Can Conservation Easements Work in a Marine Setting? An Economic Analysis

1. Can Conservation Easements Work in a Marine Setting? An Economic Analysis under Four Regulatory Regimes Robert Deacon Dominic Parker December 3, 2007

2. Policies to Manage ‘Bycatch’ in Fisheries • How can regulators reduce ‘bycatch’ and other environmentally damaging actions? • Bycatch: “the incidental take of a species that has some value to some other group” (Boyce 1998). • “incidental take” can be interpreted broadly to encompass any incidental, negative impact on non-commercial stocks. • Policies • Fishery-wide TAC for prohibited species • taxing incidental catch • state-imposed time and area closures • state-imposed gear restrictions (e.g. turtle excluder devise) • ITQs for incidental catch

3. Private Efforts

4. Research Questions • Can NGOs use ‘marine easements’ to achieve a reduction in damaging actions without incurring excessive costs? • How does the effectiveness of marine easements depend on if/how access to comm. harvest is regulated? • ‘Marine easements’ • voluntary agreements between fishermen and NGOs • fishermen retain the right to harvest as regulated by law • restricted from certain methods of fishing, or in the time and location of harvest

5. Conservation Easements • Agreements between private landowners and conservation NGOs, known as land trusts • Typically conserve ‘open-space’ scenery and wildlife habitat • usually prohibit intense development • sometimes also restricts certain farming and logging practices • Restrictions in easements “run with the land” • Valued as the difference between encumbered and unencumbered value of the land

6. Land Trust Acreage in the U.S.(in millions) 10.8 Easements Owned Outright 3.5 1.2 Source: The Land Trust Alliance and The Nature Conservancy

7. Terms in Western Conservation Easements Source: Parker (2003)

8. Efficiency Advantages of Conservation Easements • In contrast to land-use regulations • easements are incentive-based policies that can be customized – not one-size fits all • selects parcels for conservation with consideration of private land use values • In contrast to outright ownership • Land-based commodities (e.g., soil, timber, or minerals) are better managed by a specialized landowner • Depends on transaction costs

9. Can Marine Easements Work? • Key difference is the absence of property rights to marine habitats • there is not a owner with whom a NGO can negotiate • However, there may effectively be property rights to use the habitat in various ways • we consider four regulatory regimes • (i) open access • (ii) limited entry • (iii) individual transferable quotas (ITQs) • (iv) territorial use rights in fishing (TURFs).

10. Model: Setup • An NGO wishes to affect the long-run, steady-state level of a non-commercial fish stock (X) • Effect of a on X is negative, effect of b could be positive or negative • A commercial stock, Y, is available for harvest by many identical fishermen • Fisherman i’s profit is • The profit maximizing demands for a and b are:

11. Model: Setup (cont’d) • NGO offers to buy easements to restrict choice of a so that ai ≤ a • NGO can observe a but not b so it cannot enforce easements over b • A grantor of an easement maximizes πi s.t. ai ≤ a • NGO wants to minimize the costs of achieving --- this is equivalent to • Four regimes for regulating harvest of Y • R=O (Open access), with equilibrium πO • R=L (Limited entry), with equilibrium πL • R=Q (ITQs), with equilibrium πQ • R=T (TURFs), with equilibrium πT and s.t. fishermen choices of bi

12. Model: Open Access • Fishermen maximal profit πO = π* = 0; profit-maximizing choices are aO and bO • Imagine that the NGO tried to hit its target by buying easements that restrict the firm’s use of action a. • An easement granted by an existing firm will have no effect on the conservation stock in equilibrium. • Any reduction in action a would result in losses, causing the firm to exit. • Restoring equilibrium requires entry of a new, identical harvester who employs the same level of a that the exiting firm used before the easement

13. NGO’s stock constraint b bL pL p=0 aL a Model: Limited Entry • Figure shows case where both a and b are detrimental to X, all identical fishermen under easement, NGO achieves target requiring , anticipating a response of • Equilibrium easement price is • Easement accomplishes long-run increase in X if easement ‘runs with permit’

14. b p=0 pQ bQ H=HQ aQ a Model: ITQs • The implications aren’t qualitatively different from Limited Entry if the NGO can place all identical fishermen under easement • However, implications should be different if NGO can only put a subset of fishermen under easements

15. b pT bT p=0 aT a Model: TURFs • Assume habitats of Y and X coincide, stocks do not interact, and are fully contained spatially by a TURF • A firm managing the TURF can choose a and b and thus can determine X • If the NGO can observe X, it can pay for performance easements making the fact that b is unobservable superfluous. Rents are maximized by the easement, and NGO achieves goal at minimum cost

16. Conclusions • In general, our preliminary analysis suggests greater delineation of commercial harvest rights will improve effectiveness of marine easements • Marine easements will achieve nothing under open access • Under limited entry and ITQs, easements can improve conservation stock, but inability to contract over ‘hidden actions’ limits the effectiveness (e.g., raises the costs to NGOs) • Performance easements under TURFs could generate 1st-best outcomes • Future work • Constrain NGOs from buying easements from all fishermen in a limited entry and ITQ fishery and examine implications • Allow fishermen to be heterogeneous in costs of harvesting targets or in costs of avoiding ‘bycatch’ • Impose a TAC and season closure on bycatch of ‘conservation stock’