of the resource
when returned with the appropriate penalty clauses if violated.
59
Conclusion: Sole ownership of fisheries is an interesting option for fisheries
management. If feasible it is likely to solve the most of the classical economic
problems of fisheries. The disadvantage is that sole ownership of fisheries seems to
goes counter to deeply entrenched social sentiments concerning the proper
arrangement of fisheries. This notwithstanding, it may be applicable to considerable
more fisheries than it has been so far.
Community management:
One particular form of property rights management in fisheries has received
increasing interest in recent years [References, Hanna, Symes and Hatcher] This is the
so-called community management or group management system. The essence of the
community management is that a well defined group of people, e.g. a community, an
association of fishermen or a fisheries co-operative, is given exclusive rights to a
fishery or a particular part thereof. The property right may for instance be defined by
a geographical area (TURF) or a certain allowable harvest (quota).24 Given that these
rights are sufficiently extensive and exclusive, the group as a whole has clear interest
in managing their part of the fishery in the most profitable fashion. Whether they will
actually by successful in doing so is another story. This depends to a large extent on
the knowledge and internal dynamics of the group, in particular it decision making
mechanism. Assuming that group members are rational, however, strongly suggests
that a community management of a fishery is likely to improve the economic outcome
of the fishery compared to no management. At the same time, the group is likely to be
quite efficient in enforcing its fisheries management rules. Hence the fisheries
enforcement problem may be alleviated.
Among the many advantages of community management of fisheries the
following may be mentioned:
(1)
(2)
(3)
It may alleviate enforcement problems
It is socio-politically attractive in many cases.
It facilitates improved fisheries management by
Giving property rights to a group
Creating more appropriate incentives for decision makers
Decentralization /shorter lines of communications
More efficient use of information
Some of the disadvantages are:
(1)
24
There is no guarantee that communities get fisheries management right. Much
depends on the precise group dynamics, the availability of knowledge and the
structure of decision making. Also, there is a real possibility that community
decision making will shackle private initiative and lead to a conservative
fisheries policy based on the lowest common denominator in the group.
Exclusive community geographical areas are common in the inshore fishery in Japan and many
other places in the world. [REFERENCES, USA, Alaska, Europe, India].
60
(2)
(3)
Government authorities still need to monitor the communities anyway to see
that they do not exceed their allocated rights such as TACs or infringe upon
the rights of others (e.g. fish other stocks, exceed their allotted area etc.)
There is some risk of conflict between different community groups.
In spite of many problems, community management of fisheries is an
interesting variant of property rights–based fisheries management. In theory it is
inferior to sole ownership, TURFs and even ITQs but it often has the advantage of
being feasible where the other property rights arrangements cannot be implemented
for technical or socio-political reasons. Community management seems particularly
suited to small-scale artisanal type of fisheries with a high number of fishermen
needing little infrastructure (ports, processing, transportation and so on). In a situation
of this type, the cost of enforcing individual property rights may well prove
prohibitive. Community based rights, however, may overcome that problem by
incorporating a good part of the enforcement problem in the routine form of
communal enforcement. This is especially likely to be the case where existing
community structures are well developed and strong. However, it may also work for
new communities and associations.
Individual Quotas
Individual catch quotas constitute a private property right in the total harvesting
quantity. More precisely, a catch quota gives the holder the right to a certain share in
the total allowable catch. Since each fisherman’s use of the fish stock is restricted by
his quota holdings, the common property nature of the fishery is greatly reduced.
Thus, instead of competing with his fellow fishermen for catch from a limited
resource, the fisherman, under a vessel quota system, can concentrate on minimizing
the cost of harvesting his catch quota and maximizing its value by improving its
quality.
Individual catch quotas may be divided into two subclasses individual quotas
and individual transferable quotas. Individual quotas, usually referred to as IQs, are
quota rights that are nontransferable. In other words, an IQ must be held by the initial
recipient indefinitely. Individual transferable quotas, usually referred to as ITQs, may
be transferred or traded to others. Hence, at each given point of time the holders of
ITQs may be quite different from the initial recipients. Since IQs may be regarded as
ITQs with direct restrictions imposed, and the latter, i.e. ITQs, are economically very
much superior to IQs, we will for the most part restrict our attention to ITQs in what
follows:
ITQs
Transferable and perfectly divisible catch quotas are usually referred to as individual
transferable quotas or ITQs. If the ITQs are also permanent they constitute a relatively
high quality property right, not unlike exclusive user rights to a forest or a piece of
land. In that case, standard economic theory should apply and, barring other market
61
imperfections such as crowding on the fishing grounds, the fishery should
automatically reach full efficiency.
This important point may be explained in a little more detail: First, if catch
quotas are transferable, a market for the quotas will emerge. With the help of this
market quotas will tend to revert to the most efficient fishing firms. The more
efficient the quota market the more pronounced will this tendency be. In this manner,
an ITQ-based fisheries management system will tend to guarantee that the total
allowable catch (TAC) is always caught by the most efficient fishing firms.
Second, if the catch quotas are also permanent, fishing firms will find it to
their advantage to adjust the capacity of the fishing fleet to the socially optimal level.
After all, due to the transferability of the quotas, only the most efficient firms will do
the harvesting. These firms will not hold excessive fishing capital. If they did, they
would not be fully efficient and would lose out in the market for quotas. Therefore,
aggregate fishing capital will tend towards the socially optimal level.
Transferable quotas have a market price. Hence, they constitute a valuable
asset. This asset is diminished by use, i.e. harvesting. Thus, under an ITQ system,
there is, on top of the normal harvesting costs, a special cost or charge associated with
extracting harvest from the fish stocks. This cost is simply the market price of quotas
multiplied by amount of catch. It is convenient to refer to this cost as the quota cost. It
is important to realize that the quota cost is borne by the fishing firms irrespective of
whether they have to buy quota or not. In the case of firms without quota the cost is,
of course, obvious for they will have to buy the corresponding quota at the going
market price. In the case of fishing firms with sufficient quota, the cost stems from the
fact that their quota is reduced by the amount of harvest. Hence, by harvesting, they
forego the opportunity of selling the corresponding quota at the market price. This is
what economists call the opportunity cost of using an asset (Varian 1992). It is just as
real as a direct monetary outlay.
So, under an ITQ system, harvesting entails a cost equivalent to the value of
the corresponding quota. The effect is to reduce the net revenue from a given volume
of catch exactly as tax on catch under the tax regime. The implications of this can be
illustrated as in Figure 2.24.
The initial equilibrium, before the institution of the ITQ system, is defined by
the intersection of the ‘Gross Revenues’ curve and the ‘Costs’ yielding fishing effort
ec and biomass xc and no economic rents. Now, under an ITQ system a quota price
will emerge that will normally25 shift the revenue curve downward as illustrated in
Figure 2.24. The new equilibrium is defined by the intersection of the new revenue
curve, ‘Revenues less quota value’ and the ‘Costs’ curve at a lower fishing effort, e*,
and a higher biomass level, x*. At this point, as illustrated in the diagram, there are
substantial economic rents in the form of quota values. If the TAC is set optimally, as
in fact assumed in the diagram, this new equilibrium will also represent the fishery
optimum.
25
As we will later see, it is in fact likely, in the multi-species framework , that some quota prices will
be negative, suggesting a shift upward in the revenue curve.
62
Figure 2.24
Individual Transferable Quotas
Gross
Revenues
$
Costs
Quota
value
Revenues
less
quota value
e*
ec
Effort, e
xc
Biomass
x*
Sustainable
biomass,
x
Quota trades
Quota trades distinguish IQs from ITQs and are fundamental to the operation of the
latter. Therefore, it may be useful to describe their function in a more detail.
If fishing firms are interested in profits and catch quotas transferable, it is a
virtual certainty that a market for quotas will emerge. On this market bids and offers
for quotas will be placed and a market price generated26. The highest bids for quotas
will of course tend to come from the most efficient fishing firms  those that make
the most profits from each unit of catch  and vice versa. Observing these offers, less
efficient fishing firms will generally find it to their advantage to sell part or all of their
quota. Thus, with the help of market trades, quotas will tend to be sold away from the
less efficient fishing firms and bought be the more efficient fishing firms. This
process will continue as long as there are significant differences in fishing firm
efficiency. An equilibrium will only be reached when all active firms will be
operating roughly at the same level of efficiency. At this point, a measure of this
efficiency level will then be given the quota price.
26
For the purist, a market price only exists for an instance as a trade take place. In between trades
there is no market price, only bids and offers.
63
This analysis can be illustrated with the help of the diagram in Figure 2.25.
This diagram describes a fishery composed of three firms, Firms 1, 2 and 3, at a given
point of time. Quantity of harvest (or quota) is measured along the horizontal axis and
values along the vertical
one. After paying
Figure 2.25
harvesting costs each firm
Quota trades: An example
derives marginal benefits
from harvesting as
$
described the three
Firm 1
downward sloping lines in
the diagram. Each of these
Firm 2
lines indicates the firm’s
relative efficiency at
Firm 3
different levels of harvest.
Quota
Total
So Firm 3 is more efficient
price, s
demand
than Firm 2 which is more
efficient than Firm 1. At
the same time, the lines
q
q
q
q
represents demand for
Q
Q
Q
Harvest
catch, i.e. the price
(vertical axis) the firm
would be willing to pay
for the privilege to harvest
the corresponding quantity (horizontal axis). Thus, under no management, where the
purchase price, so to speak, of harvest is zero, the firms will elect to harvest q1, q2 and
q3, respectively. The total harvest, the sum of the three, is simply q. The total harvest
that would prevail if there was a positive purchase price of harvest is given by the
bold line in the diagram.
1
2
2
3
3
Now imagine, the imposition of an ITQ system and assume a considerable
cutback in total allowable catch to Q. Without such a cutback, of course, the fisheries
management would be meaningless.27 Given the total allowable catch of Q, the
equilibrium quota price would be s. At this price there will be a radical rearrangement
of the firms in the industry. Firm 1, the least efficient one, will leave the industry 
simply sell its quota. In should be noted that this firm, provided it doesn’t sell its
quota greatly below the market equilibrium price, s, will gain substantially from
selling out. The bulk of the catch, denoted Q3 in the diagram, is now taken by Firm 3,
the most efficient one, which has substantially increased its share of the fishery. Firm
2, will take approximately the same share as before.
Thus further illustrate the changes brought about by quota trades let us
summarize the numerical results corresponding to Figure 2.25 in Table 2.9.
27
The cutback, of course, doesn’t mean that the future TAC would be less than the harvest under no
management. Remember that this diagram only applies at a given point of time. In due course,
presumably, the fish stocks would recover, and the TAC would be increased, even beyond q. Note,
however, at that time, the harvest level corresponding to no-management would be even higher.
64
Table 2.9
Quota trades: Numerical example
Before ITQs
After ITQs
Firm 1
15%
0%
Share in total catch
Firm 2
31%
33%
Firm 3
54%
67%
A well designed ITQ system
To reap the full economic benefits of an ITQ system, the system has to be designed in
the appropriate manner. The most important components of such a design are:
1.
2.
3.
4.
The quota right should be secure.
The quota right should be permanent
The quota should be perfectly divisible and transferable
The quota should be stipulated as a share in whatever TAC is decided
in the future.
The first three components are all crucial aspects of any high quality property right as
discussed in section 2.4.1.28 The fourth has the added advantage of giving the ITQ
holder vested interest in the future of the fish stocks. Under share quotas, the value of
the ITQ holders harvesting rights is directly dependent on the state of the fish stocks.
If they are in a poor state, this value will be low and vice versa. Hence, under a share
quota system, the ITQ holder has every reason to conserve the reason, rebuild
depressed fish stocks the fish stocks and to avoid foolhardy harvesting policies.
Indeed, it can be shown (Arnason, 1990), that his attitude toward the stocks will be in
good accordance with that of society as a whole. In what follows, we will generally
take it for granted that the ITQ system is designed according to stipulations 1.-4.
above.
Optimality of ITQs
The above discussion should make it clear that under a well designed ITQ system we
have the following:
(1) Since the firms enjoy ownership of a harvesting rights, they are in a position to
maximize the economic benefits offered by their quota holdings.29
(2) Transferability of quotas means that only the right number of the most efficient
firms will do the harvesting.
(3) If the TAC is set optimally, the ITQ fishery will maximize economic rents.
optimal
28
Note that the fourth basic characteristic of a high quality property right, namely exclusivity, is
really built into the ITQ (or IQ) as such. Thus, an ITQ/IQ defines a certain degree (not very high) of
exclusive property right in the fish stock .
29 This they will among other things do by its investment/disinvestment policy, by adjusting the extent and timing of its fishing effort to take advantage of
variable profitability over time, by revising its selection of fishing gear and so on.
65
The practical situation is somewhat more complicated. The ITQ system only
produces the optimal solution conditonal upon the total allowable catch (TAC).
Consequently, in spite of the ITQ system, the authorities are still faced with the
problem of determining the optimal TAC. It is important to realize that this type of
requirement is by no means particular to the ITQ system. It applies for instance to
fisheries management by means of taxes, where the authorities need to set the correct
tax rate. It also applies to economic management in general. Thus, the market system
only produces optimal results given the existence of a variety legal restrictions and
conditions imposed by the government. A major task of all governments is to set these
restrictions and conditions optimally.
In the case of the ITQ fisheries management system, it can be shown30
that the TAC that maximizes the resource rents from the fishery is the one that
maximizes the value of the quota shares.31 A formal proof is a bit involved. The basic
intuition, however, can be gained from Figure 2.24 and the associated discussion.
Remember that resource rents are equivalent to quota values. Hence, looking at that
diagram, the TAC that maximizes quota values is obviously also the one that
maximizes resource rents.
This property of the ITQ system greatly simplifies the fisheries management
problem. In this task, the fisheries manager is helped by market valuation of quotas.
Market players hold the most complete information about the relevant variables such
as biomass levels and growth, input and output prices and fisheries operating
conditions in general. After all, quota holders and quota traders have the most to lose
by poor information or wrong predictions. Therefore, quota market arbitrage will
ensure that if the TACs are set too high or too low, the value of permanent quotas will
be correspondingly reduced. Only at the optimal TACs is the aggregate quota value
maximized. This is illustrated in Figure 2.26. Of course, Figure 2.26, is only one
example of the possible relationship between total allowable catch and resource rents.
The relationship can easily be different. Thus, for instance, maximum resource rents
may be at zero total allowable catch. In fact this would be a typical outcome in some
of the more overexploited fisheries of the world.
30
31
Arnason (1990).
If some vessels are more efficient than others the optimal TAC may be slightly higher. Arnason
1990.
66
Figure 2.26
Relationship between resource rents and total quotas:
An example
Thus, under
the ITQ system, all
the authorities
need to do is to
Quota values,
adjust the TAC
resource
until the market
rents
value of the quotas
is maximized. Due
to the extreme
informational
parsimony of this
method 
basically the
fisheries manager
doesn’t have to
Total allowable catch, TAC
know anything
about the fishery
himself  it has
been referered to as the minimum information management (MIM) in the literature
(Arnason, 1990, 1993).
Dynamics
The dynamics of a catch managed fishery are qualitatively different from the other
management systems considered, especially biological management and direct
economic controls. Under a quota system the management control is the total
allowable catch (TAC). This indirectly determines fishing effort, as the least cost
effort to take the TAC, and, in the case of ITQs, the quota price. Thus, by selecting
TACs, the fisheries manager can generate any biologically and economically feasible
path fishing effort and biomass over time.
It should be noted that it is usually not possible under a catch quota fisheries
management system, to impose the optimal equilibrium TAC and simply wait for the
fishery to settle down. In this way, a quota management system is very different from
a tax system where, as illustrated in section 2.3, the optimal equiibrium tax could
simply be imposed once and for all and the fishery would eventually settle down at
the optimal point. In a quota managed fishery, if the fishery has been overexploited,
which is most often the case, it is normally necessary at the reduce the TACs initially
below the optimal long run level and then increase the TAC at a later stage.
Otherwise, the stock could not be rebuilt. It is only if the fishery is relatively
underexploited at the outset, which would be the case for a new fishery, or the initial
harvest level is in excess of the optimal equilibrium one that the optimal equilibrium
can be reached without altering the TAC over time.
67
Thus, under the IQ/ITQ system , the nature of the adjustment path toward
equilibrium is fundamentally up to the fisheries manager. For instance there is no
reason to accept the cyclical adjustment paths that tend to characterize the adjustment
under the alternative
management
Figure 2.27
systems. Indeed,
An IQ/ITQ adjustment path toward the optimum
there is every reason
to exploit this
Fishing
flexibility to follow
effort, e
as closely as
possible the optimal
adjustment path. In
identifying this path,
Initial
equilibrium
the fisheries
e0
manager would be
assisted by the MIM
Optimal
procedure. An
e1
equilibrium
example of such a
reasonably optimal
looking path is
presented in Figure
x1
2.27
x0
Biomass, x
It is
important to realize
that along the
adjustment path illustrated in Figure 2.27, the fishing industry will be profitable,
provided the opportunity costs of quota is not subtracted from the net revenues. In this
the ITQ system is very different from fisheries management by means of taxes. The
reason is that under the ITQ system, the fisheries rents is left in the industry in the
form of quota values, while in the taxation regime, the fisheries rents are expropriated
by the fisheries manager.
Impact of ITQs on Costs and Revenues
As mentioned above, the property right vested in ITQs, in particular, the security of
harvest they imply, gives the holder the opportunity to seek ways to take that harvest
in the least cost way and to maximize the value of the harvest. In most fisheries there
are many ways to do this. Harvesting costs (or costs per effective effort) can be
reduced by selecting the optimal time to go fishing, i.e. when the catchability is
highest, avoid bad weather, reduce fuel consumption and wear and tear of the engine
by selecting the optimal engine speed, reduce gear usage by more selective fishing
methods, reduce crew overtime and accidents and so on. The value of the harvest can
be increased by a selecting more appropriate fishing grounds, fishing time and fishing
gear to bring aboard more highly valued catch, by a slower rate of catch so that
quality is better maintained, by a more careful attention to the preservation and
storage of catch before landing, adjusting the supply of landings to the fluctuations in
demand and so on. All of these cost saving and value increasing measures are made
easier by the security of having a catch quota.
68
It is important to realize that these effects are not included in the description of
the impact of the ITQ system in Figure 2.24. That figure only illustrates how, when
the proper level of the TAC is selected, the ITQ system moves the fishery toward the
optimal effort and, consequently, in time also the optimal biomass level. The effects
discussed above, on the other hand result in favourable shifts in both the cost and the
sustainable revenue functions. Hence, to the extent that these effects materialize, the
overall benefits of the ITQ system will be even greater. This is illustrated in Figure
2.27.
Figure 2.27
ITQs: Cost reductions and quality improvements
With the shift
in the revenue and
cost functions, the
Gross
optimal fishing effort
Costs
Revenues
increases as
$
illustrated in Figure
2.27. The interesting
Quota
aspect of this is that,
value
to the extent that this
Revenues
effect is exists, the
less
quota value
reduction in fishing
effort and increase in
ec
e*
Effort, e
biomass, normally
xc
associated with a
movement form an
Biomass
competitive
x*
equilibrium to the
optimal one, will be
smaller than would
Sustainable
biomass,be the case. The main thing, however, is that the maximum attainable quota
otherwise
x
value is increased.
What is the empirical relevance of this effect. Few measurements are actually
available. However, those few strongly indicate that they may be substantial. Thus
according to National Economic Institute of Iceland (As reported by Arnason 1995),
quality improvements in the first year after the introduction of the ITQ system in the
demersal fisheries, accounted to some 2.6% of the total value of the catch. Similarly,
Casey et al. (1995) and Wilen and Homans (1997) report that in the B.C. Halibut
fishery a good deal of the fisheries rents under ITQs seems to stem from increases in
market prices due to improved quality.
Other advantages of the ITQ system
The main advantage of the ITQ system is of course that it can in principle generate
efficiency in the fishery. There are, however, several other important positive aspects
of the ITQ system of which a few should be mentioned here. First, it is essentially a
decentralized fisheries management system. Second, it is robust in terms of generating
fisheries rents. Third, it allows for a straight-forward and non-distortive expropriation
of fisheries rents. Fourth, it is extremely flexible in terms of the distribution of the
69
economic benefits. Fifth, it promotes increased personal safety at sea. Sixth, it tends
to stabilize the supply and, consequently, the price of landings. We will now briefly
review these benefits.
(1)
Decentralized management
The ITQ system is fundamentally a decentralized fisheries management system.
Under the ITQ management regime the government's only role is to set the TAC and
to enforce the property rights. Apart from this, the fishery manages itself. There is, at
least not in principle, any need for input restrictions, investment constraints or any
other interference in the decisions of fishing firms. Given the familiar problems of
centralized government, this, of course, is a great advantage.
It may be noted that the ITQ system seems to offer an even further scope for
decentralization. Thus, the suggestion has been made that under the ITQ regime, the
fishermen could in principle determine the TAC and enforce the quota property rights
themselves.32
(2)
Robust rent generation
The ITQ fisheries management system is highly robust in the sense that it practically
guarantees some economic rents from the fishery. For any TAC that is decided the
industry will automatically maximize the economic rents generated. Only if the TAC
is so large that the fishery becomes an unmanaged fishery, or so small that the fishery
is closed will there be no rents generated. Moreover, the success of the fisheries
manager in setting the appropriate TAC will be reflected in the prevailing quota prices
in the market. These properties are actually illustrated in Figure 2.26 above.
As demonstrated in Figure 2.26, it is quite difficult to seriously mismanage an
ITQ system. Thus, an ITQ fishery even under a fairly inept fisheries manager, will
normally generate at least some economic rents. The only question is whether these
rents will actually exceed the management costs. To ensure that they will, it may be a
good idea to recover management expenses from the industry in the form of taxes.
This, of course, will have the added advantage of encouraging the industry to take
over the management function.
(3) Rent expropriation
All governments need to collect taxes to finance public expenditures. Most traditional
tax collection, e.g. income taxes, import duties, excise taxes, value added taxes etc.
are economically distortive. They induce modifications of economic behaviour and, as
a result, usually subtract from the efficiency of the economy.
The ITQ system has the important advantage that it can be combined with rent
expropriation schemes without distorting economic behaviour. A relatively easy way
32
See e.g. Scott (1988, 1993) and the references therein.
70
to this is by imposing a tax on catch. This will be matched exactly be a reduction in
the market price of quotas. Hence, the tax will have no effect on the behaviour of the
fishery. Thus, being non-distortive, this fisheries resource tax is ideal for taxation
purposes. For some fisheries based economies the fisheries resource tax could be
quite substantial.
(4)
Income distribution
Yet another advantage with the ITQ system is that it is compatible with almost any
distribution of the fisheries rents. Economic benefits from using quotas tends to be
reflected in their market values. Hence any distribution of the fisheries rents to
individuals, social classes or geographical regions can be achieved by judicious
allocation of the quotas. In addition to this, fisheries rents can, as pointed out above,
expropriated by taxation for public use.
Hence, contrary to what is sometimes asserted33, the income distribution issue
actually constitutes an advantage of ITQ systems and not a disadvantage.
(5)
Safety
The ITQ system allocates property rights in the harvesting quantity. Consequently, it
largely eliminates the need race for fish. Thus, the ITQ system greatly reduces the
need to pursue fishing in dangerous conditions. Under the ITQ system, the individual
companies can fish their quota at their leisure under relatively safe conditions.
As yet little evidence on increased safety under ITQ systems has become
available. What evidence there is34 tends to confirm the above theoretical predictions.
(6)
Supply of fish
By allocating private property rights in the harvesting process, the ITQ system offers
fishing firms the opportunity to select the optimal time profile of harvesting. In
particular, under the ITQ regime, fishing firms are in a position to adjust the
harvesting activity to market conditions. This means, ceteris paribus, reduced
harvesting activity during periods of relatively low prices and vice versa. By
harvesting arbitrage of this kind, the ITQ system is likely to smooth out fluctuations
in fish supply and prices compared to what would otherwise be the case.
The ITQ System: Disadvantages
ITQs like other innovations in fisheries management have of course been subject to a
critical review by the economic profession. In fact, over the years, several problems or
33
34
See e.g. Sutinen et. al. 1992.
See Sutinen et al. 1992.
71
disadvantages with ITQs have been suggested in the literature.35 These criticisms are
quite varied and somewhat haphazard. Many, moreover, are, in my opinion
misplaced. The following summarizes what I regard as the main problems with ITQs.
(1)
Imperfect property rights
The most fundamental problem with the ITQ fisheries management system is
that the ITQs are imperfect as property rights. The source of the fisheries problem is
the common property nature of the fish stocks. This problem can be tackled by
defining private property rights in the fish stocks, preferably individual fish. More
fundamentally, the crucial natural resource, is the ocean habitat that sustains the fish.
Hence, ideally, private property rights should be defined in the ocean habitat itself.
ITQs, however, only define property rights in the harvesting process. They do
not define property rights in the fish stock, let alone individual fish or the ocean
habitat. Consequently, ITQs are imperfect property rights from the point of view of
economic efficiency and progress. They are, as pointed out by Hannesson (1994)
comparable to the right to extract a certain quantity of timber from a given forest or
the right to harvest a certain number of deer from a given colony. This type of a
property right promotes efficiency as far as it goes. It is for instance likely to improve
the economics of the extraction process. It is, however, obviously not suitable for the
optimal husbandry of the forest or the colony of deer. For that property rights in
individual trees and deer, and preferably to the land itself, is required.
Many of the difficulties that have been associated with the ITQ system stem
from the limitation of ITQs as property rights. These include certain enforcement
problems, discarding of catch, the use of environmentally damaging gear etc.36 The
problem is often exacerbated by enforcing the quota restriction at the point of landing
rather than at the actual harvest level. With perfect private property rights in the ocean
habitat and individual fish, however, no-one would discard excessively or employ
environmentally inappropriate gear. Moreover, many of the quota enforcement
problems would simply evaporate.
(2)
Discarding of catch
Discarding of catch up to a certain level is socially optimal. It can be shown,
however, that the ITQ system, generates an incentive to discard catch in excess of the
socially optimal level.37 This is readily understandable. A particular fish that has been
harvested will normally be discarded when its unit price ashore does not cover the
cost of handling, storing and transport to port. Ignoring the impact of discarding on
the ecology this is also optimal. In an ITQ managed fishery, on the other hand, the
fisherman would normally prefer to discard a particular fish when its unit price ashore
35
36
37
A good early source is Copes (1986). A more recent review of problems with ITQs can be found in
Sutinen et al. (1992) and Squires, Kirkley and Tisdell (1994). In addition to this several social
scientists especially anthropologists have been critical of ITQs.
Note, however, that many of these problems apply even more so to other fisheries management
systems that have been proposed.
For detailed analysis consult Arnason (1994).
72
less the corresponding quota value does not cover the cost of handling, storage and
transport to port. What this extra incentive to discard catch under an ITQ system
means in practice depends on the parameters of the situation. Generally speaking,
however, the greater the variability in the catch quality and the greater the price
differential for quality grades, the more likely it is that catch will be discarded
excessively under an ITQ system. As an illustration consider the following diagram
adapted from Arnason (1994).
Figure 4
Discarding functions for the Icelandic Cod fishery: Stylized calculations
Discarding value
0,6
0,4
0,2
0
-0,2
-0,4
-0,6
-0,8
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Fish age (size)
ITQ
Competitiv e
Figure 4 presents stylized calculations of discarding functions for the Icelandic
cod fishery. The discarding functions measure the incentive to discard by cod age.
The higher the discard value the higher the incentive to discard. More precisely, a
positive discard value means that it is profitable to discard. The discarding functions
are calculated for two management regimes; the ITQ system based on recent ITQ
prices and the unmanaged fishery. Figure 4 shows that the ITQ discarding values are
uniformly higher than the ones for the unmanaged fishery. Notice, in particular, the
added tendency to discard juvenile cod under the ITQ system. The implications for
actual discarding may not be all that great, however. According to the calculations in
Figure 4, it is only 2 year cod that would be discarded under the ITQ system but
retained under the unmanaged regime.
It is important to realize that the discarding problem is fundamentally a
consequence of the imperfect property rights defined by the ITQ system. To see this
simply consider the case where the property rights are applied to individual fish, as is
the case e.g. in cattle and sheep farming on land. In this case, the problem of discards
would obviously not arise — at least no more than it does in cattle and sheep farming.
This suggests that an enhancement of the usual ITQ property rights would
alleviate the discarding problem. Consider for instance a system where there are
73
separate ITQs for different grades, e.g. size, of fish. In that case, the ITQs for different
grades would command different market prices. In particular, the quota price for low
grade fish would ceteris paribus be reduced and there would be correspondingly less
incentive to discard lower grade fish excessively.
Finally notice, that the discard problem may also be regarded as a problem of
enforcement. It arises primarily because the ITQ restriction is normally enforced a the
landing point and not at the harvesting stage. Socially excessive discarding is
privately optimal only if the discarded catch is not counted against quota. If discarded
catch were subtracted from the quota, there would be no extra incentive for
discarding.
(3)
Discrete quota periods
A continuous quota system is one where the quota periods are infinitely small. A
discrete quota system is one where the quota periods are of finite length. In practice
quota periods must be of finite length. Frequently a period of one year is chosen for
that purpose.
Now, it is easy to see that an ITQ system will generally have to be continuous
to be optimal.38 When ITQ quota periods are finite, the fishing firms can select the
time profile of the harvesting activity provided only that they satisfy the quota
constraint for the whole period. Hence, in the discrete ITQ system it is clear that the
fish stock externality has not been completely eliminated. By changing the time
profile of his extraction activity, a fishing firm will generally impose an externality,
positive or negative, on all other firms.
The need to employ discrete quota periods rather than continuous ones
constitutes a fundamental disadvantage of ITQ systems. It is fundamental in the sense
that it is essentially imposed by physical constraints. Hence it is not easily overcome.
The general recommendation would be to reduce the length of the quota periods. This,
however, is only feasible up to a point determined by administration costs and the
availability of management data.
The social costs of having to make do with discrete quota periods rather than
continuous ones depends in general on the parameters of the problem. It would seem,
however, that in most actual cases this cost is not substantial. It should also be noted
that most other fisheries management systems that have been proposed including
limited access, restricted inputs, Pigovian taxes etc. are subject to similar problems.39
(4)
Enforcement
An ITQ system like any other system of fisheries management requires a
certain degree of enforcement to be effective. Most importantly the individual quota
constraint has to be enforced.
38
39
See Arnason (1990).
This generic class of problems might be referred to as "management period problems".
74
In the ITQ system there is a built-in incentive to harvest in excess of quota
holdings. The quota is a valuable property and harvesting in excess of quota
represents an equivalent gain. It is also, in principle a theft. The victim of the theft is
all other quota holders that have to suffer less catches in the future and a
corresponding reduced value of their quota holdings.
It is important to realize that this particular enforcement problem is by no
means unique to the ITQ system. It is actually inherent in all property rights systems.
In our property rights system on land, that has evolved over a long time, social
pressures and legal enforcement combine to keep the problem in check. The
enforcement costs, however, are quite substantial.
It may well be that the enforcement aspect of ITQ systems is not as much of a
disadvantage as may appear at first sight. First, it doesn't appear to be any more
difficult to enforce quota property rights than any other property rights. In fact, given
the relatively few fishing firms in most societies compared to the population as a
whole the quota enforcement problem appears fairly easy. Second, the harvesting
quantity is a crucial variable in most fisheries and is consequently closely monitored
in most managed fisheries anyway. It follows that the ITQ enforcement requirement
normally does not constitute an additional monitoring activity although the previous
monitoring of catches may have to be improved. Third, it must not be forgotten that
the enforcement of other fisheries management systems is also problematic. Why for
instance should fishing gear regulations, area restrictions and even access licenses be
easier to enforce than quota constraints? Fourth, it is important to appreciate that
enforcement of ITQs is a fairly new task. It follows that there has been little
opportunity to develop efficient enforcement procedures. It is very likely that modern
technology offers efficient enforcement techniques that are yet to be applied.
What is important in quota enforcement, as in enforcement in general, is to
strike the right balance between the monitoring and sanctions. Poaching is a risky
business and rational poachers are primarily motivated by the expected gain of
poaching. The higher the expected gain the more poaching will take place and vice
versa. The problem of quota enforcement is to make the expected gain of violations
sufficiently low, preferably negative. This can be done by either high degree of
monitoring or heavy penalties for violations.40 Monitoring is costly. Therefore, from
the point of view of efficient enforcement, low degree of monitoring and heavy
penalties for discovered violations appear ideal.
It is important to realize, however, that there are certain upper bounds on
penalties. These are both technical — the maximum fine cannot really exceed a
person's wealth — and social —certain crimes only warrant a certain penalty. Given
the maximum penalty level, the cost of quota enforcement increases with the (a) unit
price of the fish and (b) the complexity of the fishery in particular the number of
landing points and operators. This suggests that there may actually be fisheries where
enforcement of quota is prohibitively costly. For these fisheries some other fisheries
management system may be preferable. Notice, however, that if quota constraints are
40
Monitoring determines the probability of being caught. The penalty represents the cost of being
caught. The multiple of the two defines the expected cost of violations.
75
difficult to enforce, the constraints of alternative fisheries management systems are
probably hard to enforce as well.
5)
Social costs
ITQs, to the extent that they are successful, tend to lead to a significant restructuring
of the fishing industry. If the fishery was initially overcapitalized, which is of course
usually the case, there will be fewer vessels. Aggregate fishing effort is bound to fall.
and there will likely be a reduction in the number of fishermen. In addition to this,
fishing methods and fishing technology is likely to change, even radically. Finally the
regional location of the fishing industry may be altered.
Changes of this nature will have social repercussions. They will disturb
established social structures and invalidate parts of a previous social culture
associated with the fisheries41. Often, perhaps even generally, people dislike changes
of this nature. Hence these changes represent a cost, a social cost. This cost which can
in principle be evaluated by economic means42, should of course be subtracted from
the more standard economics benefits.
Quite apart form their impact on social structures, the increased income and
income distributional implications of ITQs tend to give rise to another type of social
disturbance, namely the fight about who should get how much and when. This, while
in a sense the cost of success, may also be of relevance in judging the suitability of
ITQs for any particualr situation.
This concludes what I regard as significant problems with the ITQ fisheries
management system. Notice, that these problems can hardly be regarded as
substantial. They represent certain disadvantages that, in most cases, merely detract
from the advantages of the ITQ system. In most cases of ocean fisheries ITQs offer
huge advantages.
Multi-species fisheries management
The MIM procedure applicable under the ITQ fisheries management system suggests
a very elegant approach to the difficult problem of multi-species fisheries
management. In short, it turns out that the fisheries manager only needs to set the
vector of TACs such that the overall market value of outstanding ITQs is maximized.
Provided the market system works, the resulting TACs automatically constitute the
best possible multispecies fisheries management policy. (Arnason 1993, 2000)
Ecosystem fisheries management with the help of ITQs has some interesting
implications. For instance, negative TACs and negative quota prices for some species
are quite possible and have a meaningful economic interpretation.
41
42
For further readings about this see Palsson, and Petursdottir (1997) and the references therein.
E.g. the various methods used to assess the value of other non-market goods, see e.g. Hanley et al.
1997.
76
For privately profitable fisheries, those that are normally observed in the real
world, share quota price would be positive. On the other hand, in the ecological
framework, the MIM procedure may well result in negative share quota prices for
some other species. The reason is that the optimal ecological fisheries policy will
usually require a reduction in the stock size of some species of fish that are
themselves not valuable but prey on or compete with commercially valuable species.
The quota price for these species would be negative representing harvesting subsidies.
This is not at all surprising. There are many parallels under the more developed
property rights system ashore. Rewards for killing low value predators such as minks
and foxes and the eradication of pests in general provide a case in point.
When share quotas prices are negative, profit maximizing quota holders would
clearly prefer not to spend economic resources catching their share quota. Therefore,
in this case, the ITQ requirement that quotas be fulfilled must be imposed. Clearly,
profit maximizers will only assume such an obligation for a payment. For this reason,
the initial allocation of share quotas in a privately unprofitable fishery will normally
require a payment or subsidy. The firms requiring the lowest subsidy, i.e. the most
efficient ones, would normally be the recipients of these share quotas.
Another interesting feature of ecological fisheries management with the help
of ITQs is that optimal TACs for some species might be negative. A negative TAC
means that the quotas holders are under the obligation of adding to rather than
extracting from the stock of the species. Thus, it appears that ecological fisheries
management with the help of share quotas naturally accommodates fish stock
enhancement as a dual to harvesting. Again, if a quota price for a negative total quota
is negative it represents a subsidy for fish stock enhancement. That would occur in the
case of socially optimal but privately unprofitable stock enhancement. An example of
this would be the hatching and releasing of valuable marine fish into the ocean.
Alternatively, stock enhancement may be privately profitable. A case in point might
be ocean ranching of valuable species such as scallops or salmon. For ecological
reasons the quota price would often be positive indicating that the ocean ranching
firms would pay for the privilege of releasing fish into the ocean.
It should now be clear that there are four polar cases of ecological fisheries
management in the ITQ framework as summarized in Table 2.10 below.
77
Table 2.10
TAC and ITQ price combinations
ITQ
Price
Total Quota, TAC
Negative
Positive
Negative
Unprofitable
Stock
Enhancement
Unprofitable Fishery
Predator/competitor
Stock reduction
Positive
Profitable Stock
Enhancement
(Ocean Ranching)
Profitable Fishery
(Commercial Fishery)
Applying the MIM procedure to a given marine ecosystem will normally
produce entries in one or more of the boxes in Table 1. Notice, however, that a
prerequisite for an entry with negative quota price (top-half of Table 1), is that there is
at least one entry with a positive quota price. Hence, if the ecology is not useful at all,
all share quota prices would be zero.
It is important to realize that the MIM procedure actually compares the overall
costs and benefits (as judged by the quota market) of any TAC change including stock
enhancement quotas. For instance, if the stock enhancement of a given species is
regarded as detrimental to valuable fisheries (presumably through ecological
interactions) the share quota prices in these fisheries would decline making it less
likely that the MIM procedure recommend the stock enhancement TAC. For that to
happen, the increase in the market price of the stock enhancement share quota must
exceed the decline in the market price of the share quotas of the other fisheries.
IQs
IQs have all the properties of ITQs except the quotas are not transferable. The
question is how much of a drawback that is. It may be useful to notice that, unlike
ITQs, IQs also constitute access licences. The non-transferability of the IQs means
that the group of those that have access to the fishery has been fixed. Hence IQs may
also be regarded as a system of access licences with quantative harvesting rights
imposed.
Above, we have established that ITQs have the following efficiency
properties:
(1)
(2)
(3)
(4)
Aggregate fishing effort and biomass will be optimal (given the structure of
the industry and provided the TAC is set optimally)
The TAC is taken by the most efficient fishing firms at all times.
The cost of harvesting is reduced.
The value of harvest is increased.
78
Benefits (3) and (4) stem from the nature of ITQs as secure harvesting
property rights. IQs share this characteristic. Therefore, there is little reason to expect
that most of these benefits will not be realized under IQs.43
Since IQs are by definition not transferable, the IQ system will, in effect,
freeze the initial fishing firm mix of the industry. Hence, the ITQ system will
generally not achieve efficiency property (2). The economic cost of this can be either
large or small depending essentially on two things; (i) the relative efficiency of the
firms initially in the industry and (ii) the evolution of this relative efficiency for the
duration of the IQ system. There is little reason to be optimistic about either. Initially,
when it is felt necessary to introduce an IQ system, the fishing industry is generally
quite distorted by the competition for catch shares and poor financial outcomes.
Hence, it may be expected it contain a good number of firms of inferior efficiency and
or firms whose internal structure and routines are not conducive to efficient operations
in another environment. Moreover, following the introduction of the IQ system, there
tends to be little pressure on these firms to improve the efficiency of their operations.
The reason is the financial benefits generated by the IQ system and the lack of
competitive pressure form outside the system creates.
IQs can, in principle, achieve property (1), optimal aggregate fishing effort.
However, the practical situation is a bit more pessimistic. Since the quotas are
nontransferable, the fisheries manager will have to make do without the informational
guidance of quota prices. Therefore, it is distinctly less likely that he will manage to
set the optimal TAC under the IQ system compared to an ITQ system. Again, it
associated cost is difficult to judge but can clearly be substantial.
So, the IQ system is clearly economically less efficient than the ITQ system.
The difference depends, however, entirely on the empirical situation. It can be either
large or small. To provide some idea of the magnitudes involved it may be helpful to
study the following simple example.
Consider a very simple fishery composed of only three firms. Let the profit functions
of these firms, for a given level of biomass, be defined by:
i = aiqi - biqi2 - ci, i=1,2,3,
where i denotes the profits and qi the harvest of firm i.
Let firm 2 be the least efficient, firm 2 more efficient and firm 3 the most
efficient. More precisely, let the parameters be given by the following:
43
It is of course possible that since IQs are nontransferable, a particular firm will find itself with an
excessive quantity of IQs relative to its on-board catch processing capacity. In this situation, quality
is likely to suffer. It might also be difficult to reduce costs of harvesting. However, under an IQ
system, the firm could remedy the situation by investing in capacity until it has reached the desired
quality level. The problem could only persist in the long run if capital came in strongly discrete
units. In the short run, however, due to stock and catchability fluctuations, the problem would
linger.
79
Parameters
b
1.0
2.0
2.0
a
1.0
2.0
3.0
Firm
1
2
3
c
0.2
0.2
0.2
Thus the profit functions and the marginal profit functions of the three firms area as
illustrated in the following figure:
4
1
Pi1( q1 )
MP2( q1 )
Pi2( q2 ) 0.5
MP1( q2 )
Pi3( q3 )
MP3( q3 )
0
0
0.5
1
1.5
2
0
q1  q2  q3
0
0.5
1
q1  q2  q3
Under no management, the firms will harvest at a point where marginal profits are
zero. Thus, firms 1 and 2 will harvest 0.5 units and firm 3 0.75 units. The total harvest
will be 1.5 units. Let us assume that under the IQ/ITQ system the TAC is set at 0.75
units and allocated to the three firms pro rata according to their initial catches. Then
under IQs, the firms will be stuck at that harvest rates as illustrated in the following
Table. There will be substantial aggregate profits nevertheless. Under transferable
Harvest
No management
IQ
ITQ
Firm 1
0.500
0.214
0.000
Firm 2
0.500
0.214
0.250
Firm 3
0.750
0.322
0.500
Total
1.500
0.750
0.750
quotas, however, firm 1 will sell out and firm 2 and, in particular firm 3 increase their
share of the fishery. Most importantly, however, profits will almost 50%, higher in the
ITQ fishery than the IQ fishery or 0.975 compared to 0.663 for the IQ fishery. These
extra benefits stem purely from the ability of the industry under the ITQ fishery to
reallocate catches to the most efficient firms. Note that it does not take account of the
fact that the TAC will probably be set more optimally under ITQs than IQs. Nore does
it take account of the other, less crucial, advantages of ITQs discussed below.
This, of course, is just an example of the extra benefits generated by the ITQ
fishery compared to the IQ fishery. It is not necessarily illustrative of the outcome in
any particular fishery. The advantage of ITQs depends very much on the the
differences in the relative efficiency of the firms in the initial situation. It also
80
depends very much on the reduction in the TAC compared to the initial harvest. For
instance, if there is no reduction there will be no change in the fishery.
There are other disadvantages with IQs as compared to ITQs. One, related to
the problem of the optimal configuration of fishing firms, has to do with the ability of
the fishing industry to adjust its operations to short term fluctuations in fish
availability and prices. Fish availability is uncertain, even when stocks are large.
Thus, during a certain period of time, a month, say, a certain species of fish might be
abundant in one geographical location and not in others while the opposite might hold
for some other species. A similar effect might apply to demand, e.g. landing prices.
Under these circumstances it is clearly economically desirable to reallocate quota
holding so that some of the firms can specialize in exploiting the favourable
conditions in one location and some in the other locations. In ITQ system this
adjustment would happen virtually automatically. In fact, in actual ITQ systems, a
good deal of short term trades of this nature can be observed. Under the IQ system,
however, this adjustment is not possible.
Another relative disadvantage, at least from the point of view of the fishing
firms, is that with non-transferable quotas, their ability to borrow against the collateral
represented by the quotas and their financial strength in general is very much reduced.
Of course, compensating for these disadvantages, is the increased social
stability represented by the non-transferability of quotas under the IQ system
compared to the ITQ system. No doubt, it is this perceived benefit that often induces
fishing nations to opt for IQs or ITQs with restricted transferability instead of a fully
fledged ITQ system.
Property rights systems: A summary comparison
The fisheries property rights discussed above have different efficiency as well as
social properties. Generally, everything else being the same, we may take it that the
higher the quality of the property right the more economically efficient is the
associated fishery. Consequently, one way to assess the economic efficiency of the
various fisheries property rights systems, is to determine the quality of the property
right itself. For this purpose, it is convenient to use the Q-measure defined in
Technical appendix 5. Indeed, the Q-measure, consistently applied, provides a
convenient tool to quickly obtain an assessment of the economic efficiency of any
property rights arrangement that may be proposed.
For the special case of four property rights characteristics, the Q-measure was
in Technical appendix defined to be:
Q  SEP(w1+ w2T), , , , , w1, w2>0 and w1 + w2 =1
where S denotes security, E exclusivity, P permanence and T transferability.
We select the following values for the parameters:
81
Q-measure: Parameters
Parameters




w1
w2
Values
0.25
0.50
0.25
1.00
0.60
0.40
We consider the six property rights systems in fisheries discussed above,
namely (i) access licences, (ii) territorial use rights (TURFs), (iii) sole ownership, (iv)
individual quotas (IQs), (v) individual transferable quotas (ITQs) and (vi) Community
rights. In order to focus as much as possible on the inherent property rights content of
these systems, we assume that the property right they comprise is in all cases perfectly
secure and permanent. Therefore, they only vary as to the exclusivity regarding the
subject of the property right, the fish stock and the transferability of the property right.
Regarding transferability, it is a matter of definition that individual quotas are
not transferable at all. Community fishing rights are more problematic. What does
transferability of community fishing rights mean? Is it transfers of such rights
between communities or does it refer to the transferability of rights conferred to
individuals by the community. Obviously, a wide range of arrangements may apply.
Therefore, in order to obtain some results, we set the transferability of community
fishing rights in an interval ranging from [0-1]. Transferability of all other property
rights systems is assumed to be perfect (i.e. unity).
The main difference between the six property rights systems is in terms of the
exclusivity of the property right relative to its subject, the fish stocks. Briefly, we
assume that the exclusivity of the sole owner right is unity; exclusivity of territorial
use rights slightly less or 0.9; exclusivity of the individual quota systems lesser still or
0.7 and the exclusivity of access licences very small or 0.05. Again community rights
are problematic. Much depends on the size of the community and the fisheries
management system it decides to adopt internally. So again, it seems most reasonable
to determine the exclusivity of community fishing rights over an interval. A
seemingly plausible interval for this purpose is [0.05,0.9].
The outcome of the calculations are given in Table 2.11
82
Table 2.11
Quality of some fisheries property rights: An assessment
Property rights
system
Characteristics
Security
Access licences
TURFs
Sole Ownership
IQs
ITQs
Community rights
Quality of
the property
right
1.00
1.00
1.00
1.00
1.00
1.00
Exclusivity Permanence Transferability
Q-measure
0.05
0.90
1.00
0.70
0.70
[0.05-0.90]
0.22
0.96
1.00
0.53
0.89
[0.22-0.96]
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
0.00
1.00
[0.00-1.00]
The numerical results listed in Table 2.11, should, of course, not be taken too
seriously. They are quite sensitive to the specification of the of the Q-measure
parameters as well as the numerical values given to the property rights characteristics.
The results should rather be regarded as attempt at ordering the property rights quality
of the various systems. Having stated these reservations, the results in Table 2.11
suggest that sole ownership and TURFs are generally the highest quality property
rights and, therefore, probably the most efficient arrangements. ITQs also exhibit
quite a high property rights value, substantially higher than IQs. The property rights
quality of access licences is by far the lowest although hardly negligible. The property
rights quality of community rights depends to a great extent on the fisheries
management system adopted within the community. Thus, it can range from almost
nothing to almost perfect according to how the community decides to use its power.
On this basis, one may conclude that ranked according to economic efficiency
the property rights arrangements are (1) Sole ownership, (2) TURFs, (3) ITQs, (4) IQs
and (5) access licences with community rights somewhat indeterminate. This,
however, only holds as a general assessment, i.e. with everything else being the same.
There will undoubtedly be situations (technical and socio-political) where some of
property rights systems will simply not be feasible. There may also be special
circumstances, e.g. problems of enforcement, which will alter the above efficiency
ranking.
83
Technical appendix 6
The Optimality of Various Property Rights Regimes
The following supplies formal arguments for the optimality or lack thereof of the
various property rights regimes discussed in the foregoing section. In order to focus
on the essential ideas, the arguments are here presented in relatively simple
equilibrium framework with identical firms. An extension to a fully dynamic setting
with non-identical firms is straight forward but mathematically much more messy.
The Basic Model
Let the fishery be conducted by N identical firms. Let the social profit function of
each of these be:
(1)
(e,x) = Y(e,x)-C(e),
where e represents the firm's fishing effort and x the biomass of the fish stock. The
function Y(e,x) represents the revenue function and is concave and increasing in both
fishing effort and biomass. The function C(e) is the harvesting cost function and is
increasing and convex in fishing effort. It follows that the profit function (e,x) is
concave. All functions are assumed to be twice differentiable and Yex>0.
Aggregate social benefits from the fishery is defined by the sum of individual
profit functions i.e.,
(2)
N(e,x) = N(Y(e,x)-C(e))
Biomass growth is given by the expression:
x = G(x) - NY(e,x),
where G(x) is the usual concave natural biomass growth function and NY(e,x) is the
total harvest. Restricting the analysis to equilibrium for simplicity we have the
biomass growth restriction:
(3)
0 = G(x) - NY(e,x).
The Optimal Fishery
Social optimum requires the selection of number of firms, N and the fishing effort of
each one, e, so as to maximize aggregate profits, i.e. (2), subject to the biomass
constraint, (3):
I.
Max N(e,x),
s.t. G(x) = NY(e,x).
N,e
The solution to this problem includes the expressions:
84
(I.1)
e = Ye, all firms,
(I.2)
(e,x) = Y(e,x),
where the Lagrange multiplier, , represent the shadow price of biomass. , in other
words, is the social value of a unit of biomass.
The interpretation of  as the social shadow price of biomass makes condition
(I.1) readily understandable. According to this condition, social optimum requires that
each firm's fishing effort should be expanded to the point where its marginal
contribution to profits just equals the cost in terms of reduced biomass, namely Ye.
Remember that Ye is the marginal catch of fishing effort (i.e. reduction in biomass due
to the marginal fishing effort) and  is its unit social value. .
The second necessary condition, (I.2) simply says that the number of firms
should be increased until the social cost of doing so measured by Y(e,x) equals the
profits. Some readers may find it interesting that this condition implies that =
(e,x)/Y(e,x), i.e., the social value of biomass in equilibrium equals profits per unit of
harvest.
The Unmanaged Fishery
In the unmanaged fishery, each firm in the industry attempts to adjust its fishing effort
to solve the following problem:
II.
Max (e,x), s.t. G(x) =
e
N

Y(e,x).
1
This is attained at a point were, at least for moderately large N, marginal profits are
approximately zero.44 I.e.,
(II.1) e  0, all firms.
Moreover new firms enter while profits are positive. Hence equilibrium requires:
(II.2) (e,x) = 0.
Thus, comparing (II.1) and (II.2) with the corresponding optimal expressions
we see that the unmanaged fishery is characterized by (i) excessive fishing effort by
each vessel for every level of biomass, (ii) excessive number of firms for every level
of biomass and (iii) less profits. In fact, according to (II.2), in the unmanaged regime,
the fishery yields no net economic benefits.
44
For a discussion of this qualification see Arnason (1990).
85
Access Licences Managed Fishery
Under access licences, the number of vessels (firms) is limited. Let us refer to the
restricted number of vessels by N0. The individual firms' maximization problem is:
Max (e,x), s.t G(x) =
III
N0

Y(e,x).
1
The solution to this problem involves the approximate condition45:
(III.1) e  0, all firms.
Since the number of firms is exogenously fixed there is no entry condition.
Comparison of condition (III.1) with the optimal one, (I.1) shows that the
fishing effort exerted by each firm in the industry will be excessive for every given
biomass level. However, unless the profit function is linear in effort, there will
normally be some economic profits in a restricted access fishery, reflecting the 'manmade' scarcity of access. The present value of these profits will be reflected in the
market (perhaps the black market) price of access licences. How large these rents will
be depends on how close the optimum the actual number of licences is and the degree
to which rents can be dissipated by increasing fishing effort components. In any case
the rents will be less than the maximum attainable. Whether they will be sufficient to
pay the management costs depends on the parameters of the situation.
An ITQ managed fishery
Under this particular fisheries management regime each fishing firm is faced with the
constraint that catches cannot exceed quota holdings. In other words:
Y(e,x) = q0+z,
where q0 is the firm’s initial quota and z represents quota purchases (or sales). Thus
the profit maximization problem facing each firm is:
Max (e,x) - sz,
s.t. Y(e,x)=q0+z, G(x) = Q,
where s represents the market price for quotas and Q the total allowable catch (TAC).
Substituting the quota constraint into the maximand we obtain the following
equivalent problem:
IV.
Max (e,x) - s(Y(e,x)- q0),
s.t. G(x) = Q,
where Q it the total allowable catch (TAC).
45
See Arnason (1990).
86
The solution to this problem involves the condition:
(IV.1) e = sYe, all firms.
And the firm entry condition is:
(IV.2) (e,x) = sY(e,x).
Comparing these two necessary conditions with the corresponding optimal
ones, namely (I.1) and (I.2), shows that the ITQ fishery will indeed be optimal
provided the price of the quotas, s, is equal to the shadow value of the biomass, .
Now, it should be intuitively clear that s depends on Q, i.e. the TAC
determined by the fisheries authorities.46 After all Q is the total supply of quotas and
of course the price, s, depends on the total supply. Hence, under the ITQ system, the
fisheries authority only has to select the optimal Q to optimize the fishery.
Notice, however, that even if the optimal Q is not selected, the ITQ fishery
will, according to (III.2) generally yield positive net profits or rents equivalent to
NsY(e,x). Only in the limit where Q is so large that s actually goes to zero will the
ITQ fishery yield no rents. Notice that in that case, the ITQ fishery has actually been
transformed into an unmanaged fishery.
An IQ managed fishery
Under an IQ constraint, each fishing firm is faced with an harvesting restriction
equivalent to its IQ. Consequently, the firm attempts to adjust fishing effort to solve
the following problem:
V.
Max (e,x),
s.t. , Y(e,x) q, G(x) = Q
where q is the firm’s catch quota and Q the total allowable catch.
The solution to this problem involves the condition:
(V.1) e = Ye, all firms,
where is the shadow value of the quota constraint to the firm. Since the number of
firms is exogenously fixed there is no entry condition.
Comparing this necessary condition with the corresponding optimal ones,
namely (I.1) and (I.2), shows that the IQ fishery will in general not be optimal. First,
the firms’ fishing effort will not be correct unless each of their s is equal to the
shadow value of biomass, . This clearly can only happen if the firms are identical
and even so it would be unlikely. Second, the IQ fishery is unlikely to satisfy the entry
condition (I.2), except by an incredibly unlikely accident.
46
Formally shown in Arnason, 1990.
87
A territorial use right fishery
Assuming the territory and the fishery is exclusive, i.e. there are no losses to outside
areas and fishermen, the problem facing the territorial use right holder is simply :
VI.
Max N(e,x),
s.t. G(x) = NY(e,x),
N,e
where N should now rather be interpreted as the number of capital units rather than
the number of firms. Now, problem VI is identical to problem I for the optimal
fishery. Hence, the territorial use right arrangement also maximizes fishery rents.47
A sole owner fishery
The profit maximizing sole owner will, just as the territorial use rights holder, try to
solve problem I. Hence, a fishery run by a sole owner will be economically efficient. 48
Community fisheries rights
Community fishing rights are, as far as the community is concerned, formally
identical to sole owner rights or TURFs. Hence, provided the community rights are
sufficiently exclusive, the community could in principle manage the fishery in the
most optimal manner. In practice, however, the outcome is not so clear. Communitis
are generally composed of many agents with varying interests. Therefore the
management of the fishery depends very much on the decision making process in the
community. Thus, in the case of community fisheries management it appears
plausible to model the controls  fishing effort, e, and the number of capital units, N
 as being restricted to a set determined by what can be agreed on within the
community.
So, under community management we have the following maximization
problem:
VII.
Max N(e,x),
s.t. G(x) = NY(e,x), N,e.
N,e
The key necessary conditions for solving problem VII are:
(VII.1) e = Ye + ,
(VII.2) (e,x) = Y(e,x) + ,
47
48
It may be pointed out that unless the territorial user rights are transferable, it may be the case that
the right holder is relatively inefficient. Hence, without transferability, the fishery may actually be
run in a less than efficient manner.
Here, of course, the qualification of the previous footnote also applies.
88
where  is the shadow value of biomass and the term  is a correction reflecting the
shadow price of the community restriction set, if it is binding. Comparing conditions
(VII.1) and (VII.2) to the optimal ones (I.1) and (I.2) above, shows that only if the
community restriction set is non-binding will community management be optimal.
89
2.5
Fisheries Management Systems: Conclusions
Of all the fisheries management systems considered above, only (i) certain property
rights arrangements and (ii) tax on catch seem to be theoretically capable of
delivering the full potential economic benefits of fisheries. Direct fisheries
management  irrespective of whether it is based on biological or economic
restrictions  seems particularly inept for this purpose of and should, consequently,
not be adopted except as the only alternative to serious depletion of the fish stocks.
For some reasons, fisheries management by means of taxation does not appear
to have been implemented in any significant ocean fishery in the world. As a result
there is no empirical evidence about the practical application of this method of
fisheries management.
The situation regarding property rights-based fisheries management is very
much different. Many variants of property rights systems have been applied in ocean
fisheries.49 Thus, there are several cases of sole ownership50, many cases of TURFs
especially in inshore areas51 and numerous cases of communal or group fishing
rights52 Fisheries access licences have been and continue to be common.53 Finally,
individual quota systems, IQs and ITQs, have been implemented in hundreds of
fisheries around the world.54
Generally, the economic outcome of property rights-based fisheries
management systems has been as predicted by the theory. Sole owner rights and
TURFs seem to have worked very well where they have been applied. Fishery access
licences have done poorly, although they seem to have constituted some improvement
on the open access regime. The economic outcome of communal or group property
rights is mixed just as predicted by theory. In some cases, especially where the
internal (i.e. within the group) fisheries management system has been efficient such as
in some UK Producer Organization groups they seem to have done very well
(Goodlad 1986, 1999, Leal 1986). In others e.g. Japanese fishermen’s co-operatives
(OECD 1997), they don’t appear to have generated much economic rents. Usually,
however, communal or group fishery rights seem to have had a stabilizing effect on
the fishery, halted and even reversed declining stocks and, in some cases, generated
significant fisheries rents. Individual quota systems, especially the ITQ variety, have
also been economically quite successful (Arnason 1996, OECD 1997). In fact, the
current interest in and expansion of such systems can probably be attributed to a large
extent to their relative economic success. Under such systems, fish stocks have often
been rebuilt, the profitability of fisheries operations has generally improved greatly
and, in the case of ITQs, the market value of quota rights soared.
49
50
51
52
53
54
For general readings on the various applications of property rights systems in fisheries see e.g.
Neher et al. 1989, Gimbel 1994, Pikitch et al. 1997, OECD 1997, Petursdottir 1997, Palsson and
Petursdottir 1997 and National Research Council 1999 as well as the references contained therein.
Iceland whaling and certain Icelandic scallops fisheries.
E.g. Iceland ocean quahog, Puget Sound oysters.
Examples are provided by Japan’s fishermen’s co-operatives (Ruddle, 1988, Jentoft 1989, OECD
1997), British producer organizations (Goodlad 1996 and 1999, OECD 1997, McEwan 1997) and
many others (Jentoft 1989, Leal 1996).
See e.g. OECD 1997, Neher et al. 1989.
See e.g. Arnason 1996 and OECD 1997.
90
In recent years, there has been a clear movement toward property rights-based
fisheries management, in particular IQ and ITQ systems, around the world. In many
ways Iceland and New Zealand have been the front-runners in this development.
These countries were among the first to introduce IQs and ITQs in major ocean
fisheries55, Iceland in 1975 and 1979 and New Zealand in 1982, and have since gone
on to implement a comprehensive ITQ systems in all their fisheries. Other nations that
have implemented ITQs in many of their fisheries are the Netherlands, Australia,
Greenland and Canada. A number of other fishing nations, including Namibia,
Norway and several EU countries have installed an individual quota management
system without transferability, i.e., the IQ system, in their fisheries. Finally, several
large fishing nations including Chile, Peru, Argentina, Morocco and the United States
have already taken steps toward the eventual adoption of an IQ/ITQ system in their
fisheries.
This trend toward property rights in fisheries mirrors to a certain extent a
corresponding development in the organization of economic activity on land in earlier
times. In fact, the spreading of property rights-based fisheries management systems
may be regarded as yet another stage in the historical expansion of private property
rights as a method of economic organization. Just as property rights on land, property
rights in the ocean may be confidently expected to yield substantial economic
benefits. This prediction is, in fact, supported by the experience of the fishing nations
that have already adopted such systems.
These historical and economic arguments should not, however, close our eyes
to the problems associated with implementing property rights in fisheries. First,
fisheries property rights are, for technical reasons, usually quite difficult to define
implement. For fisheries property rights to work, it has to be possible to enforce the
them. This, of course, applies also to property rights systems on land. The difference
is that the technology of defining and enforcing property rights on land is much more
advanced than the corresponding technology at sea. Therefore, it is generally not
possible to define and enforce fisheries property rights that have anything like the
same quality as the usual property rights on land. Thus, for example, it is generally
not possible to attach a private property right to individual fish in the ocean while
such an arrangement is pretty standard on land. As a result, currently feasible fisheries
property rights are generally substantially less efficient than property rights on land.
The second disadvantage is that the introduction of an ITQ system often
represents a radical restructuring of traditional fishing activities. This generally
requires socio-economic adjustments that are often resisted and may, consequently,
prove difficult to accomplish.
Third, although the introduction of property rights systems may, in most
fisheries, be expected to yield social benefits far exceeding the costs, the actual
distribution of the costs and benefits may easily turn out to be socially undesirable.
This tends to stir up social disagreement even to the point where there is significant
opposition to the introduction of the property rights system, even when the odds are
that virtually everyone will benefit.
55
The Netherlands also introduced ITQs in her flatfish fishery in 1975 (Davidse 1997).
91
Fortunately, however, provided of course the property rights system generates
net economic benefits, it is generally possible to achieve any income distributional
objective by the appropriate design of the system. One way is by the appropriate
allocation of the property rights at the outset. Another way is by the subsequent
taxation of the resource rents and the appropriate allocation of the proceeds. These
options, as well as the potential social controversy about the sharing of the fisheries
rents, suggests the importance of taking full notice of distributional considerations in
the initial design of a fisheries property rights system.
The crucial point, however, is that economic rationalization of ocean fisheries
is probably inevitable. The social demand for higher personal incomes can only be
met by increased economic efficiency in all sectors of the economy. Thus, there will
generally be direct or indirect pressure for increased efficiency in fisheries. This
pressure is intensified by international fisheries competition and, indeed, the effects of
globalization in general. So, unless a domestic fishing industry manages to become
reasonably efficient, it is likely to be out-competed by more efficient foreign fishing
industries enjoying the fruits of an efficient fisheries management system and either
bought-out by them or left to wither away. In either case, an efficient fisheries
management system will have to be adopted.
3. Monitoring, control and surveillance
Monitoring, control and surveillance or, MCS, in short, is technical phrase invented
decades ago by the FAO (Food and Agriculture Organization of the United Nations)
and has since become a part of the standard fisheries management vocabulary.
Broadly speaking the phrase refers to two distinct activities; (i) the monitoring of the
fishery and the activities of the fishing (harvesting) industry and (ii) the enforcement
of fisheries management rules.
MCS
Monitoring of the fishery and fishing fleet activities and the
enforcement of fisheries management rules
MCS is, as already discussed, a crucial component of any fisheries
management regime. Logically, it is the management authority that must conduct and
co-ordinate the MCS activity although it may engage contractors to do part of the
work. So, under centralized fisheries management systems, it is the central fisheries
manager, i.e. the government, that operates the MCS activity. Under property-rights
based fisheries management systems, such as community rights and ITQs not to
mention sole ownership and TURFs, the opportunity arises for decentralized MCS,
i.e. MCS conducted by the property rights holders themselves
92
3.1
Monitoring
The monitoring part of MCS involves collection of the relevant biological data about
the fish stocks and the surrounding ecosystem, as well as the relevant technical,
economic and behavioural data about the fishing industry and its activities. The
monitoring activity is conducted for essentially two purposes:
(1)
Gather information for improving the fisheries management: Data
generation monitoring.
This involves revising and even replacing the fisheries management system,
determining management measures within the framework of the fisheries
management system such as setting the TAC, deciding on the extent and
timing of closed areas, modifying gear regulations, fixing tax rates etc. We
refer to this as data generation monitoring.
(2)
Gather information for the purpose of enforcing existing fisheries
management rules: Enforcement monitoring.
This involves observing the activities of the fishing fleet in order to verify
that these activities are in accordance with the fisheries management rules.
Typical activities of this kind are to check that vessels hold the appropriate
licences, are using the permitted fishing gear, are fishing in the approved
areas and are not exceeding their catch quotas. We refer to this as
enforcement monitoring.
It is important to realize that in order to transform fisheries data into sensible
decisions on fisheries management measures and modifications of the fisheries
management system a good deal of biological and economic research has to take
place. Thus, catch data are typically used by fisheries biologists for fish population
assessment, a crucial ingredient for most types of fisheries management. Similarly,
data on industry operational results, catch per unit effort, input and output prices,
quota prices and so on are necessary to determine the industry’s profit and harvesting
functions which are equally necessary to effect the best possible fisheries policy.
Hence, is should be clear that research  both biological and economic research  is
an integral part of the monitoring part of the MCS activity.
Data generation monitoring
Data generation monitoring may be divided into biological monitoring and economic
monitoring.
Biological monitoring consists of data collection for the purposes of biological
research as well as the biological research itself. The focus of this research is
essentially to determine the current fish stock sizes and other relevant conditions and
to obtain improved estimates of the form and parameters of the various biomass
growth functions of relevant species (often in a highly disaggregated form). With
these in hand it is, as discussed in Section A above, possible to predict the impact of
different levels of fishing on future biomasses and thus to obtain estimates of the cost
in terms of biomass of pursuing any given fisheries policy.
93
The necessary data collection includes among other things the monitoring of
the volume of landed catch by species and age classes, examination of records of
fishing behaviour including the location and time of harvest, the gear used etc. Some
of these data have to be obtained by direct observation. Others are obtainable from
fishing vessel log-books, other records kept by fishermen and surveys. It also
frequently requires independent studies of stock abundance and the environmental
conditions and oceanographic and climatic research conducted by means of field trips
and surveys on specially designed research vessels. Most of this type of work is
usually carried out by marine biologists and other marine scientists based in marine
research institutes or equivalent institutes.
Economic monitoring is concerned with monitoring the economics of the fishing
activity. This includes assessment of fishing company profitability generally on the
basis of an examination of their accounts, systematic collection of price data, capital
stocks, fleet size and developments, fishing technology employed, fishing effort etc.
Economic monitoring is a very important but sometimes undervalued function.
Its primary objective is to obtain estimates of the fishery profit function and its
constituents, the harvesting and cost functions. Knowledge of these functions is, of
course, crucial to determine the optimal fisheries policy. Indeed, as the preceding
sections should have made clear, it is just as important as knowledge of the biological
relationships. Nevertheless, in many actual MCS systems, economic monitoring is
often underdeveloped compared to biological monitoring and much less funded.
Just as the biological monitoring, economic monitoring is probably best placed
in a special office, department or institute. The technical expertise needed is primarily
fisheries economics and statistics.
Enforcement monitoring
Enforcement monitoring is monitoring for the purpose of enforcing fisheries
management rules. Clearly, the type of enforcement monitoring needed depends on
the fisheries management system in place. For this reason, there can be no universally
applicable model for enforcement monitoring. We will now briefly discuss certain
enforcement monitoring functions that need to be carried out in association with
certain common fisheries management systems.
(1) Biological fisheries management
As discussed in section B.2.1, there are many types of biological fisheries
management tools. Prominent among these, however are (i) gear restrictions, (ii) area
restrictions, (iii) seasonal closures and (iv) various other restrictions designed to
enhance biological growth.
Gear restrictions require monitoring of fishing gear at sea and on land in proportions
that depend on the nature of the restriction, the gear in question and the particular
fisheries situation. If, for instance the gear cannot be left at sea between fishing trips
and cannot be easily modified at sea, it may be sufficient to examine the gear when
94
the vessels is in port. The opposite situation, however, easily applies for many types
of fishing gear.
Fishing area restrictions by their very nature almost invariably require monitoring at
the fisheries location itself.56 This has traditionally been conducted by monitoring at
sea by coast guard vessels or on-board observers. However, with recent advances in
technology, similar results may, in many cases, be obtained more efficiently by
remote sensing or on-board black-boxes recorders.
Seasonal closures of fishing grounds and fisheries usually require at least some
monitoring of fleet activities at sea to ensure adherence. However, in some cases, e.g.
sufficiently complete closures, it may be sufficient to take stock of the fleet in port
(assuming the vessels not accounted for are in fact violating the closure). In other
cases, with a fishery (not area) closure, it may be sufficent to monitor the species
composition of landings.
Other biological restrictions such as restrictions on the minimum fish size, fishing of
egg-carrying individuals and so are usually enforced by inspection of the catch.
However, to avoid the problem of discards, at-sea monitoring would be more effective
albeit also more expensive.
(2) Direct economic restrictions
As biological fisheries management, there is a great number of possible direct
economic restrictions. Here we therefore restrict our attention to a few of the more
prominent ones.
Total allowable catch (TAC) restrictions require extensive monitoring of catch (at sea)
but is more usually carried out by monitoring of landings (at the landing site). which,
of course, equal catch less whatever discards have taken place at sea. Monitoring of
landings is most reliably carried out by the physical observation of landings at the
landing sites (dock-site monitoring). The often used method of relying on report is
less reliable since the fishermen have a clear incentive to misreport, but may work in
some cases (Kaufmann et al. 1999)
Effort restrictions are may be monitored at sea or on land according to the nature of
the effort restrictions. If days at sea are restricted, monitoring can take place on land.
If actual fishing time is restricted the monitoring must take place at sea although
perhaps remotely or via a black box recorder.
Fishing capital restrictions are generally relatively easily monitored by inspection of
the vessels. However, since a vessel’s capacity may be modified after construction
this kind of inspection has to be periodically repeated.
Other input restrictions. Monitoring of other input restrictions depends on the type of
restriction and the fisheries situation in general.
56
Except in the special case where the fishing location is revealed by other variables such as the
landing port, the type of fish etc.
95
(3) Management by Means of Taxes (Subdsidies)
Enforcement monitoring for taxation purposes is conceptually relatively straightforward. It merely requires that the subject of the tax  landed value, landed quantity
or the various fisheries inputs  by monitored. Thus, if there is a tax on landings, the
volume of landings must be monitored. This requires methods as discussed in
connection with TAC restrictions discussed above. If there is a tax on the value of
landings, the unit price of landings in addition to the volume must be monitored. Tax
on fisheries inputs similarly requires the monitoring of the use of these inputs. This
can generally also take place on land.
(4) Property rights
Property rights regimes have the advantage, compared to other fisheries management
systems, that the holders of property rights have an incentive, sometimes quite a
strong one, to enforce their own property rights. Apart from this, enforcement
monitoring, just as for taxation monitoring, depends very much on the nature of the
property right.
Access licences require the monitoring of whether vessels pursuing particular fisheries
have the necessary licences. This may require monitoring at the fishing grounds as
well as the landing points although the latter should be sufficient in most cases.
Sole owner rights basically only need protection against the encroachment by
outsiders. Generally very little centralized monitoring is needed for this as the sole
owner can be relied on to look after his own interests.
TURFs as sole owner rights and, in fact farms on land, don’t require much
enforcement monitoring. The TURF holders can generally be relied on to protect their
own property and prosecute trespassers. On the other hand, there may be a reason
monitoring that the TURF holder does not exceed his property right at the cost of the
surrounding area not held as TURF.
Individual quotas require the monitoring to verify that the quota constraint is not
violated. Basically, the activity is the same as that needed to enforce a TAC. Usually
it takes the form of monitoring landings although monitoring of catch (at sea) would
be a more appropriate. It may also be possible to check on catch by monitoring input
or output quantity at processing plants.
Community rights are property rights held by a community instead of a single agent.
To the extent these property rights are sole owner rights, TURFs or quota rights, the
enforcement monitoring is pretty much that described for these property rights above.
3.2
Enforcement
The enforcement part of MCS consists of acting upon alleged violations of fisheries
management rules. It generally takes place where and when the violating activity
occurs. The action taken may be of several degrees of severity:
96
(1) Induce the violator end the illegal activity
For instance a vessel fishing in the wrong area is forced to stop the fishing.
This, of course, is the minimum conceivable action. If it is not undertaken,
there is no enforcement.
(2) Impose a penalty
This is an administrative penalty, typically a fine or a temporary revoking of
fishing licence. In many legal systems, the alleged violator can refer this kind
of an administrative penalty to the judicial system (appeal).
(3) Indict the alleged violator.
This means that the alleged offense will be tried in the courts where, in the
case the accused is found guilty, a penalty is assessed.
(4) Apprehend and indict the alleged violator.
In this case the alleged violator is apprehended (a penalty in itself) and also
formally charged for the offence.
It should be clear that if the fishing firms are profits maximizers, enforcement
action (1) will, in general, not suffice to generate sufficient adherence to the fisheries
management rules, unless the level of monitoring and enforcement is extremely high
relative to the fishing activity. Since the former implies that a decentralized fishery
can never be efficient and the latter is obviously far too expensive compared to the
value of the fishery, we may conclude that any reasonable MCS system must rely on
(2)-(4) to a significant extent.
For later reference it is useful to note that the enforcement part of MCS, especially
degrees (3) and (4) above, is linked to the operations of the Fisheries Judicial System
and, in fact, depends on it, if it is to be effective.
3.2
The Cost of MCS
The cost of MCS in fisheries is by no means negligible. The available indications
(Arnason et al. 2000, Wallis and Flaaten 2000) suggest that this cost usually ranges
between 2% and 10% of the total landed value of national the fisheries.57 The
following table, Table 2.12) adopted from Wallis and Flaaten 2000 provides
estimates of overall fisheries management costs (the bulk (95%) of which are MCScosts) in several developed countries.
57
There are a few cases of fisheries management costs exceeding 20% of the total value of landings.
These, however, generally apply to small fishing nations and/or fisheries that have severely
declined.
97
Table 2.12
Fisheries Management Costs
Year: 1997
(Source: Primarily Wallis and Flaaten 2000)
Countries
Australia*
Canada
Greece
Italy
Iceland
Japan*
Mexico
New Zealand
Norway
Spain
United Kingdom
United States
EU (total)
OECD (total)
MCS-costs
as a fraction of revenues
(percent, %)
11%
8%
9%
4%
2%
4%
2%
8%
7%
1%
8%
18%
6%
6%
MCS-costs
per volume of landings
USD/metric tonne
408
153
236
139
9
104
14
66**
34
37
94
143
87
71
* Enforcement costs not included.
** Author’s estimate
According to table 2.12, the average fisheries management expenditures as a
fraction of fisheries revenues are about 6%. Obviously, 6% of revenues represents a
significant part of the maximum attainable fisheries rents in most fisheries. Most of
these costs may be taken to be MCS-costs. Now, fisheries MCS-costs, of course,
depend on the extent of MCS. Most of the countries in Table 2.12 operate an
extensive fisheries MCS system. Where there is little or no fisheries management,
MCS-costs, even measured as a fraction of fisheries revenues, may be assumed to be
much smaller.
According to Arnason et al (2000) the most important MCS cost items appear
to be:
(1) Enforcement at sea and on land
(2) Data collection and research
(3) Policy formulation and system administration.
Enforcement costs, especially those at sea, are generally very high and as whole
usually account for well over half of the total MCS-costs. Data collection and research
costs typically account for over a third of total MCS-costs with the most costly item
being biological research. The rest of MCS-costs is accounted for by policy
formulation and general administration costs. A typical division of these three cost
items is illustrated in Figure 2.29.
98
Figure 2.29
MCS-costs: Main categories
Averages for Iceland, Norway and Newfoundland
(Source: Arnason et al. 1999)
7%
Enforcement
34%
Research
59%
Administration
The existence of
significant MCS-costs
suggests the need to take
account of these costs in
formulating the fisheries
policy. After all, what
counts are the net economic
benefits, after the payment
of all the costs including the
MCS costs required to
rationalize the fishing
activity. Clearly, the costs
of managing the fishery
will reduce the desirability
of doing so. Indeed, if the
MCS-costs are too great,
the best option may be not to manage the fishery at all.
Implementing a harvest rate or fishing effort different from what individual
fishermen would like is inevitably costly. Moreover, it seems plausible that the greater
the difference between the permissible harvest or fishing effort and the ones
individual fishermen would like, the greater will be the MCS needed and,
consequently, the cost. We refer to this relationship as the MCS-cost function. Its
exact nature is a matter for empirical investigation. However, it seems plausible that
the its general shape may be as illustrated in Figure 2.30.
Figure 2.30
The MCS-function: An example
MCS-costs
ecomp
Fishing activity
58
In Figure 2.30, ecomp
denotes the level of fishing
activity, the fishing firms
would select at the given
stock level and other
conditions, in the absence of
fisheries management.
Consequently, to generate
this fishing activity, there is
no need for costly MCS.
Hence, the associated cost is
zero.58 Any deviation from
this point implies the need
for enforcement and
consequently MCS-activity.
Therefore, as drawn in
Figure 2.30, the MCS-cost
may be assumed to increase
Note that in many real-life fisheries, significant MCS-expenditures are incurred in spite of the
fishery staying more or less at the open access or unmanaged point.
99
on both directions.
Figure 2.31
Total costs: Harvesting and MCS-costs
$
Total
costs
Harvesting
costs
In terms of our
standard sustainable
fisheries model, MCS-costs
constitute an addition to the
basic harvesting costs as
illustrated in Figure 2.31.
The basic effect is to move
the overall cost function
upward and make it flatter.
MCS-costs
ecomp
Fishing effort
Consequently, the optimal sustainable fishery is characterized by more fishing effort
and less biomass than would otherwise be the case. This is illustrated in Figure 2.32.
Figure 2.32
The Sustainble Fishery under MCS Costs
Old
optimum
New
optimum
Total costs
$
Costs
Revenues
e* e**
ec
Effort, e
xc
x**
x*
Sustainable
biomass,
x
Biomass
100
So, as illustrated in Figure 2.32, when an efficient fisheries policy can only be
implemented at a cost and this cost
is not fixed but increases with the
Figure 2.33
fisheries rents generated, the
No management is optimal
optimal policy is to adopt a less
efficient fisheries policy than
Total costs
with MCS
would otherwise be the case. In the
extreme case, the MCS-costs could
$
be so high or the fishery of so low
Harvesting
value that little or no fisheries
costs
management could be justified.
This could happen in particular if
Revenues
there are some fixed costs of
associated with having an MCS
activity at all. A possible
configuration where this would be
ecomp
Fishing effort
the outcome is illustrated in Figure
2.33.
Example
Effects of MCS-costs
Consider the very simple fisheries model with the biomass growth function
x = 2x -x2,
where, as usual, x is biomass.
Let the harvesting function be:
y = ex,
where y represents fishing effort and e fishing effort.
And let fishereis costs be
c = 0.7e,
where c denotes costs.
Thus profits are:
 = ex - 0.7e,
where  represents profits.
Now, let MCS-costs depend on the deviation of actual fishing effort, e, from the equilibrium fishing
effort with no management denoted by e° as follows:
c2 = ( e°-e)2,
where the parameter =0.2
Thus, it is assumed that MCS-costs increase increasingly faster as fishing effort is forced further away
from what individual operators in the fishing industy would try to do without management. This
relationship is illustrated in the following figure.
101
0.4
mcost ( e) 0.2
0
0
1
2
e
Note that MCS-costs are at a minimum at fishing effort level 1.3, which is the competitive, unmanaged
fishing effort.
MCS-costs add to the usual harvesting costs and consequently alter the optimal position of the
fishery at each point of time as well as in the long run. Basically MCS-costs increase the costs (or
diminish the benefits of reducing fishing effort. Hence, the existence of significant MCS-costs
generally make the optimal long t-run fishng effort higher than would otherwise be the case. This is
illustrated in the following two diagrams:
ysust ( e)
ysust ( e)
1
1
cost ( e)
cost ( e)
tcost ( e)
0
0
1
0
2
0
e
1
2
e
The second diagram includes management costs on top of the familiar harvesting costs. It
should be clear from comparing the two diagrams that the additon of the MCS-costs, while not
changing the competitive fishing effort and catch, leads to a higher optimal fishing effort and harvest
than would otherwise be the case. The actual numerical outcomes for the model specifications given
above are listed in the following table:
Fishing effort
Biomass
Yield
Fisheries profits
MCS-costs
MCS-costs/revenue
Net fisheries profits
No
management
Optimal
ignoring MCS-costs
Optimal
recognizing MCS-costs
1.30
0.70
0.91
0.0
0.0
0.0
0.0
0.650
1.350
0.878
0.423
0.085
0.096
0.338
0.758
1.242
0.942
0.411
0.059
0.062
0.352
102
The table confirms the theoretical results discussed above, namely that the existence of MCScosts leads to greater optimal fishing effort and less biomass. Although fisheries profits may be higher
when management costs are ignored, the overall or net profits from the fishery are not maximized.
This can only happen when MCS-costs are explicitly taken into account when the “optimal” fishing
effort is selected. The difference, as indicated in the table, can be quite significant. Finally not that the
cost of MCS has been calibrated so that the ration of MCS-costs to total fishery revenues is similar to
what has been observed in real fisheries.
The relationship between fisheries management costs and the optimal level of fishing effort
and biomass is illustrated in the following diagram:
1,6
1,4
1,2
1
Biomass
0,8
Effort
0,6
0,4
0,2
0
0
2,1
3,8
5,2
6,2
7,1
7,8
8,4
8,9
9,2
9,6
10 10,5
MCS-costs as percent of revenues
So, in this example MCS-costs of approximately 6% of fisheries revenues, the average in the OECD,
leads to about 16% increase in the profit maximizing fishing effort and about 8% reduction in the the
profit maximizing biomass. With MCS-costs of 10% of fishereis revenues the effect is substantially
greater. Ignoring MCS-costs in formulating the fishereis policy thus may lead to quite substantial errors
in the selection of the “optimal” fishing effor and biomass. The impact on net fisheries profits,
however, is much smaller as indicated in the above table.
103
Technical Appendix 8
Consider our usual simple fisheries model with a profit function defined by
(e,x) = Y(e,x)-C(e),
where e represents the firm's fishing effort and x the biomass of the fish stock. The
function Y(e,x) is the harvesting function and the function C(e) the fisheries cost
function.
Biomass growth is given by the expression:
x = G(x) - Y(e,x),
where G(x) is the biomass growth function.
Restricting our attention to equilibrium for simplicity, we may characterize the
optimal solution by the equations (Clark and Munro 1982, Arnason 1990):
Gx +YxCe/e = r,
G(x) – y = 0,
where r is the rate of discount and YxCe/e is what Clark and Munro (1982) refer to
as the marginal stock effect. As shown by Clark and Munro, the larger the marginal
stock effect the higher the optimal stock level.
The competitive (or unmanaged) fishery may be characterized by the zero
profit condition:
(e,x) = 0,
Solving this equation for fishing effort we find:
ecomp=F(x),
which simply states that the competitive fishing effort is some, normally increasing,
function of the biomass at each point of time.
Let us now turn our attention to MCS-costs. Presumably MCS-costs depend
positively on the deviation of the (enforced) fishing effort from that which would be
selected by the the firms if there was no fisheries management. More precisely, let’s
define the MCS-cost function as:
C2(e- ecomp),
where the notation C2(.) is to remind us that this is the MCS- cost function and not the
harvesting cost function. In accordance with the above discussion the management
cost function is convex with a minimum at e = ecomp. More formally:
104
C2(0) = 0,
C2ee>0,
assuming, without loss of generality, that the C2(.) function is sufficiently smooth to
allow differentiation. Note that according to this formulation, C2e<0, if e< ecomp which
applies when the fisheries management consists of reducing fishing effort compared
to what would otherwise be the case.
With MCS-costs included, the optimal equilibrum conditions are:
Gx +Yx(Ce+ C2e) /(e - C2 e) = r,
G(x) – y = 0,
where the term Yx(Ce+ C2e) /(e - C2 e) is the "new" marginal stock effect when there
are management costs. Provided C2e<0, this new stock effect is obviously smaller
than the one without MCS-costs. It immediately follows that the effect of MCS-costs
is to reduce the optimal equilibrium stock level and, consequently, to increase the
optimal equilibrium fishing effort level.
105
4. The fisheries judicial system
The purpose of the fisheries judicial system (FJS) is to:
(1) Process alleged violations of fisheries rules.
(2) Apply sanctions as appropriate.
It follows that the FJS must contain well defined procedures as to how to process
alleged violations. What are the courts, how cases may be referred to the courts,
appeal procedures, time limits and so on. We refer to this as the fisheries judicial
procedures. It must also contain legal specifications as to what is a violation, what
constitutes adequate proof that it has occurred and a schedule of of sanctions or
penalties corresponding to given violations. We refer to this as fisheries judicial legal
specifications.
Without the support of the fisheries judicial system, the MCS activity would
not work. Alleged violators would simply go to court and get off with penalties
insufficient to deter them from their illegal activities. Hence, the MCS activity would
be of little use. In particular, it would not succeed in enforcing the fisheries rules. It
might not represent a complete waste of money, however. By imposing some
additional cost on the fishing activity, it may succeed to reduce the overall level of
fishing activity just as the fisheries tax discussed in section B.2.3. This, however,
would be a very inefficient tax because it is imposed by means of costly MCS activity
which, incidentally, might easily far exceed the benefits of the tax.
It is often found that the fisheries judicial system is the weakest link in the
fisheries management regime. Partly this is because this part of the system is most
liable to be forgotten by the designers of the regime. More fundamentally this is
because the judiciary is in most countries fairly independent of the executive and
legislative branches of government. As a result, this part of the fisheries management
regime is much less amenable to redesign and change than the other two components.
Judges pass judgements according to law, custom and convention. They generally
have little understanding of the intricacies of the FMR. This suggests the need to
include carefully designed articles concerning the treatment of fisheries violations, the
burden of proof , penalties etc. in the fisheries legislation defining the fisheries
management regime.
4.1
The simple theory of violations
To correctly design the FJS, it is necessary to understand what motivates violations of
fisheries rules. Our fundamental assumption is that fishing firms, as any other firms,
seek to maximize their own profits. It immediately follows that fishing firms will
compare the expected benefits of violations to the expected costs.59 If the expected
benefits exceed the expected costs, a risk neutral firm will elect to commit
59
This approach to the theory of crime was developed by Becker 1968. For a non-technical treatment
see Hellman and Alper 1997.
106
violations.60 Thus, for instance, a risk neutral fishing firm will elect to exceed its catch
quota or poach in closed fishing area, if the expected gain of this exceed the expected
penalty.
To develop these basic ideas further, it is necessary to resort to slightly more
formal arguments. Let the variable z represent the extent (or quantity) of violations by
a given fishing firm. Probably, z is most easily though of as the number of violations.
For our purposes, however, it is more useful to regard z as a more general continuous
variable measuring the total extent (volume or size) of violations and not merely their
individual number. We take it that z=0 represents no violations and z>0 represents
some positive quantity of violations.
Let the function (z) be the (expected) profits from the violations before the
subtraction of possible penalties. Presumably, these profits are, up to a point,
increasing in the extent of the violations but at a slowing rate as illustrated in Figure
2.34. This means that the marginal profits of violations (the additional profit from
each new unit of violation) must be declining with the extent of the violations. Both
the profits and marginal profits from the violations are illustrated in Figure 2.34.
Figure 2.34
Expected profits and marginal profits of violations
Profits
Marginal
Profits
Violations
Violations
Consider now the penalty for committing violations. This penalty may take
several forms. It may consist of a formal legal sanction, such as a fine, or an informal
sanction such as a social censure or a bad conscience61.
Let C(z) represent the expected penalty for committing violations z. We may
take it for granted that this expected penalty increases with the extent of the
violations. So, C(z) should be increasing in z. Moreover, if extensive violations are
more severely dealt with (per unit of violation) than minor violations, the expected
penalty will rise at a faster rate than the violations as illustrated in the first diagram in
Figure 2.35. Consequently, the marginal expected penalty (the additional expected
60
61
Essentially the same theory carries through, even if the firms are not risk-neutral l. Hence, in what
follows we will assume risk-neutral firms.
Which of course is a form of a social sanction.
107
penalty for each additional unit of violations, is similarly increasing. This form of the
expected marginal penalty is illustrated in the second diagram in Figure 2.35. It
should be noted, however, that the following argument is in no way dependent upon
these particular shapes of the expected penalty and marginal penalty functions,
Figure 2.35
Expected penalty and marginal penalty of violations
Expected
penalties
Marginal
expected
penalties
Violations
Violations
provided the expected penalty rises with the extent of the violations.
Increased enforcement activity, conducted as a part of the MCS, will normally
increase the probability of being observed violating the fisheries rules and hence the
expected penalty of violations. The same applies to the penalty. If the penalty is
increased, while the probability of being observed committing a violation is constant,
the expected penalty of a violation also increases. Thus, an increased enforcement
activity or for that matter a higher unit penalty will generally shift the expected cost
functions in Figure 2.35 upward as illustrated in Figure 2.36. Clearly, if there is no
enforcement or the penalty is always zero, both the expected penalty and the expected
marginal penalty for violation are zero.
Figure 2.36
The effects of increased enforcement activity on expected penalties
Higher
enforcement
Expected
penalties
Marginal
expected
penalties
Higher
enforcement
Lower
enforcement
Lower
enforcement
Violations
Violations
108
Now, profit maximizing (and risk-neutral) firms will want to operate where
their net expected benefits of violations are maximized. This happens where the
expected marginal benefits of violations equal the expected marginal cost. If the
former exceeds the latter it is clearly profitable for the firm to increase its violations
and vice versa. Hence, this point constitutes a desirable position or an equilibrium for
the firms. Two examples of such equilibria are illustrated in Figure 2.37, one for low
Figure 2.37
Violations as a function of marginal expected penalties
Very
high
Marginal
expected
penalties
Marginal
$
High
Low
Marginal
expected
benefits
0
v2
v1
v0
Violations
enforcement activity and the other for high enforcement activity corresponding to
violation levels v1 and v2, respectively.
From Figure 2.37 we see that the level of violations depends directly on the
expected penalty. Thus, if there is no expected penalty, the fishing firms will choose
violations level v0. This of course corresponds to an unmanaged fishery. As the
expected penalty increases, the level of violations diminishes until, at some level of
expected penalty, there are no violations. To increase the expected penalty, however,
usually requires more costly enforcement activity. Consequently, it is generally not
economical to seek 100% adherence to the rules.
We conclude that by altering the expected penalty, the fisheries authorities
can, in effect, determine the level of violations. This, as we have seen can be done by
altering either the enforcement activity or the penalty for the violations. The practical
management problem is to select the appropriate level of these variables. To do that it
is necessary to investigat4e further the structure of the expected penalty function is
constructed. To this we now turn.
Structure of the expected penalty function
109
The expected penalty is, in the first instance, simply the penalty (fine or whatever) for
committing violation z multiplied by the probability that the penalty will have to be
suffered. In other words:
C(z) = pf(z),
where p is the probability that the penalty will have to be suffered and f(z) is the size
of the penalty. So, the expected penalty may be increased by either increasing the
penalty or the probability that the violator will have to suffer the penalty. Note that
according to this formulation there is a certain trade-off between p, the probability
that the penalty will
have to be suffered,
Figure 2.38
and f(z), the size of the
The trade off between the probability of having to
penalty. Thus a certain
suffer the penalty and the size of the penalty
level of expected
penalty for a violation,
i.e. C(z), may be
Enforcement,
achieved by either the
p
combination of high
probability of having
to suffer the penalty
Constant
and a low penalty or
C(z)
the combination of a
low probability of
having to suffer the
penalty and a high
penalty. The nature of
this trade-off is
Penalty, f
illustrated in Figure
2.38. Note that if the
probability of having
to suffer the penalty approaches zero, the size of the penalty has to approach infinity
to maintain the same expected penalty for the violation and vice versa.
While the penalty itself is conceptually a fairly straight-forward variable, the
same does not hold for the probability that a the penalty will have to be suffered, i.e.
p. This is composed of a number of sub-probabilities each of which is of relevance for
the design and operation of the FJS. To explain further, it is necessary to resort to the
concept of a conditional probability.62 A conditional probability is the probability that
something, a, say, happens when something else, b, say, has already happened.
Traditionally, this type of probability is denoted by an expression such as p(ab).
which reads p is the probability that a happens given that b has already happened.
Now, it should be fairly obvious that the probability that a violator will have to
suffer a penalty is the conditional probability that a penalty will be assessed when a
62
The theory of conditional probabilities is expounded in virtually all elementary textbooks on
statistics. See e.g. Freund 1979.
110
violation has taken place. Let us refer to this probability as p(penaltyz). So, more
formally:
p  p(penaltyz)
According to standard probability theory, this, conditional probability can be
decomposed as follows:63
(4.1)
p(penaltyz)=p(penaltyfound guilty)p(found guiltyapprehended)
p(apprehendedz),
where p(penaltyfound guilty) is the conditional probability that a violator will be have
to pay a penalty if he is found guilty, p(found guiltyapprehended) is the conditional
probability that an alleged violator will found guilty if he is apprehended and
p(apprehendedz) is the conditional probability that an alleged violator will be
apprehended if he commits violation z.
So, the probability of having to suffer a penalty when one has committed a
violation depends on:
(1)
(2)
(3)
The probability of being apprehended having committed the violation.
The probability of being found guilty if apprehended
The probability of having to pay a penalty if found guilty.
The first probability has to do with the extent of the MCS activity. The more intensive
the enforcement part of the MCS activity, the higher this probability. The second and
third probabilities have to do with the FJS. The second refers to the efficiency of the
courts and the “burden of proof”. The third refers both to the ability of the court to
assess a penalty in the case of a guilty verdict and the ability of the FJS to actually
execute the penalty once assessed.64
Thus, it should be clear, that the proper operation of the FJS is crucial for the
probability that a fishing firm will have to suffer a penalty for violating fisheries rules.
Even if the MCS works perfectly and the probability of apprehension if a violation is
committed, i.e. p(apprehendedz), approaches unity, if either of the probabilities of
being found guilty once apprehended, p(found guiltyapprehended) and having to pay
the penalty if found guilty, p(penaltyfound guilty), are low the overall probability of
having to pay the penalty for violation of fisheries rules cannot be large. This is
illustrated in Table 2.13.
Table 2.13
Probability of a penalty
p1 = p(apprehendedz)
p2 = p(found guiltyapprehended)
p3 = p(penaltyfound guilty)
p = p(penaltyz)
63
64
Further decomposition is this basic probability is of course possible.
For instance, it is not uncommon in many cultures for fines to remain unpaid.
111
p1
p2
p3
p = p1p2p3
0,1
0,5
0,5
0,1
1,0
0,5
0,5
0,7
0,7
0,2
0,8
0,8
0,8
1,0
0,2
0,04
0,20
0,28
0,07
0,04
Table 2.13 shows first of all that even with perfect MCS
(p(apprehendedz)=1), the overall probability of a penalty will be very small, unless
the FJS functions reasonably well also. Secondly, and no less importantly, it shows
that the overall probability of a penalty will generally be fairly small for reasonable
levels of the constituent conditional probabilities making up the overall probability of
a penalty. Thus, even with a 50% probability of apprehension fort a violation and 70%
probability of conviction and 80% probability of having to pay the penalty if
convicted, the overall probability of a penalty is only 28%. With the probability of
apprehension being reduced to 10%, which is more in accordance with reality in most
fisheries, the overall probability of having to pay the penalty can only be 10% at best
and is, in all likelihood, substantially less. So, in almost all realistic cases the
probability of having to pay the penalty for a fisheries violation cannot be very large.
Thus, the make the expected cost of a violation sufficiently high to deter violations,
the penalty itself has to be sufficiently heavy. To this we now turn.
The importance of heavy penalties
As discussed above the expected cost of committing a violation is
C(z) = pf(z),
where p is the probability of having to suffer a penalty for a violation and f(z) is the
corresponding penalty. Now, as argued above, p is most likely to be quite small, even
when all parts of the enforcement process work as well as can be expected. Hence, the
most feasible way, and the least expensive one, to increase the expected cost of
violations is to increase the penalty, f(z). Indeed, since fisheries enforcement is
generally quite costly, it can be shown (see Technical appendix 9) that overall
fisheries rents could be increased by cutting back on enforcement but keeping the
expected cost of violations up by increasing the penalty.
The reason for this result is not difficult to fathom. The penalty contributes to
the adherence to fisheries rules. It is, in other words, a productive input. At the same
time increasing the penalty, at least the formal part of it (e.g. a fine) is approximately
costless. Hence, adherence to fisheries rules can be achieved at a low cost by little
enforcement but heavy penalties. This, essentially corresponds to flattening the MCScost curve discussed in section 3 and illustrated in Figures 2.30 and 2.31.
This result presupposes that penalties can be increased at a low cost. In some
societies there may be socio-legal obstacles to increasing formal penalties for fisheries
violations. If that is the case, the best course of action may be to put the formal
112
penalties as high as possible, attempt to increase the informal penalties by a public
information and awareness programme and then to set the enforcement activity
correspondingly.
Example
Effects of the penalty on the optimal fishery solution
We consider the same simple fisheries model as in section B.3 with the sustainable profit function.
 = ex - 0.7e,
where  represents profits and e fishing effort.
As in section B.3 we let MCS-costs (here really enforcement costs) depend on the deviation of actual
fishing effort, e, from the equilibrium fishing effort with no management denoted by e° as follows:
C2 = (f)( e°-e)2,
except (f) is now a function of the penalty, f. More precisely we specify
(f) = 0.25/f.
So, according to this specification, for a fixed effort level, MCS costs fall with the size of the penalty
approaching zero as the penalty approaches infinity. This is illustrated in the following diagram.
0.5
0.4
MCScost ( f )
0.2
3
1.76 10
0
0
0.01
1
2
f
3
3
Note, however, as the optimal efforet level depends on the penalty, the actual relationship where the
optimal effort is adjusted with respect to the level of penalty is more complicated.
Now, the higher penalty the less costly it will be to achieve any giving level of fishing effort.
Enforcement, in other words, becomes more economical. Therefore it becomes optimal to increase
enforecement and move the fishery closer to the optimal (i.e. the optimal when enforcement costs are
ignored). This implies htat the optimal fishing efofrt will be lower and the optimal biomass level larger
the higher the penalty. At the same time the maximum attainable net profits (i.e. net of management
costs) will be higher. These results are illustrated in the following diagrams.
113
0.6
1.5
0.4
eestar ( f )
x( eestar ( f ) )
1
netprof ( f )
0.2
0.5
0
2
4
f
0
0
2
4
f
In the limit when the penlaty, f, goes to infinity, enforcemetn costs will, in effect, be zero and
the optimal fishing effort will converge to the level that is optimal assuming no enforcement costs
4.2
Conclusions
The purpose of the FJS is to back-up the enforcement part of the MCS-activity. In
particular the FJS determines crucial components of the probability that a violator of
fisheries rules will have to suffer a penalty and sets the penalty itself. Adherence to
fisheries management rules requires sufficiently high expected cost of penalties. The
most efficient way to do this is by setting sufficiently high penalties. More generally,
any expected cost of a violations can be generated by the appropriate combination of
enforcement and penalties. To find this appropriate combination, it is necessary to
obtain an empirical estimate of how increased enforcement activity and improved FJS
will affect the expected costs of violations.
114
Technical Appendix 9
The role of the penalty in the enforcement of fisheries rules
Let ec refer to effort level the industry produce when there is no fisheries management
(i.e. no enforcement of fisheries rules) and e the actual fishing effort under
management. Then we may regard the deviation e-ec as the output of the enforcement
activity. In what follows we will primarily be interested in negative deviations, i.e.
reduction in fishing effort compared to what the industry would elect if left
unmanaged. Let us for convenience refer to it as management output.
Obviously, management output depends on (i) the enforcement activity and
(ii) the level of the penalty. The former increases the probability of having to suffer
the penalty and the latter the size of the penalty that has to be suffered. There will of
course be other variables influencing the management output including the prevailing
social culture. These, however, we abstract away from in what follows.
Let the production function of management output be:
e-ec = M(m,f),
where m refers to the extent of the enforcement activity and f to the size of the penalty
and sufficient smoothness of the production function M(.,.) is assumed. We take it for
granted that the first derivatives of M(.,.) with respect to these variables is negative,
i.e. the higher m and f the more negative the deviation.
Given, existence of sufficient regularity of the production function M(.,.) we
may define the necessary enforcement activity to generate a given management output
given the size of the penalty as:
m = E(e-ec, f),
where on the basis of our previous assumptions both first derivatives are negative.
Moreover, it is intuitively obvious, and easy to show that in the limit where f  , the
necessary enforcement activity approaches zero, i.e., m0. The reason is that the
when f  , the expected penalty, pf goes to infinity even when the probability of
detection is, p, is very low. Hence there will be no violations.
Assuming for convenience of exposition that each unit of enforcement can be
produced at a fixed price, w, we have the following simple expression for the
management (or enforcement) cost function:
C2(e-ec , f) = wE(e-ec, f).
Note that this function is a generalization of the MCS-function defined in Technical
Appendix 8. The generalization is that now the penalty size is included in the
management cost function. Its effect is to reduce management costs. In the limit
where the f  , C2(e-ec , f) 0.
115
Now, looking at the static framework for simplicity of exposition, the fisheries
manager attempts to solve the following maximization problem:
max  = Y(e,x) - C(e) - C2(e-ec , f) s.t. G(x) - Y(e,x) = 0
e,x,f
Among the necessary conditions we have that the fine should be increased as long as:
(1) -C2f(e-ec , f) > 0.
But this implies that f  .
This result, of course is quite intuitive because by increasing the penalty the
management costs (for any given level of management output) are reduced, while the
penalty increases are costless (fines are just a transfer).
If the penalty can only be increased at a cost, C3(f), say, the necessary
condition for the penalty must be changed into
(2)
-C2f(e-ec , f) - C3f(f)> 0.
this normally means that the optimal level of penalty will be finite.
116
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119
C. Cases of Fisheries Management
This chapter deal with special cases of fisheries management around the world. the
experiences of a number of significant fishing nations, including Australia,
Greenland, Iceland, New Zealand, Norway and the Netherlands, are reviewed.
The past couple of decades have seen a fundamental shift in the management
of the world's ocean fisheries. During this period, most ocean fisheries have gone
from almost complete operating freedom to a highly regulated state. Today,
completely unregulated fisheries are almost exclusively found on the high seas, i.e.
outside the 200-mile national exclusive economic zones (EEZs) that have become the
international standard.
A great variety of fisheries management systems have been tried by the world’s
fishing nations including many of those discussed in Chapter *** of this book. In fact
many fishing nations have over the years experimented with several systems and
measures. Recently, however, there has been a clear trend toward the adoption of
property rights based fisheries management systems worldwide. Several types of
property rights have been tried including exclusive user rights, access licences,
capacity licences and various types of harvesting quotas. Of these, individual
transferable quotas (ITQs) have been most successful. As a result, their use in
fisheries management around the world is expanding. For this reason a good part of
this chapter is devoted to the examination of property rights based fisheries
management systems as a tool to enhance the efficiency of fisheries.
2
Property Rights Structures in Fisheries Management
It appears helpful to view the trend toward property-rights based regimes in fisheries
as yet another stage in the historical expansion of private property rights as a
framework for economic activity. Economic history informs us that the extension of
the private property system has generally been motivated by the desire to increase
economic efficiency (Smith, 1776 1937; Marx, 1867 1952;Demsetz, 1967). In fact,
the private property rights system is generally believed to be fundamental to the
current high level of economic productivity on land (Hayek, 1979; Demsetz, 1967;
Buchanan, 1975). A well defined private property rights system at sea may be
expected to yield similar economic benefits. This expectation seems to be confirmed
by the experience of the fishing nations that have already adopted reasonably
complete private property rights in their fisheries.
In this section is concerned with property rights as an organizational
framework in fisheries. In particular, it focuses on the implications of property rights
structures on economic efficiency. Most of the chapter is devoted to examining the
property rights regimes employed by a few prominent fishing nations and their
economic outcomes. To set the stage for this discussion, the chapter begins by
outlining the basic fisheries problem and its relationship with property rights
structures employed in fisheries.
120
Fish stocks provide a crucial input into the fisheries process much like
physical capital in standard production processes. However, unlike physical capital,
ocean fish stocks rarely constitute the private property of the producer. Usually, they
are the common property of a collection of individuals (or firms) that are entitled to
use the fish stocks to produce catch.
Fish stocks, however, are natural resources of limited size and capacity of
sustainable yield. It follows that each fisher's catch will normally reduce the catch
opportunities (i.e. the production possibilities) of other fishers. It is this externality,
caused by the common property arrangement of fish stocks, that is at the root of the
fisheries problem as discussed at length in Chapter *.
A fundamental result for the theory of fisheries management, discussed in
Chapter *, is that an unmanaged, common property fishery converges to an
equilibrium where total fishing costs equal the value of the harvest. A fundamental
reason for this result, as demonstrated in Chapter *, is the lack of private property
right in sthe fishery.
It should be noted, however, that what would usually be referred to as a
common property fishery, i.e. one based on a common property fish stock, does not
necessary lead to excessive exploitation of the resource. The common owners may
choose to adhere to fishing procedures that, to a lesser or greater degree, alleviate the
fisheries problem. In fact, examining natural resource utilization in traditional
cultures, one would expect to find social institutions controlling the extraction from
the natural resource and enforcing "socially acceptable" utilization procedures
(Ciriacy-Wantrup & Bishop, 1975; Lueck, 1995). In the case of fisheries, this is, of
course, tantamount to the imposition of fisheries management rules. It is interesting to
note that these rules would, in most cases, restrict individual use of the resource and
hence limit the common property rights.
These considerations motivate the concept of an unmanaged common property
fishery. This is a common property fishery that is not subject to any specific fisheries
management rules. The reason for the absence of fisheries management rules is
immaterial in the current context. Perhaps, the common owners are yet to recognize
the common property fisheries problem. Perhaps, high transaction costs prevent them
from agreeing on and enforcing fisheries management rules. In any case, unmanaged
common property fisheries are still found around the world. Examples are provided
by many high seas fisheries.
The prediction of rent dissipation in fisheries certainly applies to common
property, unmanaged fisheries. Under that particular property rights structure, the
fishers are basically forced to overexploit the fish stocks, even against their own better
judgement. The problem, however, is to define property rights that work.
A property right is usefully perceived as consisting of a bundle of
characteristics (Scott, 1983, 1989). These characteristics include (i) security of title,
(ii) exclusivity of use, (iii) duration of the property right, (iv) divisibilty, and (v)
transferability (Scott, 1989). These are dimensions along which the quality of the
property right may be judged. The more of each characteristic the higher the quality
of the property right. A perfect property right would be fully secure, completely
121
exclusive, infinite in duration, perfectly divisible and transferable. It is worth noting
that complete exclusivity is, of course, equivalent to what is usually referred to as
private property.
Perfect property rights are undoubtedly extremely rare, if they exist at all.
Relatively high quality property rights, in the above sense, are, on the other hand,
quite common. In particular, private property rights in economic inputs are fairly
standard in land based industries.
A reasonably satisfactory property rights structure in fisheries from an
economic point of view, would consist of private property rights in both specific
individual fish and the ocean environment that sustains them. This, incidentally,
corresponds to the usual property rights structure in animal husbandry where the
farmer typically holds property rights in both the animals and the land that sustains
them.65 However, at the current level of technology, it is generally not feasible or at
least prohibitively expensive, to implement property rights of this type in ocean
fisheries. It follows that it is necessary to resort to broader and, consequently, less
effective property rights.
Several types of property rights regimes have been employed in an attempt to
alleviate the fisheries problem. These include exclusive use rights (EURs), territorial
use rights (TURFS), access licences, capacity licences, and harvesting quotas. Of
these, only EURs and TURFS come close to economically ideal property rights.
EURs in complete fisheries, however, are socially unattractive and, consequently,
rarely employed. TURFS are only practical for relatively sedentary species and have
only been implemented close to the shore (Rettig, 1989).
3.
Cases of Property Rights Based Fisheries
In this section we will briefly discuss six cases of property rights based fisheries
management in ocean fisheries. These are the cases of Australia, Greenland, Iceland,
the Netherlands, New Zealand and Norway. Of these, Iceland and New Zealand have
adopted fairly complete versions of the ITQ system in most of their fisheries.
Australia Greenland and the Netherlands are somewhat less advanced in this direction
and have introduced ITQs only in some of their fisheries. Finally, Norway, has no
ITQ fisheries but has introduced property rights in the form of nontransferable
individual quotas (IQs) in most of her fisheries.
3.1
Australia
Australia has one of the largest EEZs in the world. Nevertheless, due to the relatively
low biological productivity of her waters, Australia is not a major fishing nation. In
recent years, annual catches have only been slightly above 200,000 tonnes. Much of
this harvest, however, consists of high value species such as lobster, shrimp and
65
These property rights, however, are not sufficient for full efficiency in agriculture as exemplified by
pollution problems.
122
abalone. Therefore, the value of the fishery is quite high -- in excess of US$1 billion
(Anonymous, 1992; 1996).
The jurisdictional aspects of Australian fisheries management are somewhat
involved. The state governments have jurisdiction over and, consequently,
responsibility for fisheries management up to three nautical miles from their
coastlines. The national or Commonwealth government’s jurisdiction is from the three
mile limit to the 200-mile boundary of the Australian EEZ. This jurisdictional
separation is problematic for fisheries management. Many species reside in two or
more jurisdictions or periodically migrate between them. In those cases, the law
allows for “Joint Authority” management between the jurisdictional entities.
However, these “Joint Authorities” have proven to be administratively cumbersome
and ineffective (Morris, 1994).
The inshore fisheries, i.e. those under state jurisdiction, account for over three
quarters of the total value of the Australian fisheries (Morris, 1994). These fisheries
are, for the most part, managed by direct restrictions; seasonal and area closures, gear
restrictions, access limitations and the like. In recent years, ITQs have been applied to
a small number of state managed fisheries. These include (i) the rock lobster fisheries
off New South Wales and South Australia, (ii) the abalone fisheries off New South
Wales, Victoria, South Australia, Western Australia and Tasmania and (iii) major
sectors of the pearl and oyster fishery (Morris, 1994).
In the Commonwealth fisheries, a variety of management techniques are
employed. Again, direct restrictions on the fishing activity are most common.
However, property rights based methods, including access licences and ITQs, are
becoming more common. Currently ITQs are applied in two important
Commonwealth managed fisheries; the southern bluefin tuna fishery and the southeast trawl fishery.
3.1.1 The Bluefin Tuna Fishery
Southern bluefin tuna is a highly migratory species. Spawning takes place off Java.
Juveniles migrating to the south-east form large surface schools off southern Australia
while mature bluefin tuna are dispersed throughout the southern oceans. On this
migratory route, the bluefin tuna are fished by many nations, including Japan, Korea,
Indonesia, Taiwan and New Zealand as well as Australia.
Until the 1970s, fishing pressure on the southern bluefin tuna was
comparatively light and the fishery was completely unmanaged. Following greatly
increasing fishing effort during the 1970s, the stocks seemed to decline and the
economics of the fishery deteriorated. Consequently, toward the end of the 1970s,
further entry of vessels into the fishery within the Australian EEZ was stopped. This,
however, did not halt the increase in fishing effort. Many licenced vessels were
replaced by more powerful ones and the fishing power of the others was increased by
modifications and the adoption of new fishing techniques. Consequently, harvesting
continued at an unsustainable rate and the stocks continued to decline.
123
In 1983, a scientific meeting attended by scientists from all the main fishing
nations concluded that the southern bluefin tuna stock was seriously depleted and
urged an immediate reduction in total catch levels. Following this advice, the
Australian government imposed a TAC limitation within its EEZ. An industry inquiry
(the Industries Assistance Commission) quickly concluded that the TAC regime,
although biologically necessary, was economically wasteful. Further, it was
determined that the joint goals of stock conservation and economic efficiency would
be most easily attained with the help of an ITQ-based fisheries management regime.
Hence, after consultation with the relevant state governments and industry
organisations, the Commonwealth government in October of 1984 established an ITQ
fisheries management system for the bluefin tuna within the Australian EEZ.
The bluefin tuna ITQs are permanent rights to harvest a certain proportion of
the TAC each year. These rights are perfectly divisible and transferable to any
Australian operator in the fishery. Thus, these ITQs are fairly high quality property
rights.
The initial allocation of quota shares was subject to extensive negotiations and
bargaining with members of the industry. The quota rights were allocated to all
significant participants in the fishery prior to the introduction of the system.
“Significant operators” were defined to be those that had landed at least 15 tonnes of
bluefin tuna during the three preceding seasons. These received permanent quota
share based on a formula that gave 75 per cent weight to their actual catch share
during the previous 3 years and 25 per cent weight to the value of their fishing
vessels. Complaints by those that felt they had been unfairly treated by this procedure
were handled by an appeals tribunal.
Enforcement of the bluefin tuna ITQ system is carried out by state agencies on
behalf of the Commonwealth. This involves both at-sea observations and on-land
monitoring by the actual weighing of landings. Although the quota enforcement
system seems to be quite effective, there have been some problems. For instance, the
shift toward increased long-lining and the direct export of whole, unprocessed fish to
Japan has made monitoring the harvest volume more difficult. There are also
difficulties in monitoring and preventing the discarding of inferior fish at sea.
There are strong indications that the ITQ system has led to a substantial
increase in economic efficiency in the Australian bluefin tuna fishery. There has been
a large reduction in the fleet size (Geen & Nayar, 1989; Geen et al., 1993). Also,
substantial benefits have been generated by the employment of fishing techniques
designed to increase the unit value of catch (Morris, 1994). Thus, in spite of a
substantial cuts in TACs, the industry has remained highly profitable. Simulation
exercises carried out during the early part of the ITQ management period (Geen &
Nayar, 1989) suggest that industry profits under the previous management regime
would have been no more than 25 per cent of those achieved under the ITQ system.
In 1985, Japan, New Zealand and Australia, then the main harvesters of
southern bluefin tuna, agreed to the setting of an overall quota on the southern bluefin
tuna harvest and the allocation of this TAC among them. This agreement, which has
been in effect ever since, is clearly quite crucial to the effectiveness of Australia’s
bluefin tuna ITQ system. Without it, the total stock couldn't be controlled and the
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quality of the quota property right would be correspondingly undermined. With the
recent increase in the high seas harvest of bluefin tuna by other nations, most notably
Taiwan, this trilateral agreement needs to be extended.
3.1.2 The South-east Trawl Fishery
The south-east trawl fishery is a multi-species fishery with a long history of
commercial exploitation. A large number of species are involved, the most important
being gemfish, orange roughy, blue grenadier and warehou. The main fishing gear is
otter trawl and Danish seine.
This fishery was first subjected to management in 1985, in response to
increased fishing pressure and declining stocks. Entry to the fishery was restricted and
various constraints on inputs imposed. These measures, however, proved ineffective.
Fishing effort continued to increase, threatening to deplete certain fish stocks (Morris,
1994). Consequently, a TAC regime was imposed on the gemfish fishery in 1988. In
1992, after extensive consultations with the industry, an ITQ system was introduced
in the fishery.
About 16 species, constituting the bulk of the south-east trawl catch, are
currently covered by the ITQ system. As in the bluefin tuna fishery, the ITQs are
permanent rights to harvest a certain proportion of the TACs each year. These rights
are divisible and transferable. In this sense the ITQs constitute reasonably complete
property rights. However, this ITQ system is seriously flawed in other respects. Most
importantly, it only applies to the otter trawl and Danish seine fisheries. Other fishing
methods such as longlining and handlining as well as the quite substantial recreational
fishery are exempt from the ITQ system. This means that the extent of the harvesting
rights represented by the ITQs depends on unconstrained harvesting activity outside
the ITQ system. Obviously, this seriously subtracts from the quality of the ITQs as
property rights.
The initial allocation of quota shares was to the two trawl sections -- otter
trawl and Danish seine, separately. However, the allocation rule differed only in
minor details. In both cases, the allocation was made on the basis of the historical
catch record during 1984-89 and the level of investment in the fishery. In the case of
otter trawl vessels, 80 per cent of the allocation was based on historical catches. In the
Danish seine fishery, 70 per cent of the allocation was based on historical catches.
Enforcement of the south-east ITQ system has apparently been somewhat
problematic. This hardly comes as a surprise. A good part of the catch is valuable for
local consumption, and there are many landing places. Moreover, as mentioned
above, some fishing methods are not subject to the quota constraint, making
enforcement of the regulations even more difficult.
Due to the recent introduction of the ITQ system in the south-east trawl
fishery, data on its impact is quite limited. The available evidence, moreover, is
mixed. According to Morris (1994), there was a slight increase in the profitability of
the industry, especially the offshore fleet, in 1992 and 1993 compared to that in
previous years. That this happened in spite of reduced TACs suggests that, the ITQ
125
system may, indeed, have generated some increase in efficiency. However, there have
also been a many problems with the system. One of them is the bycatch of quotabound species when other species are being targeted. Another, not unrelated, problem
is the seemingly increased discarding of unwanted fish (Morris, 1994).
3.2
Greenland66
Due to the extensive foreign fishing off Greenland, effective management of the
fisheries was not really feasible until 1985. At the end of 1976, Greenland's EEZ was
extended from 12 to 200 miles. This extension brought most of the fishing grounds
off Greenland under Greenland's jurisdiction. However, because Greenland (as a part
of the the Danish kingdom) was a member of the European Community (EC), the area
between 12 and 200 miles remained open to EC fishing fleets. This was changed in
1985 when Greenland voted in a national referendum to leave the EC. Since then,
Greenland has had sole control of her EEZ and, consequently, been in the position to
impose a fisheries management regime of her choice.
3.2.1 The Fisheries Management System
In Greenland fisheries management varies according to fleet category. Undecked
vessels are not subject to any management whatsoever. Among the inshore fishing
vessels, only shrimp-trawlers are subject to fisheries management. The ocean-going
fleet, Greenland's most important fishing fleet, is subject to extensive fisheries
management based on a property-rights regime.
The ocean-going fleet
In 1985, the ocean-going fleet was subjected to a licensing system and annual catch
quotas (IQs). Vessels above 79 GRT had to apply annually for a fishing licence and a
corresponding catch quota (expressed in terms of volume). For each vessel, this quota
was calculated simply as the TAC divided by the number of licenced vessels, with
some modifications reflecting the vessel's historical harvesting performance.
Apparently, fishing licences were handed out quite freely, with the result that the IQs
became progressively smaller as the fleet expanded.
In 1991, the fisheries authorities, undoubtedly spurred on by the declining
profitability of the fisheries, introduced a system of ITQs for this segment of the fleet.
Under this system, licence holders were given permanent rights to harvest a
percentage of the annual TAC. These permanent harvesting rights, or ITQs, are freely
transferable. The initial allocation was on the basis of historical catches under the
previous system.
66
This section relies heavily on Arnason and Friis (1995).
126
The inshore shrimp fleet
Until the end of 1991 the inshore shrimp fleet was only controlled by the issue of
annual licences. There were no IQs and the fisheries administrators were supposed to
prevent overexpansion of the fleet by restricting the annual issue of licences.
On December 1, 1991 this system was replaced by a permanent capacity
licensing system. Under this system, operators get capacity rights referred to as
“owner points”. The owner points are permanent and freely transferable. They do not,
however, directly determine the allowed capacity. This is determined by the
relationship between owner points and the so-called “vessel points”. Vessel points
constitute a measure of the estimated capacity of a given vessel. Every time a new
vessel is added to the fleet, it is assigned vessel points on the basis of its technical
specifications.
In any given year, a certain number of owner points corresponds to a certain
number of vessel points. This correspondence is not fixed over time, however. Every
year, the fisheries authorities determine this correspondence on the basis of the state
of the shrimp stocks. When the shrimp stocks are poor, owner points correspond to
relatively few vessel points and vice versa.
Thus, under this system, the holder of a certain number of owner points will be
allowed to operate a vessel or vessels of a certain capacity (measured in vessel points)
for one year. Fishing firms may accumulate owner points, but they do not know
before the start of the year how much capacity (vessel points) a certain number of
owner points will amount to. Once this is known, however, they can trade owner
points between themselves to achieve the capacity rights they desire.
When a new vessel is added to the fleet, its vessel points are assessed by the
authorities. To be able to operate this vessel, therefore, the owner must acquire the
required owner points presumably from other vessel owners. In this way the fisheries
authorities hope to be able to halt the expansion of the inshore shrimp fleet.
This capacity control system in the inshore shrimp fishery has been in
operation for only four years, so not enough data are yeat available to assess its
impact. A priori, however, it should not be expected to generate substantial economic
benefits. Admittedly, the system is a property rights system of sorts. However, the
basic property right is in uncertain capacity rights, i.e. owner points. Their
relationship with harvesting or the fish stocks is, at best, limited. Hence, the system
does not at all tackle the basic stock externality that is at the root of the basic fisheries
problem. On the other hand, provided the authorities maintain an appropriate
correspondence between owner points and vessel points, the system clearly creates an
incentive for capacity reduction. However, it should not be forgotten that capacity
(and effort) control systems are notoriously ineffective as fisheries management tools
due to the multidimensional nature of fishing capacity (Townsend, 1990).
3.2.2 Impact of the Fisheries Management
127
The Greenland fisheries management system, although quite limited in scope and in
many other respects imperfect, seems to have produced quite good economic results.
Thus, under the largely open access management regime before 1991, the fishing fleet
expanded at an exponential rate as illustrated in Figure 1 below. Thus, in 1990 the
fishing fleet measured almost 60,000 GRT, up from about 10,000 GRT in 1976 and
far above what was needed. Since 1991, however, following the introduction of the
ITQ system in the offshore fishery, the fleet has contracted substantially. Thus, at the
end of 1993, the fleet was down to 38,000 GRT which represent a reduction of about
35 per cent in only three years under the new fisheries management regime.
Figure 1
The Greenland Fishing Fleet
60
50
40
30
Fishing fleet tonnage
20
10
0
1976
1980
1985
1990
1993
(Source: Arnason & Friis, 1995)
Another measure of the effectiveness of a fisheries management system is
provided by the productivity of the Greenland fisheries relative to that of other similar
fisheries. Common measures of the productivity of fisheries are catch value per
fisherman and unit of capital (Arnason, 1995). By these measures, the Greenland
fisheries appear to be quite efficient compared to most other North Atlantic fisheries.
According to the data presented in Table 5 in Section 4 below, the capital productivity
of the Greenland fisheries is similar to or higher than that of most of the other North
Atlantic fisheries. The comparative labour productivity in the Greenland fisheries is
even better. It is considerably higher than that of most of the other North Atlantic
fisheries listed in Table 5.
It is not clear how much of this relative degree of economic efficiency is due
to the property-rights aspects of the fisheries management regime. However, the
rather dramatic contraction in fishing capital since 1991, following the introduction of
the ITQ system in the off-shore fishery and transferable capacity rights in the inshore
fishery, suggests that they may be have been an important factor.
128
3.3
Iceland
Icelandic fishing grounds, located at the intersection of warm (Gulf Stream) and cold
(Artic) ocean currents and endowed with a wide continental shelf, are unusually
fertile and rich in marine life. Within the 200-mile EEZ of less than 0.3 million square
miles, this body of water is capable of yielding a sustainable harvest of over 1.5
million tonnes annually. About half of this yield consists of demersal species (such as
cod and haddock) and crustaceans (mostly shrimp). The other half consists of pelagic
species (such as herring and capelin). Important fishing grounds, especially for deepsea redfish, are also found outside the EEZ.
Currently, about 40 species are harvested commercially in Icelandic waters,
but only about 15 of these constitute a basis for targeted fisheries. The others, mostly
various demersal species, appear as bycatch. The total annual harvest in recent years
has fluctuated around 1.5 million tonnes with a landed value of some US$900 million
(Arnason, 1995). The most important fisheries are the demersal fisheries with about
75 per cent of the total landed value, followed by the shrimp, herring and capelin
fisheries. The single most important fishery is the cod fishery normally representing
about 50 per cent of the total landed value of the Icelandic fisheries.
Icelandic fishing grounds came under exploitation by European distant water
fishing fleets in the 14th century. By the 15th century, a large number of English,
German and Dutch fishing vessels were taking substantial catches of cod and other
demersal species off Iceland (Thorsteinsson, 1976). From then, until the extension of
the fisheries jurisdiction to 200 miles in 1976, the fishery off Iceland was an
international one. Large foreign fishing fleets from numerous European nations
featured prominently on the fishing grounds, taking almost half of the demersal catch
as late as 1975. For this reason, effective management of the fisheries, especially the
demersal ones, was not feasible. Consequently, fisheries management prior to the
extension of the fishing limits to 200 miles was minimal.
With the extension of the exclusive fishing zone in 1976, this situation was
radically changed. Since that time the Icelandic fisheries have come under gradually
increasing management, culminating in a uniform ITQ system in practically all
fisheries in 1990. The progress toward a property-rights based ITQ fisheries
management regime, however, differed substantially among the various fisheries. The
chronology of this development in the major fisheries is summarized in Table 1
Table 1
Key Steps in the Evolution of the Icelandic ITQ Management System:
A Chronological Overview
1975
1979
1980
1984
1985
1986
1990
The herring fishery: Individual quotas introduced.
The herring fishery: Individual quotas made transferable.
The capelin fishery: Individual quotas introduced.
The demersal fisheries: Individual transferable quotas introduced.
The demersal fisheries: Effort quota option introduced.
The capelin fishery: Individual quotas made transferable.
A complete uniform system of individual transferable quotas in all fisheries.
129
3.3.1 The Current ITQ Fisheries Management System
Iceland’s ITQ fisheries management system was instituted at different times and in
somewhat different form in the various fisheries. It was made uniform across fisheries
by the Fisheries Management Act passed in 1990. Since then, however, the system
has continued to be modified and Fisheries Management Act has been amended three
times since 1990. The current fisheries management system is based on ITQs. The
quotas represent shares in the TAC and are permanent, perfectly divisible and
transferable. The quotas are subject to a small annual charge to cover enforcement
costs. Further details of the system are as follows:
The Ministry of Fisheries determines the TAC for each of the most important
species in the fisheries. This decision is made on the basis of recommendations from
the Marine Research Institute. Currently 11 species are subject to TACs and
consequently individual quotas; six demersal species (cod, haddock, saithe, redfish,
Greenland halibut and plaice), two pelagic species (herring and capelin), shrimp,
lobster and scallops67. These 11 species account for most of the targeted fisheries in
Iceland, over 95 per cent of the total volume of the annual harvest and well over 90
per cent of its value. The remainder of the catch is accounted for by a large number of
demersal species many of which appear only as bycatch. The fact that these fisheries
are not currently subject to TAC does not mean that they are outside the ITQ system,
only means that a TAC has not been set and, consequently, they can be pursued
freely.
The basic property rights defined by the ITQ system are TAC shares, i.e.
shares in the TAC for every species for which there is a TAC. These TAC shares
constitute permanent property rights in the fishery. Although TAC shares may be held
by any legal entity, each one must be formally attached to a specific fishing vessel
with a valid fishing licence.
The method by which the TAC shares were initially allocated to fishing
vessels varies somewhat across fisheries. In the demersal, lobster, scallop and deepsea shrimp fisheries the TAC shares were based on the vessel's historical catch record
during certain base years. In the demersal fisheries this usually equalled the vessel's
average share in the total catch during the three years prior to the introduction of the
vessel quota system in 1984. There were exceptions to this rule, however. If, for
instance, a vessel had not been operating normally during 1981-3 due, for example, to
major repairs or to having entered the fleet after 1981, the calculated share was
adjusted upwards.
In the herring and inshore shrimp fisheries the initial TAC shares were equal
for all eligible vessels (i.e. vessels with a recent history of participation in the fishery).
The same rule applied to the capelin fishery, except that a third of the TAC was
allocated on the basis of vessel hold capacity.
67
There are actually several substocks of inshore shrimp and scallops, each with its own TAC.
130
The size of a vessel's annual quota in a specific fishery is a product of its TAC
share and the TAC for that fishery. Therefore, while the TAC share is a percentage,
the annual quota is denominated in terms of weight. Both the permanent TAC shares
and the annual quotas are transferable (subject to certain restrictions) and perfectly
divisible in the sense that any fraction of a given quota may be transferred.
Regarding quota transferability, one must distinguish between the permanent
TAC share and the annual quota. TAC shares are transferable without any restrictions
whatsoever. On the other hand, there are some relatively minor restrictions on the
transferability of annual quotas. First, transfers of annual quotas between geographical
regions must be agreed to by the Ministry of Fisheries. The purpose of this restriction
is to avoid short term destablization of regional employment. In practice, however,
few inter-regional transfers have actually been blocked by the Ministry. Second, a
vessel that doesn't harvest at least half of its annual quota two years in a row forfeits
its TAC share. This restriction, introduced in 1992, apparently stems from widespread
public dissatisfaction with the "unearned" quota rents received by some quota holders.
The ITQ system allows a good deal of flexibility with regard to the individual
quota constraint each year. Thus, current rules allow quota holders to exceed their
annual quota for each species by five per cent, subject to a corresponding reduction in
their quota next year. Similarly, the quota holders are allowed to postpone the
harvesting of up to 20 per cent of their annual quota until next year. Finally, it is
permitted to switch up to a five per cent of the annual quota (in value terms) from one
species to another within the year. The purpose of these provision is to provide
operational flexibility to the quota holders.
The annual vessel quotas calculated in the above-described manner were
initially issued by the Ministry of Fisheries free of charge. However, according to the
Fisheries Management Act of 1990, the Ministry is to collect fees for catch quotas to
cover the cost of monitoring and enforcing the ITQ regulations. The law sets an upper
bound on this fee currently amounting to 0.4 per cent of the estimated catch value.
There are currently two minor exemptions from the ITQ system, both in the
demersal fisheries. First, vessels under six gross registered tonnes( GRT) may elect to
be exempted from quota restrictions. In this case they must employ hook and line and
be subjected to limited fishing days. In addition, their total catch of cod is restricted.
This is enforced by restricting the number of permissible fishing days as required.
Second, recreational demersal fishing (currently neglible) is not subject to the ITQ
system.
3.3.2 Enforcement
Thanks to Iceland’s elatively few landing ports (61 in 1994), an effective landings
control system, and the fact that over 99 per cent of the catches are processed for
export, enforcement of the ITQ system is not much of a problem.
On behalf of the Ministry of Fisheries, a separate public organization, the
Fisheries Directorate, is charged with the responsibility of enforcing the quota system.
For this purpose, the Fisheries Directorate operates an elaborate landings control
131
system covering every landing port in the country. The cornerstone of this system is
the legal requirement that all marine catch for commercial purposes be weighed on
official scales at the point of landing. Public officials record the landings, determine
the species composition of the catch and assess its quality. The information collected
in this way is then promptly conveyed to the Fisheries Directorate's central data-bank
via a direct computer link. To cope with the export of fresh fish, a similar landings
control system has been established in foreign export ports. With the help of this
landings control system, the Fisheries Directorate is able to maintain a day by day
record of the cumulative landings by every licenced fishing vessel in the country.
Monitoring the output quantities of the processing plants at the export level
provides a check on their received fish inputs and, thus, serves as a further check on
vessel landings. A similar system, utilizing estimated catch-product transformation
coefficients, supplemented with on-board observations, is used to calculate the harvest
of freezer trawlers.
To further monitor adherence to vessel quota rules and other fisheries
regulations, the Fisheries Directorate maintains a group of fisheries observers. This
force counts about 30 persons many of whom are retired fishing captains. At any time,
a number of these observers are based aboard fishing vessels, while others conduct
inspections in fishing ports. On the basis of observers' reports, the Fisheries
Directorate may promptly assess fines or other penalties or order further investigation
into alleged violations.
There is, some evidence of inferior catch being discarded at sea in order to
maximize the value of the vessel quota. While this practice is not thought to occur on
a significant scale (estimates range from one to six per cent depending on the fishing
gear used), it violates the terms of the quota and is punishable by fines or revoking of
fishing licences. It is, however, difficult to verify.
3.3.3 The Performance of the ITQ System
As discussed above, the ITQ system was introduced at different times and in different
forms in the various fisheries. Consequently, it may be useful to discuss the impact of
the system in each main fishery separately.
The Herring Fishery
The ITQ management of the Icelandic herring has been biologically successful. The
two Icelandic herring stocks -- the spring-spawning herring and the summer-spawning
herring -- collapsed in the late 1960s through overfishing. As a result, a complete
moratorium on herring fishing was introduced in 1972. In 1975, the summerspawning herring fishery was resumed under an IQ regime that was turned into an
ITQ regime in 1979. In spite of a steadily increasing harvest, the summer-spawning
herring biomass has continued to grow. Currently, its biomass is greater than at any
time since the 1950s. The spring-spawning herring, on the other hand, has not
recovered and continues to be subject to a fishing moratorium. The path of biomass
and harvest for the summer-spawning herring since 1975 is illustrated in Figure 2.
132
Figure 2
The Icelandic Summer-Spawning Herring: Biomass and Annual Catches
700
600
500
400
300
200
100
0
1975
1980
1985
Catch
1990
Fishable Stock
(Source: Marine Research Institute)
The economics of the herring fishery also appear to have improved
substantially. The number of vessels participating in the fishery has been greatly
reduced. In 1975, at the beginning of the IQ fisheries regime, there were about 65
vessels in the fleet. In 1980, the first full year of the ITQ system, over 200 vessels
took part in the herring fishery. This increase reflects the fact that many vessels
entered the fishery in 1980 to obtain property rights in the new ITQ system. Fifteen
years later, in 1995, there were less than 30 vessels in the fishery. Yet these vessels
were harvesting twice as much herring as the 200 vessels did in 1980. Moreover,
whereas the average vessel size has increased substantially, fishing effort measured as
ton-days at sea68 has also contracted since 1975 and in particular since 1980. Since, at
the same time catches have greatly increased, catch per unit effort (CPUE) has
dramatically increased -- by a factor of eleven since 1975 and by a factor of five since
1979 (Figure 3).
68
The effort measure "ton-days at sea" is simply the total number of days at sea multiplied by the
tonnage of the vessel.
133
Figure 3
Herring Fishery: Development of Stock and Catch per Unit Effort
12
Catch per unit effort (index)
Stock size (1000 metric tons)
700
600
10
500
8
400
6
300
4
200
2
100
0
1975
0
1980
1985
Catch per unit effort (left axis)
1990
Stock Biomass
(Source: Marine Research Institute, Fisheries Association)
The Capelin Fishery
An IQ fisheries management was introduced in the capelin fishery in 1980, followed
by ITQs in 1986. It appears that the capelin stock size has not been significantly
affected by these management systems. The capelin is a short-lived species highly
dependent on environmental conditions and, consequently, subject to severe biomass
fluctuations, even in the absence of harvesting. These fluctuations have continued
since 1980 and there is no apparent trend in either the average stock size or catch
volume during the period since 1980 (Figure 4).
134
Figure 4
Capelin Catch and Stock Size at End of the Fishing Season
(1000 tonnes)
2500
2000
1500
1000
500
0
77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93
Catch
Fishable stock
(Source: Marine Research Institute)
The economics of the capelin fishery appear to have improved substantially.
There has been a pronounced reduction in the number of capelin vessels. At the
beginning of the IQ fisheries management regime in 1979 there were about 68 capelin
purse-seiners in operation. In 1994 there were only 40. Thus, during this period, there
has been a total reduction in the number of capelin vessels by over 40 per cent. The
fleet reduction in tonnage terms has been much less as it is primarily the smaller
vessels that have left the fishery. Nevertheless, from 1979 to 1993 the total tonnage of
the capelin fleet has been reduced by over 25 per cent, from about 25,800 GRT to
about 18,900 GRT. These statistics are further illustrated in Figure 5.
135
Figure 5
Evolution of Capelin Fishing Fleet
100
Number of vessels
Fleet size (1000 GRT)
35
30
80
25
60
20
40
15
10
20
0
1977
5
1980
1985
Number of vessels (left axis)
1990
0
1995
Fleet GRT (right axis)
(Source: Utvegur)
Capelin fishing effort has also similarly contracted. Thus, between 1979 and 1993
total days at sea for the capelin fleet has been reduced by almost 25 per cent.
The Demersal Fisheries
The demersal fisheries were subjected to an ITQ system in 1984. Since then, this
system has been under almost continuous revision. Most importantly, the ITQ system
in the demersal fisheries was combined with an optional limited effort system in 1985.
This meant that vessel owners preferring effort restrictions could opt for that
arrangement in place of the individual quota restriction.
There seem to be two main explanations for this rather drastic deviation from
the ITQ system. First, some of the vessel owners claimed that they had been unfairly
treated by the initial allocation of quotas in 1984. An effort quota option would give
them a chance to remedy this. Second, powerful regional politicians felt that vessels
from their regions could, by being situated close to the fishing grounds, actually
harvest greatly in excess of their allocated quotas. Hence, by freeing their vessels
from the quota constraint, they could substantially expand economic activity in their
regions.
The limited effort option was abolished in 1990. In the meantime, however, a
large fraction of the demersal fleet opted for limited effort rather than individual
quotas with the result that between 1986 and 1990 less than half of the demersal catch
was taken under the ITQ system. Consequently, during these years, an ITQ system
can hardly be said to have been in effect in the Icelandic demersal fisheries. The
136
evidence on the performance of the ITQ system in the demersal fisheries must be
interpreted in this light.
The demersal fish stocks have not been rebuilt under the ITQ system. In fact,
the aggregate biomass of cod, haddock, saithe and Greenland halibut has declined
somewhat since the introduction of the ITQ system. It should be noted, however, that
this constitutes a shift from the sharply declining trend in the aggregate biomass of
these species during the preceding six years. This development is further described in
Figure 6.
Figure 6
Demersal Catch and Biomass
(Cod, haddock, saithe and Greenland halibut, 1000 tonnes)
2500
2000
1500
1000
500
0
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Biomass
Catch
(Source: Marine Research Institute)
Why is it that the demersal stocks have not improved during the ITQ period?
There seem to be two main explanations for this. First, apparently for environmental
reasons, the recruitment of the largest demersal stock, the cod, has been substantially
below its historical average for several years running. Second, compared to the
reduced reproductive capacity of the fish stocks, the catches have simply been
excessive. This is due to two factors. One is that the TACs have been set too high.
Successive governments facing the reduced TAC recommendations by the Marine
Research Institute that would have resulted in almost immediate negative macroeconomic impacts, have apparently succumbed to the temptation to gamble with the
resource. The other factor is that actual demersal catches, especially those of cod,
persistently exceeded the TACs set by the government during the 1986-1990 period
when the limited effort option dominated the demersal fisheries management. Under
this system, there was no direct way to control the harvest level and, as it turned out,
reductions in allowed fishing days always lagged behind the increase in daily fishing
capacity.
137
It should be noted, however, that the decline in the demersal stocks seems to
have been reversed since 1991, following the abolition of the effort quota option and a
return to a more complete version of the ITQ system. This has been accomplished
primarily by sharp reductions in TACs and, consequently, catches as indicated in
Figure 5.
It is somewhat difficult to assess the economic impact of the ITQ system in the
demersal fisheries since 1984. The reason is that for five years of this period, from
1986-90, the demersal fisheries management was actually dominated by effort
restrictions. A reasonably pure version of the ITQ system has only been in operation
from 1984-5 and again from 1991 onward. Nevertheless, looking at the period as a
whole, there appear to have been substantial increases in economic efficiency. This
can be inferred inter alia from the development of aggregate demersal fishing effort
and fishing capital and, perhaps most tellingly, from the value of quota rights.
The development in demersal fishing effort, measured as ton-days at sea, is
illustrated in Figure 6. It shows an initial rapid growth in fishing effort from 1978
to1984. This is noteworthy as during this period the demersal fisheries management
system consisted of a limited effort regime. This expansion in fishing effort was
abruptly halted in 1984, when the ITQ system was introduced. In fact, fishing effort
dropped by some 15 per cent in 1984, the first year of the ITQ system and by an
additional six per cent in 1985. From 1986 to 1990, on the other hand, fishing effort
increased considerably again. This is no doubt primarily due to the widespread
exploitation of the effort quota option within the ITQ system during this period. Since
1991, following the abolition of the limited effort option, demersal fishing effort has
again declined substantially. Compared to its peak in 1983, the demersal fishing effort
in 1995 had been reduced by some 30 per cent.
The course of fishing capital (in value terms) tells a similar, albeit less
dramatic story. Fishing capital expanded at a fast rate during the limited effort period
preceding the ITQ system in 1984. The growth was halted in 1984 and 1985 only to
be resumed in 1986 when effort limitations became dominant again. Since 1991, after
the tightening up of the ITQ system, the value of fishing capital has actually declined
although much less than fishing effort.
138
Figure 7
Demersal Fishing Effort and Capital 1977-96
1,6
Index
1,5
1,4
1,3
1,2
1,1
1
0,9
0,8
0,7
1978
1980
1982
1984
1986
1988
Effort (ton-days)
1990
1992
1994
1996
Fleet (value)
(Source: Fisheries Association, National Economic Institute)
Figure 7, regarded as a whole, is indicative of the relative impacts of a
restricted effort fisheries management and an ITQ system on fishing effort and
capital. During periods of relatively pure versions of the ITQ system, demersal fishing
effort uniformly contracts. During periods of restricted effort, it expands. The impact
on fishing capital is qualitatively similar but less in magnitude. This is evidence in
support of the prediction that the ITQ system produces an incentive to economize on
fishing effort and capital so as to bring them in line with the natural productivity of
the fish stocks.
Another, more direct way to assess the efficacy of the ITQ system is to look at
quota prices. As the quotas are transferable, a market for them has developed. In this
market, quotas are exchanged for other valuables such as money. Hence, applying
standard economic theory, the quota price in this market should provide a good
indicator of the economic rents generated in the fishery (Table 2).
139
Table 2
Economic Rents in Demersal Fisheries: Quota Price Valuation
Year
---1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
Price range, US$/tonne
----------------------Cod
Other
------------55-87
84-126
127-176
206-259
208-277
262-349
428-514
680-720
650-700
500-550
900-1050
1389-1050
24-40
54-72
79-109
104-131
154-205
157-209
256-308
450-500
400-450
250-300
230-270
193-333
Total values, million US$
-------------------------------All quotas
Whole fishery
---------------------36-57
36-53
23-32
35-44
49-65
62-83
151-182
331-357
257-282
180-203
193-226
235-275
36-57
51-72
66-91
104-131
108-144
143-189
222-267
345-372
286-313
204-231
230-269
276-321
Sources: Quota traders, Fisheries Association, author's calculations.
According the fourth column of Table 2, it appears that the total value of
demersal quotas, evaluated at the mid-point of the price range given, was some
US$46 million in 1984, US$166 million in 1988 and about US$255 million in 1995.
However, these numbers almost certainly underestimate the true value of demersal
catch rights. The reason is that they ignore the value of the nontradable catches, most
of which were taken under effort limitations and other exemptions from the ITQ
system. If all the demersal catch is evaluated at the vessel quota prices, we obtain the
valuation in the last column of Table 2.
These estimates, however, must be interpreted with great care. Most
importantly, it must be realized that one of the first effects of a reasonably complete
ITQ system is to make excessive fishing capital commercially redundant. This means
that the market value of fishing capital falls drastically and the opportunity cost of its
use is correspondingly reduced. Now, the market value of catch quotas tends to reflect
the variable profits of using these quotas. Hence, with the fall in the opportunity cost
of fishing capital, the market quota values are correspondingly increased. This,
however, is a short term effect that will be reversed in the long run when the level of
fishing capital reaches a new equilibrium.
Nevertheless, the message of Table 2 appears clear enough: Considerable
economic rents are currently being generated by the ITQ system, and these rents have
been increasing. Currently they constitute a substantial fraction of the total landed
value of the demersal fisheries.
140
3.4
The Netherlands
The Dutch ocean fishery is subject to European Union common fisheries policy,
according to which the Netherlands are allocated national quotas for a range of
species annually. The current Dutch fisheries management procedure is to divide this
national quota into individual fishing rights. Thus, the Dutch fisheries management is
founded on a property rights regime. The nature of the property rights, however,
varies somewhat across fisheries. To this we now turn.
3.4.1 Fisheries Management
The Netherlands operates three main ocean fisheries; the flatfish (plaice and sole)
fishery, the roundfish (cod, haddock and whiting) fishery and the herring and
mackerel fishery. Of these, the flatfish fishery is by far the most valuable. These
fisheries are largely independent, except that the flatfish fishery takes a good deal of
roundfish as bycatch.
The flatfish fishery
The flatfish (mainly plaice and sole) fishery is the most important Dutch fishery
accounting for 60-70 per cent of the total value of landings. Before 1976, this fishery
was mainly controlled by minimum mesh and fish size regulations. The results of this
management was not good. The stocks declined and fishing profitability was
unsatisfactory. In 1976, an IQ system with very limited transferability was introduced.
The national quota was allocated as IQs to vessels on the basis of historical catch
shares and vessel capacity measured in terms of engine power. Quotas were attached
to specific vessels and transferable only with the vessel. However, this restriction was
reportedly widely circumvented (Anonymous, 1994). Consequently, in 1985, the
quotas were made more easily transferable.69
This system, one of the very first IQ or ITQ fisheries management systems in
the world, was not particularly successful in the beginning. As the fishery was subject
to a closure when the European Community’s (EC’s) overall flatfish quota was
reached (presumably due to the excess harvesting by other nations coupled with the
inability of the Dutch government to enforce national quota restrictions), individual
quotas did not represent high quality property-rights. Hence, in spite of the quota
system, the race-to-fish was not eliminated. However, as the quota enforcement was
improved -- on the international level by the issue of national quotas by the EC in
1983 and on the national level by an improved quota monitoring system in the
Netherlands in 1988 -- the efficiency of the system has greatly improved.
69
It is now possible to buy and sell quotas. However, a fisher wanting to sell his quota has to sell all
of it although there may be many buyers each purchasing a part of the quota.
141
The roundfish fishery
The targeted cod fishery was subjected to a limited licensing scheme in 1981. The
purpose was to restrict fishing effort and thus prevent an early closure of the fishery
due to exhaustion of the national quota. In 1985, due to expansion of the flatfish
fishery, it was felt necessary to introduce landing quotas for cod as bycatch. In 1987,
all cod fishing rights were allocated as weekly individual nontransferable quotas. In
1994, these quotas were set on monthly basis and made fully transferable. Due to the
transferability of the cod quotas, it is expected that the flatfish fleet will in due course
acquire much of the roundfish quota to meet its bycatch quota needs.
Herring and Mackerel
Until 1993, the Dutch North Sea herring fishery was subject to very little specific
management apart from that represented by the national quota. In 1993, however, the
Dutch government decided to allocate the herring TAC to fishermen's producer
organizations. These organizations, in turn, generally reallocate their TAC shares to
individual vessels as IQs.
The mackerel fishery which takes place to the west of the British Isles, was
subjected to IQs as early as 1983. These quotas became freely tradable within the
group of mackerel trawlers in 1985.
3.4.2 Experience
During the past two decades or so the Netherlands have experimented with various
management measures. Broadly speaking, however, the system has been evolving
toward an increasingly more complete property rights based regime. The favoured
type of property rights seems to be ITQs. This is already in place in a fairly complete
form in the most important Dutch fisheries. Generally speaking, the system seems to
have had quite beneficial results. There has been a substantial reduction in fleet size.
Thus, between 1987 and 1993 the /number of flatfish vessels declined by 23 per cent
and the total engine power of the flatfish fleet by 12 per cent (Anonymous, 1994).
More importantly, the Dutch fishing industry, especially the flatfish fishery, is now
highly profitable (Davidse, 1995). This, of course, is a strong indication of the
efficacy of the fisheries management system.
3.5
New Zealand
New Zealand's EEZ is approximately 1.2 million square miles. Although among the
largest in the world, this EEZ is not particularly productive as a fishing zone. The
main reason is the relative narrowness of the continental shelf. About 72 per cent of
the EEZ consists of water deeper than 1000 meters.
About 130 species are fished commercially in New Zealand waters. The most
important ones in terms of value are orange roughy, hoki, snapper, ling, abalone and
142
spiny rock lobster. The total annual harvest in recent years has fluctuated between 5600 thousand tonnes. Including aquaculture the harvest in 1993 was 593 thousand
tonnes with a landed value of some US$330 million (Anonymous, 1995a).
New Zealand extended her fisheries jurisdiction to 200 miles in 1978. Prior to
this, New Zealand fisheries consisted mostly of small scale inshore fisheries within
the 12-mile fishing zone. The deep-sea fisheries outside the 12-mile zone were
dominated by foreign fishing fleets, especially Japanese, Korean and Soviet ones. The
management of the fisheries was minimal. The inshore fisheries were open access
ones and almost devoid of any regulations whatsoever (Clark, 1994). The offshore
fisheries were high-seas fisheries and, consequently, not subject to New Zealand
control at all. Hence, until the extension of the EEZ to 200 miles in 1978, the New
Zealand fisheries were textbook examples of common property, unmanaged fisheries.
The deep-sea fisheries around New Zealand which had commenced in the
1960s expanded rapidly during the 1970s. From 1970 to 1977, the total harvest off
New Zealand increased from 50 thousand tonnes to 500 thousand tonnes, primarily
due to the foreign deep-sea fishing activity. The main species exploited were hoki,
orange roughy, southern blue whiting and squid (Anonymous, 1995a). At the same
time, the inshore fisheries, encouraged by investment grants and tax breaks, also
expanded (Anonymous, 1995a; Clark, 1994). This resulted in overexpansion of the
inshore fleet and, consequently, overexploitation of the stocks and poor profitability
in the industry.
Following the extension of the fisheries jurisdiction to 200 miles in 1978,
measures were taken to curtail what was generally regarded as excessive fishing
pressure. This marks the beginning of modern fisheries management in New Zealand
waters.
In the foreign deep-sea fishery outside the 12-mile zone, catch limits and
licence controls were introduced. This initially resulted in a substantial drop in the
offshore fishery, but due to increased participation of New Zealand companies, the
quickly recovered. Within 5 years of the extension of the EEZ the offshore catch had
reached 400 thousand tonnes with New Zealand companies taking about two-thirds
directly and through joint ventures.
In the inshore fisheries, on the other hand, the introduction of licence
limitations and other input control measures did not prove particularly effective.
Investment in fishing capacity continued unchecked. Consequently, effective fishing
effort kept on rising in spite of the restrictions, the decline in the inshore fish stocks
was not arrested and the economics of the fishery deteriorated further.
In an attempt to deal with these problems, the Fisheries Act was passed by the
New Zealand parliament in 1983. This act consolidated all previous legislation on
fisheries management and vested the responsibility for fisheries management squarely
in the national government. According to the Fisheries Act, the objective of fisheries
management was not only resource conservation but also maximum economic return
from the fishery. The Fisheries Act, although fairly general and vague, constitutes a
watershed in New Zealand fisheries management history. On the basis of this act,
significant steps toward efficient management of the fisheries were undertaken.
143
First, in the deep-sea fishery, a property rights based fisheries management
regime based on ITQs (deep-water quotas) was introduced. Under this scheme, later
known as the Deep-Water Trawl Policy (Clark, 1994), deep-water quotas were
allocated to fishing firms on th ebasis of the size and capacity of their fishing vessels.
In order to encourage New Zealand participation in the fishery , the allocation of these
quotas was restricted to firms with at least 75 per cent New Zealand ownership. In
addition, the quota holders were required to process at least 35 per cent of the catch
onshore in New Zealand (Clark, 1994). The Deep-Water Trawl Policy was
implemented in 1983. It constitutes one of the first examples in the world of an ITQ
system in a major demersal fishery.
Second, part-time fishers were summarily excluded from the inshore fisheries.
This meant that about half of the inshore fisheries licences were retired. The reduction
in fishing effort was much less, however, as the remaining commercial licences (about
2,500) had accounted for most of the catch.
A period of intense debate about the most effective means of addressing the
twin problem of overfishing and overcapitalization followed. The outcome of this
debate, no doubt influenced by the apparent success of the Deep-Water Trawl Policy,
was a consensus for the introduction of property right-based fisheries management.
Consequently, by an amendment to the Fisheries Act, a uniform system of ITQs in all
major fisheries was introduced in 1986.
The ITQ system introduced in 1986 consisted of permanent annual catch
rights in volume terms. These rights were perfectly divisible and transferable. The
initial allocation of these ITQs varied a bit across the offshore and inshore fisheries.
In the offshore fisheries, the initial allocation of quotas according to the Deep-Water
Trawl Policy of 1993 was based on participation in the fishery in 1992, the actual
catch volume during that year and the vessel's capacity. This allocation was not
altered by the general ITQ system of 1986. In the inshore fisheries, the allocation was
based on two criteria: only vessels active in the fishery in 1985 were eligible for ITQs,
and the amount of ITQs received depended on their catch history in 1982-4. For
fishers that believed themselves unfairly treated by the initial allocation, there was an
appeal process.
Given this allocation mechanism and the nature of the quotas (permanent
volume quotas), it is not surprising that the total allocations in many cases exceeded
the sustainable harvest. To reduce total catch rights to sustainable levels, the
government was committed to buy back quotas. In 1986 alone, the New Zealand
government spent approximately US$30 million for this purpose. However, it was
soon discovered that the government had greatly overestimated the sustainable yield
of important fish stocks, especially orange roughy, in its initial quota allocation.
Consequently, this policy of quota buy-backs could not be sustained. Hence, in 1990,
following protracted negotiations with the fishing industry, a new amendment to the
Fisheries Act transformed the ITQ system into a proportional or share quota system.
More precisely, instead of fixed volumes, the permanent quotas would now be a
percentage of whatever annual TAC set by the government. By way of compensation,
the government agreed to repay the industry a sum equivalent to five years' of the socalled resource rentals to be described below.
144
At the inception of the ITQ management regime in 1986, the government
announced its intention to recover a substantial part of the expected fisheries rents by
charging the fishing industry on the basis of quota values. In fact, until 1993/4 this
charge, called resource rentals, was imposed on the industry. Amounts recovered,
however, were not high and were further reduced following the switch to a
proportional quota system in 1990. In 1994, a new legislation, the Cost Recovery Act,
provided for the recovery of all fisheries management costs including those associated
with fisheries research, enforcement of the fisheries management system and conflict
resolution. It is estimated that about US$25 million will be collected from the industry
for this purpose in 1994-5 (Anonymous, 1995a). This is equivalent to about 7.5 per
cent of the annual value of the fishery.
The evolution of the New Zealand fisheries management system is
summarized in the Table 3:
Table 3
Evolution of the New Zealand Fisheries Management System
1963-78
1978
1978-83
1983
1986
1990
1994
Minimal management
Extension of the fisheries jurisdiction to 200 miles
Licence limitations and various input restrictions
ITQs in deep-sea fisheries; quantity quotas
A uniform ITQ system in all fisheries; quantity quotas
Proportional ITQ system; share quotas
Fisheries management Cost Recovery Act.
3.5.1 The current fisheries management system
The current New Zealand fisheries management system is based on ITQs. The quotas
represent shares in the TAC and are permanent, perfectly divisible and transferable.
Further details of the system are as follows:
 The government sets TACs for all important commercial species in each fishing
area within the New Zealand EEZ. There are currently ten fishing areas and 32
species covered by TACs.70
 The basic property right in the system are permanent shares in the TAC for every
species for which there is a TAC. These TAC shares constitute a right to harvest a
fixed proportion of the given TAC every season in perpetuity. The annual quota for
a given species is given as a simple product of the TAC share and the TAC for that
species.
70
In principle there could be 320 different TACs, but since not all of the species are found in all
fishing areas and the TACs of some are independent of fishing areas, the actual number of TACs set
is about 180. (Anonymous, 1995a).
145
 Both the permanent quota shares and the annual quotas are perfectly divisible and
transferable to any New Zealand resident or to firms with less than 25 per cent
foreign ownership. However, no single person or firm is allowed to hold more than
35 per cent of the total deep-sea quota and 20 per cent of the total inshore quota.
 ITQ fisheries are subject to a government charge designed to recover the cost of
managing the fishery.
All commercial fishers must hold a fishing permit. Fishing permits, which
must be granted to any person or firm holding quota, impose certain conditions on the
fishing activity in terms of fishing methods, areas, species, provision of information to
the fishing authorities etc.
3.5.2 Enforcement of the ITQ system
With the introduction of the ITQ system, the enforcement activity has, to a great
extent, been shifted from the enforcement of input restrictions (access, area, season,
gear) to the enforcement of output restrictions (catch volumes) in the form of the
individual quota constraint. This requires the monitoring of individual catch volumes
and the comparison of those with quota holdings.
The catch monitoring system is largely based on a system of catch handling
documents supplemented, with physical surveillance as needed. The fishers are
required to submit catch and landing reports. The buyers of catch and other fish
traders are required to submit trading documents and records and corresponding
documentary requirements are made of fish processors and exporters. A good deal of
the monitoring process consists of matching these documents against each other and
other data. Discrepancies that are discovered serve as indications that a closer
inspection may be needed.
The skills needed for this type of monitoring are general investigative and
auditing skills. Hence, the composition of the New Zealand fisheries enforcement
staff has changed considerably since the introduction of the ITQ system. A substantial
number of enforcement officials are now investigators, investigating accountants and
solicitors. The number of the traditional fisheries surveillance officers has been
correspondingly reduced. The total number of enforcement staff since 1986 has not
been increased, however (Anonymous, 1995a).
At the inception of the ITQ system, it was realized that under-reporting of
catch might be more difficult to detect than violations of some of the more traditional
input control. For this reason, it was decided to impose heavy penalties (fines up to
US$170,000 as well as forfeiture of quota) on violations. Alleged violations of quota
restrictions are tried before a judge (not jury) in the general criminal courts. Due to
the penalties involved, the average time and expense of these trials has greatly
increased.
Although little hard evidence is available, it is generally felt that there is little
under-reporting of landings and that the enforcement of the system generally in good
146
shape (Gibson, 1989; Clark, 1994; Anonymous, 1995a; Grafton, 1996). Discarding of
catch at sea, however, may pose a more serious problem (Grafton, 1996).
3.5.3 The Performance of the ITQ system
The New Zealand ITQs are permanent, perfectly divisible and transferable (subject to
seemingly minor restrictions). Moreover, the enforcement of these rights is apparently
quite good. Consequently, the ITQs constitute relatively high quality property rights
in the sense of Section 2. above.
The New Zealand quota system has now been in effect for a number of years.
Although hard data on its results are limited, it seems to have been quite successful.
The available evidence may be divided into two parts: qualitative evidence and
quantitative data.
The qualitative evidence is quite positive. Dewees (1989), reviewing the
inshore fishery, notes that a substantial fraction of his respondents claimed that the
ITQ system had led to increased harvest quality and some of the fishers had reduced
their fishing effort. Macgillivray (1990) credits the ITQ system with improving the
economic performance of the industry. Pearse (1991), after extensive interviews with
the industry participants and others, notes a general satisfaction with the system and
the feeling that the ITQ system constitutes a great advance on the prior fisheries
management system. He also reports that the system has led to better biological
management of the fish stocks, a reduction in fishing capacity and a substantial
improvement in the economic results of the fishing activity. These views are
supported by spokesmen of the industry itself (Sharp & Roberts, 1991;Clark,1994).
The available quantitative data tend to support these assessments. Generally
speaking, under the ITQ system aggregate catches have increased. Most resource
stocks seem to have been stable. Following an initial increase, the size of the fishing
fleet has declined slightly since 1989/90 (Anonymous, 1995a). Catch per unit effort
has been stable or slightly increasing. Profitability has been good and improving.
There has been a degree of quota concentration in the hands of the most efficient
companies. Finally, quota prices have increased considerably.
Table 4 provides a summary of recent data on the impact of the New Zealand
ITQ system for the key species in the New Zealand fisheries.
147
Table 4
The impact of the ITQ system in New Zealand
Species
-------------Hoki
Jack mackerel
Orange roughy
Snapper
Rock lobster
Oreos
Beginning
year of
ITQ
---------------1986
1986
1983
1986
1990
1983
Stock
---------Stable
Stable
NA
Stable
Stable
(-)
Percentage
Catch per change in
unit effort quota price
------------ -----------(+)
+1200
NA
-40
(-)
+60
NA
+280
Stable
+143
Stable
+180
Approximate
annual quota value
(million US$)
---------------50
1
20
25
9
5
Symbols: (+) slight increase; (-) slight decrease; NA not available
Source: Anonymous (1995a)
These species account for the bulk of landed catch in terms of value. The most
striking outcome under the ITQ system is the increase in quota prices since the
inception of ITQs. For most of the species, this price has risen dramatically. Only in
the case of the low-valued jack mackerel has the quota price fallen. Now, quota values
may be identified with resource rents (Arnason, 1995). Hence, according to the quota
values listed in Table 4, annual resource rents for the six species listed are in the
neighborhood of US$100 million. This represents close to a third of the landed value
of the catch. This represents powerful evidence that the ITQ system is generating
substantial economic benefits.
3.6
Norway
The Norwegian fisheries have been subject to extensive fisheries management
measures for a long time. Until recently, however, these measures have mostly
consisted of input restrictions, minimum mesh size stipulations, area and seasonal
closures and overall quotas. These methods have not significantly modified the
common property nature of the fisheries and consequently not been particularly
efficient. In recent years, Norwegian fisheries management has developed in the
direction of property rights based regimes with the introduction of IQs in many
fisheries.
3.6.1 Fisheries Management
Norway's most important fisheries are based on fish stocks that periodically migrate
in and out of her EEZ. Consequently, Norway's fisheries management must start with
negotiations with other North Atlantic fishing nations about the utilization of the
shared stocks. The main partners in these negotiations have been Russia, Iceland, the
148
Faroe Islands and the European Community. Since the general extension of fisheries
jurisdictions to 200 miles in the late 1970s, these negotiations have concentrated on
setting the appropriate overall TAC and, subsequently, the sharing of this TAC among
the nations involved. Once agreements of this nature have been reached, Norway's
share becomes the national TAC, and the management issue is restricted to the
harvesting of this TAC.
There are currently two main methods for keeping the total catch within the
bounds set by the national TACs; individual quotas and controls on the application
fishing inputs. The use of these two management methods differs for the offshore and
inshore segments of the fishing fleet.
The harvest of the offshore fleet is controlled by nontransferable individual
catch quotas, IQs. these IQs are allocated annually with the allocation mechanism
favouring smaller vessels (Hannesson, 1994; Anonymous, 1995b). Although not
formally permanent, the offshore IQs have, in practice, exhibited a degree of
permanence since the initial shares in the offshore TAC have been maintained in
subsequent quota allocations. On the other hand, there is no guarantee that the share
of the offshore TAC in the overall TAC will be maintained. In fact, this has
repeatedly been altered in the past (Anonymous, 1995b). Due to their limited
transferability and permanence, the offshore IQs can hardly be characterized as high
quality property rights.
The harvest by the inshore fleet is restricted by several methods including
restrictions on the use of fishery inputs, TAC restrictions and nontransferable IQs.
Most inshore fisheries of significance are subject to IQs. The allocation and the
permanence of the IQs is similar to that in the offshore fisheries. There is an important
difference, however. In the cod fishery, by far the most valuable inshore fishery, the
total sum of the IQs allocated exceeds the inshore TAC. When the TAC is reached,
the fishery is closed regardless of the extent to which individual vessels have filled
their IQs. This particular provision, clearly, subtracts substantially from the property
rights value of the IQs. As a result, it encourages competition for catch and,
consequently, overinvestment in fishing vessels and shorter fishing seasons
(Anonymous, 1995b).
The single most important element of the Norwegian fisheries management
regime is the IQ system. This system, clearly, defines certain property rights in the
fisheries. These property rights, however, are very weak. Most importantly, the
property rights represented by the IQs are nontransferable, they are not reasonably
secure over time and, in the inshore fisheries, they do not even confer reasonably
secure rights in harvesting shares for the current period.
The option to make the IQs transferable was seriously considered in Norway
in 1990/2. In the end it was rejected primarily due to opposition from the fishing
industry. The crucial reason for this opposition appears to be that the fishermen, as
represented by their national associations, did not want to see the restructuring of the
industry and regional habitation patterns that would tend to follow quota
transferability, even if they might personally benefit. (Hannesson, 1994b).
149
Overall, the Norwegian fisheries management system perpetuates excess
capacity in the fishing fleet. The fleet will not expand any more, for new capacity will
not get a fishing licence. However, since the quotas are nontransferable, there is no
incentive to reduce the fleet either. Retiring vessels just means that the corresponding
IQs revert to the common quota pool.
3.6.2 Experience
The Norwegian fisheries management system described above has resulted in two
opposite outcomes. On the one hand, the biological management of the fish stocks has
been excellent. Important fish stocks that had been seriously depleted, like the
Atlanto-Scandian herring stock and the cod stock, have been rebuilt under this system.
The multi-species aspects of the biological management strategy have been second to
none.
On the other hand, the economic outcome of the system has been
unsatisfactory. In spite of being endowed with extremely productive fishing grounds,
state-of-the-art fishing technology and good access to high price fish markets, the
economic results of the fishing industry have been very poor (Hannesson 1994a). This
is confirmed by overall productivity measures. According to the estimates in Table 5
below, capital and labour productivity of the Norwegian fishing industry is low. It is
much less than in some of the other North-Atlantic fishing industries such as Iceland,
Greenland and the Netherlands which, incidentally, have all relied on ITQs in their
most important fisheries. It is, on the other hand, similar to that of the UK and the
Faroe Islands which, as Norway, have refrained from basing their fisheries
management on sufficiently high quality property rights.
4.
Efficiency in Fisheries: National Comparisons
The fishing nations of the world have thus far elected to employ a range of fisheries
management systems. In principle, this provides us with a basis for testing the relative
efficiency of these systems. In reality, however, the respective national situations are
far too complicated and diverse for reliable statistical inference on this basis without
the support of detailed comparative case studies.
These reservations notwithstanding, it appears informative to consider simple
measures of economic efficiency in fisheries across countries. Output value per unit
of capital and per unit of labour, often referred to as capital and labour productivity,
respectively, are frequently used measures for this purpose. Some comparative data of
this type are listed in Table 5 below.
150
Table 5
Efficiency in Fisheries: Comparative Statistics
Catch value per
fishing fleet
(US$/GRT)
Australia (1990)
Canada (1990)
Faroe Islands (1993)
Greenland (1993)
Iceland (1990)
" " (1993)
Netherlands (1993/4)
New Zealand (1993/4)
Norway(1990)
United Kingdom(1990)
United States (1990)
NA
2,400
3,100
5,100
5,100
5,900
3,000
5,500*
2,300
3,700
2,100
fisherman
(US$/fisherman)
66,200
13,500
55,500
84,400
93,300
114,400
132,800 *
69,200 *
27,300
33,900
13,100
* Particularly uncertain estimates.
Sources: Data for year 1990 (Anonymous, 1992; Arnason, 1995). Data for
Greenland, the Faroe Islands and Iceland (1993) (Arnason & Friis, 1995).
Data for the Netherlands and New Zealand (Anonymous, 1995a;
Anonymous, 1995c¸ Anonymous, 1996). Author's calculations
Table 5 shows a certain relationship between the degree to which countries have
chosen to rely on property rights in their fisheries management and the productivity of
their fisheries. Thus, Iceland and New Zealand, that have adopted the ITQ system in
practically all of their fisheries rank highest in terms of the productivity measures
contained in Table 5. Greenland, the Netherlands and Australia, that employ the ITQ
system to a substantial extent, also exhibit relatively high productivity in their
fisheries. Norway, that doesn't have ITQs at all and relies on access licences and
limited term, non-transferable IQs for the management of her fisheries, lags far behind
on these measures. According to these data, the productivity of the Icelandic and
New-Zealand fisheries is two to three times that of the Norwegian fisheries. The
Greenland, Netherlands and Australian fisheries also appear to be substantially more
productive than the Norwegian fisheries. Similar comparative results apply to the
fisheries of the United Kingdom, United States Canada and the Faroe Islands, none of
which had, at the time covered by the data in Table 5, employed advanced property
rights methods to manage their fisheries to any great extent.
In addition to the basic methodological reservations expressed at the outset of
this section, it should be pointed out that international statistics on landed values, the
size of fishing fleets and the number of fishermen, on which the above comparisons
are made, are notoriously imprecise. In particular, there is a great uncertainty about
the number of actual fishermen and active fishing vessels. Nevertheless, the
differences in estimated efficiency reported in Table 5 are so large that more accurate
data are unlikely to alter the general pattern detected.
151
5.
Conclusions
Several nations have already instituted property rights based fisheries management
systems in their fisheries. The property rights employed, however, are of various
kinds, even within the same country. Some fisheries, especially sedentary inshore
fisheries, are subject to territorial user rights (TURFs). Exclusive user rights (EURs)
for specific fisheries, i.e. sole owner rights, can also be found.71 Access licences,
which are basically EURs granted to a limited group of users, are much more
common. In fact, they are probably the most widespread form of property rights
defined for the purposes of fisheries management. Capacity licences are yet another
popular form of property rights employed for fisheries management. Finally, in recent
years, individual harvesting rights or quotas have become increasingly common as a
means of fisheries management.
None of these property rights, except perhaps EURs and TURFs, can be
regarded as ideal from an economic point of view. In particular, they do not confer
property rights in specific fish and the immediate ocean environment that sustains
them. In this sense, they fall far short of the usual property rights in modern farming.
As a consequence, none is adequate as an institutional basis for fully efficient
fisheries. It is important to realize, however, that in terms of adequacy in this sense,
these property rights differ substantially. In particular, well designed harvesting
rights, such as ITQs are much closer to ideal property rights in the fishery than, say,
access or capacity licences.
The countries studied in this chapter have all instituted private property rights
regimes in their fisheries during the past two decades. However, they have done so to
very different extents. Iceland and New Zealand are most advanced in this respect,
with fairly complete ITQs in most of their fisheries. Greenland and the Netherlands
are not far behind with ITQs in their most important fisheries and access licences in
others. Australia has installed ITQs in some of her fisheries. Norway is least advanced
this respect although she has also installed limited IQs in many of her fisheries and
restricts access to others.
The experience of these countries seems to teach four main lessons:
 It appears that ITQs, although quite imperfect as property rights, are capable (at
least under the appropriate circumstances) of substantially improving the economic
efficiency of fisheries.
 At least on the evidence reviewed in this chapter, alternative property rights
regimes, such as IQs, access licences and capacity licences do not seem capable of
creating significant economic benefits.
 There is not, at least not yet, a standard ITQ system. The experience of the
countries reviewed demonstrates this clearly. Their ITQ systems although similar
in broad outline differ in detail. There are, in other words, many different ITQ
71
One example is the exclusive ocean quahog fishery off north-west Iceland.
152
systems in operation. Moreover, these systems are almost continually being
modified and, presumably, improved. One implication is that we may expect much
better variants of the ITQ system in the future. However, there is little reason, to
look forward to the uniformly best ITQ system. It is much more likely that to be
fully efficient, each ITQ system, or, for that matter, any other property rights based
fisheries management system, must be tailored to local conditions.
 Although each ITQ system studied is unique there are certain common features.
First, in spite of a myriad of possibilities, the initial allocation of ITQs is usually on
the basis of only two factors; catch history and vessel capacity. Second, once ITQs
or IQs have been introduced, there is a marked tendency for the associated
property rights to become enhanced over time. Thus, IQs tend to develop into
ITQs. ITQs tend to become more permanent, restrictions on transfers to be lowered
and the enforcement of the quota rights improved. Third, the experience of the
countries included in this study shows clearly the importance of comprehensive
coverage under an ITQ system. All exceptions from the ITQ constraint tend to be
economically expensive and to undermine the ITQ system itself.
Notwithstanding socio-political obstacles to the adoption of new property
rights regimes, it appears that the lack of appropriate technology may be the
fundamental reason for the practically universal use of highly imperfect property
rights in fisheries. At the current state of technology, it is impractical -- or, rather,
prohibitively expensive -- to define and enforce property rights over individual fish.
The required property rights technology is simply not available.
Shortcomings in property rights technology are by no means limited to
fisheries. Technological shortcomings have undoubtedly delayed desirable extensions
of property rights on land in the past. Moreover, they still do as witnessed by many
instances of pollution and environmental degradation. However, it may be taken for
granted that to the extent that more complete property rights systems are economically
beneficial and the corresponding demand can be expressed, there will be an effort to
supply the appropriate technology. Therefore, future advances in property rights
technology and, consequently, a more complete property rights regime in fisheries
may be confidently predicted.
153
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