Topic 15: Fisheries Economics

1. Topic 15: Fisheries Economics David Letson Marine Affairs/Economics University of Miami

2. The Basics Fisheries are renewable resources, like forests. Unlike forests, we harvest the growth each year. Open access and ill-advised public policies. We will consider: efficient management; and reasons for spectacular counterexamples.

3. Concerns Bycatch Uncontrolled access Technological advances Globalization Habitat destruction Allocation: commercial & recreational Transboundary stocks

4. �Tragedy of the Commons� Garrett Hardin Science 1968 Resource accessible to all but belonging to none. Individual motivation versus public well being. Resource characteristic or a human institution?

5. Why do they keep fishing? Economic motivation capture of benefits costs of depleted stocks subsidies Overfishing is rational but inefficient. Identity as fishers.

6. Descriptive Statistics UN/FAO: marine species over-exploited US is sixth largest producer Recreational fishing also important Flat growth since 1989 understates real decline Economic losses.

7. Example:US Groundfish Edwards and Murawski Multi-species groundfishery off New England 70% reduction in effort would maximize value Seven-fold increase in stocks Three-fold increase in sustainable yield Add value $150M/year. Realization depends critically on property rights.

8. What is a fishery? Stock of fish initial size growth rate recruitment growth of individuals mortality Fishing enterprises fishing effort catch costs and revenues

9. Fishing effort A composite input inputs besides fish stocks. Measure of inefficiency. Includes: boats, nets, traps; crew; spatial distribution of stocks, fishers, consumers; time spent fishing.

10. A few words about�Biology

11. Biological Assumptions Growth of fish stocks is a function of the initial stock (Schaefer logistical growth). We focus on recruitment, individual growth, and natural mortality. We don�t consider salinity, temperature, currents, weather, predator/prey relationships, pollution, loss of habitat, etc.

12. Static Economic Model: Simplifying Assumptions Simple, Schaefer bell-shaped curve Fish sizes and prices are constant Homogeneous fleet: Cost of effort per vessel is constant No significant barriers to entry (e.g. no limitation on fishing permits, cost of purchasing a boat is not significant, etc.)

13. Economics of an open-access fishery Total sustainable revenue Total cost of harvest Maximum Sustainable Yield Maximum economic yield

14. Maximum Economic Yield (MEY) Maximum economic yield effect level, occurs where MC = MR Total (aggregate) profit maximized for the entire fishery Optimal allocation of effort Society�s inputs (capital, labor, etc.) used efficiently relative to other alternatives and opportunities. Maximum sustainable yield (MSY) is not the same as MEY.

15. The Problem: Open-Access (�Tragedy of the Commons�) Fisheries are common-property resources Users cannot exclude others from harvesting More enter the fishery and compete for a declining share No incentive to limit effort because someone else would benefit

16. Technological Improvements: Solve Problem? Catch (revenue) per unit of effort (cost) increases and/or Cost per unit of effort decreases, BUT� More vessels are attracted to the fishery Revenue and/or cost savings per vessel are dissipated Open access equilibrium shifts to lower yield level Increase risk of recruitment over-fishing and stock collapse.

17. If the technology in a fishery improves, it has the effect of increasing the catch per unit effort, which is the same as lowering the cost. Lower costs create higher profits, thus attracting more firms into the fishery. The lower cost curve intersects the revenue curve further to the right from the original cost line. Excess profits are once again dissipated, and the fishery reaches a new equilibrium with lower yield and lower biomass. Anything that reduces the cost of harvest will have a similar result, whether it be subsidized berthing, lower insurance rates, or tax exemptions for fishing gear. These things all increase profits temporarily, attract new fishing effort, and eventually leave fishing firms in essentially the same profit position as they started, but with a reduced fish stock.If the technology in a fishery improves, it has the effect of increasing the catch per unit effort, which is the same as lowering the cost. Lower costs create higher profits, thus attracting more firms into the fishery. The lower cost curve intersects the revenue curve further to the right from the original cost line. Excess profits are once again dissipated, and the fishery reaches a new equilibrium with lower yield and lower biomass. Anything that reduces the cost of harvest will have a similar result, whether it be subsidized berthing, lower insurance rates, or tax exemptions for fishing gear. These things all increase profits temporarily, attract new fishing effort, and eventually leave fishing firms in essentially the same profit position as they started, but with a reduced fish stock.

18. Other Factors Contributing to �Inefficiencies� of Open Access Fisheries Asset fixity: Specialized vessels and gear may hinder exit from fishery Special tax incentives, e.g. Capital Construction Fund. Subsidized fishery loans, e.g. Fisheries Obligation Guarantee Program (FOG). Anticipations (expectations) of future limited entry controls by government.

19. Extensions Fishers not homogeneous. Time lags: Slow, painful adjustments. Multi-species. Multi-nation. Individuals sometimes do cooperate. Regulators do not always act in social interest.

20. Management Considerations Traditional commercial fishery regulations (e.g. catch limits, fishing season) may reduce risk of over-fishing, but only increase cost of fishing Simple limited entry approaches may still lead to �capital stuffing� (e.g. increases in vessel fishing power) Assigning pseudo-property rights: Individual transferable quotas (ITQs) Catch a specific amount & fish sizes Total of quotas equal to efficient total catch for fishery Transferable among fishers

21. Fisheries Management (I) Will future catches compensate for today�s restraint? Facilitate transfer of resources to beneficial use? How will regime affect prices and harvest costs? Will improved stocks attract additional effort?

22. Fisheries Management (II) Usual approaches: catch quotas, trip limits, bag limits, gear restrictions, limits on fish size, and seasonal and area closures.

23. Fisheries Management (III) Usual ways: Raise harvest costs, with profits still zero. Effort increases to take advantage of the improved stocks and catch rates. Need use rights for fish stocks.

24. Individual transferable quotas (ITQs) Allocates shares of TAC to individuals. Fishers still decide who, when and how. Design issues: eligibility, duration, transferability Initial allocation.

25. ITQ Programs: Some Pros and Cons Pros: �Ownership� (property rights*) expected to foster proactive conservation & management (Core assumption) Buying/selling of shares promotes an efficient (market oriented) approach to down-sizing fleet Allows producers� flexibility to harvest fish for high quality market segments (Consumers may benefit, too). Cons: (Mainly equitability concerns) May encourage concentration of shares (supply) and marketing power Arbitrariness of initial allocation creates windfall wealth for vessel owners Crews and/or others in the fishing community ignored in allocation process. * In neoclassic economics, market-oriented solution usually require some type of ownership rights for sellers and buyers.

26. A Few Words About...Recreational Fishing

27. Management Review Restrictiveness correlated with success. Complexity of fishery, success inversely related. Unpopular programs do not succeed. Failure necessary before restrictions accepted. Success creates pressure to increase access.

28. Summary and Conclusions: Commercial Fishery Economics Simple bioeconomic models can demonstrate the societal inefficiencies of open access, common property commercial fisheries and related over-fishing risks. Improvements in fishing technology have only amplified commercial fishing effort in open access situations. Regulations only focusing on MSY are �second best� compared to MEY. ITQ systems attempt to address the problem via ownership incentives, but the equity of ITQ systems have been criticized.

29. Conclusions World fisheries in decline. Open access encourages over-harvest. Subsidies worsen problems. Management must reduce effort, protect habitat.