Fisheries and climate

1. Fisheries and climate Fishery collapseThe same story everywhereAnd climate change too

2. Environmental issues • Almost all environmental issues are Tragedy of the Commons situations. Let’s look at: • Fisheries (or other open-access resources) • Climate change (or other types of pollution) • PS. You can think of pollution problems as open-access situations if you think about air or water as a place for putting waste; so it shouldn’t be surprising that economists think about fisheries and pollution in similar ways.

3. The tragedy of the fishery • It’s better for the group as a whole if everyone limits how much they fish so that there will be enough fish next year. • Each person individually prefers to maximize their individual profits by fishing like crazy. • Negative externality: When I catch fish, I create external costs by reducing your ability to catch fish next year.

4. www.fishermensvoice.com/archives/...html Overfishing: Cod

6. www.greenpeace.org/raw/image_full/internation... Solution: Limit fishing • Restrict types of boats, types of gear, etc. • Set an annual TAC (Total Allowable Catch) limit. • Advantage #1: These can help limit overfishing • Disadvantage #1: Pareto inefficient. • Disadvantage #2: There’s still a race for fish that can be dangerous and inefficient.

7. upload.wikimedia.org/.../220px-Redkingcrab.jpg www-rohan.sdsu.edu/.../Ocn_books.htm The race for fish • Fish today—while you still can—before the TAC (Total Allowable Catch) limit is reached for the year! • Example: the 2005-2006 Alaska king crab season lasted just 4 days (250 boats caught 14m pounds) • Dangerous for workers, consumers get frozen fish

8. Solution: “Privatize the commons” • Combine a TAC (total allowable catch) limit with private property rights over that catch. • Individual Tradeable Quotas (ITQs) make it possible to “own” part of this year’s catch. • Advantage #1: The TAC limit overfishing. • Advantage #2: No race for fish (b/c of ITQs). • Complication: Who gets the permits?!? • Note: This is just like carbon cap-and-trade!!!

9. Policy analysis: Fisheries • Why not just let the invisible hand take care of things? Why do we need to regulate? • If we’re going to regulate, why not just use gear restrictions or other command-and-control options? What’s the advantage of economic instruments like ITQs? • If we’re going to use ITQs, what (to a first approximation) does economics have to say about the distribution of permits?

10. Policy analysis: Fisheries • Why not just let the invisible hand take care of things? Why do we need to regulate? • There’s a market failure, i.e., individual optimization does not lead to a Pareto efficient outcome. (In particular, free markets are likely to lead to dramatic overfishing.) So it’s possible for government regulation to lead to Pareto improvements over the free-market outcome.

11. Policy analysis: Fisheries • If we’re going to regulate, why not just use gear restrictions or other command-and-control options? What’s the advantage of economic instruments like ITQs? • Command-and-control often leads to Pareto inefficient outcomes because there’s no flexibility. (What if I want to do things a different way?) Also, economic instruments allow firms to trade.

12. Policy analysis: Fisheries • If we’re going to regulate, why not just use gear restrictions or other command-and-control options? What’s the advantage of economic instruments like ITQs? • PS. Other policies (like Marine Protected Areas) can also work, so it’s important not to have too much economic imperialism. • The point is to make sure to ask (with any policy) if there are ways to be flexible.

13. Policy analysis: Fisheries • If we’re going to use ITQs, what (to a first approximation) does economics have to say about the distribution of permits? • To a first approximation, economics has nothing to say about the distribution of permits. Any distribution will (with the Coase Theorem) produce a Pareto efficient outcome. • Economics is basically no help in comparing different Pareto efficient outcomes.

14. Policy analysis: Fisheries • If we’re going to use ITQs, what (to a first approximation) does economics have to say about the distribution of permits? • To a second approximation, economics says you should auction off the permits because they are an economically attractive source of government revenue. • This matters less for fisheries (not much $), but it matters lots for climate ($$$).

15. Policy analysis: Climate change • Why not just let the invisible hand take care of things? Why do we need to regulate? • If we’re going to regulate, why not just use CAFE standards or other command-and-control options? What’s the advantage of economic instruments like cap-and-trade? • If we’re going to use C&T, what (to a first approximation) does economics have to say about the distribution of permits?

16. Policy analysis: Climate change • Why not just let the invisible hand take care of things? Why do we need to regulate? • There’s a market failure, i.e., individual optimization does not lead to a Pareto efficient outcome. (In particular, free markets are likely to lead to dramatic overpollution.) So it’s possible for government regulation to lead to Pareto improvements over the free-market outcome.

17. Climate change “It may seem impossible to imagine that a technologically advanced society could choose, in essence, to destroy itself, but that is what we are now in the process of doing.” -- Elizabeth Kolbert (author of 2008 UW Common Book Field Notes from a Catastrophe)

18. Policy analysis: Climate change • If we’re going to regulate, why not just use CAFE standards or other command-and-control options? What’s the advantage of economic instruments like cap-and-trade? • Command-and-control often leads to Pareto inefficient outcomes because there’s no flexibility. (What if I want to do things a different way?) Also, C&T allow firms to trade to achieve least-cost pollution control!

19. Policy analysis: Climate change • If we’re going to use C&T, what (to a first approximation) does economics have to say about the distribution of permits? • To a first approximation, economics has nothing to say about the distribution of permits. Any distribution will (with the Coase Theorem) produce a Pareto efficient outcome. • Economics is basically no help in comparing different Pareto efficient outcomes.

20. Policy analysis: Climate change • If we’re going to use C&T, what (to a first approximation) does economics have to say about the distribution of permits? • To a second approximation, economics says you should auction off the permits because they are an economically attractive source of government revenue. • A tax shift that uses revenue from C&T to eliminate other taxes is beautiful.

22. Policy analysis: Climate change • If we’re going to use C&T, what (to a first approximation) does economics have to say about the distribution of permits? • To a second approximation, economics says you should auction off the permits because they are an economically attractive source of government revenue. • OK, so what about Cantwell’s cap-n-dividend?

23. Policy analysis: Climate change • What about “complementary policies” to C&T like Renewable Portfolio Standards (RPS) or CAFE (fuel-economy) standards or energy-efficiency requirements? • Under a hard cap these have zero environmental benefits. Why? • They may have economic benefits... • …but only if individuals are not optimizing.