Fisheries Science and Political Expediency: Can the Two be Reconciled?

1. Fisheries Science and Political Expediency:Can the Two be Reconciled? Ragnar Arnason An address at the FAME workshop Social and natural science in marine renewable resources University of Southern Denmark June 6-8 2007

2. Organization of Talk • The fisheries management problem • Who is responsible? • Why fisheries mismanagement? • A possible solution • Main conclusions: Summary

3. Section I.The fisheries management problem

4. The global (marine) fishery(FAO data) • Substantial stock overexploitation (Stocks: 2/3 of stocks≤MSY, 1/3 severely depleted) • Excessive fishing capital (Global fleet 20-25 m. GRT;  2-3 times needed) • Excessive fishing effort (Approximately 2 times what is optimal) • Little net economic benefits (Losses 5-10 billion USD; most fishermen are poor)

5. Global Fisheries Rents Loss

6. Global fishery: Illustration Current Optimal

7. Global fishery: Another view Optimal Growth, yield Current Biomass

8. Individual fisheries • Pretty much the same applies to individual fisheries • Few exceptions (less than 1/5 of global fisheries)  Global fisheries mismanagement of great proportions!

9. Section IIWho is responsible?

10. Governments are responsible!! • Have (formal) fisheries management powers • Over time have usurped rights to (ocean) fisheries • This is demonstrated by historical research (A. Scott, England, the colonies, Denmark, Iceland, USA etc.) • Have taken (at least ”de facto”) ownership of many/most natural resources • Sovereignty powers • Environment, many commercial resources (e.g. land), wild animals etc. • No-one else has management powers

11. Why have governments mismanaged?-- Four hypotheses - • Lack of fisheries science understanding No – Well known for over 50 years (Warming 1911, Gordon 1954, Scott 1955 etc.) Plenty of material, arguments and pleadings Much better understood that many other fields of science into which money is poured • Lack of fisheries management understanding No – Well known for over 25 years (Scott 1955, Christy 1973, Arnason 1977, Mploney and Pearse 1979) (Evidence: Holland, Iceland 1976, New Zealand 1982 ….etc.)

12. Four hypotheses (cont) • Lack of data No - Do not really need much data for reasonable management (basically MSY and MSYx will do fine) - For most fisheries, ample data available • Lack of will (political will)! This hypthesis I cannot reject!

13. Example: The Icelandic cod fishery • Economically very important • Very well researched and understood • Nevertheless, poorly managed • Management history • Pre 1976: Almost no management (inadequate national control) • 1976-78: TAC regime • 1978-84: Effort/capital restrictions • 1984-90: ITQ/effort limitations mix • 1991-04: ITQs with exceptions (small vessels) • 2004-?: ITQs

14. Problems withgovernments as fisheries managers • Information problems • Must collect a great deal of data from the fishery (i) Fishers’ profit functions (ii) Fish stocks • Much of these data exist within the fishing industry • Incentive problems • Perverse incentives • Misalignment of benefits and costs • Rent-seeking

15. Icelandic cod:Actual vs. optimal harvest

16. Icelandic cod:Catch rule (set 1995) 25% catch rule Optimal rule

17. Icelandic cod:Actual vs. optimal harvesting

18. Conclusions • At least for Icelandic cod, governments are unwilling to do good fisheries management • It had (i) strong theory (ii) lot of good research and (iii) lot of empirical evidence • Nevertheless chose to do bad management • Icelandic case probably exemplifies other fisheries around the world

19. Section IIIWhy?

20. Why choose to mismanage? Focus on two reasons: • Perverse (inappropriate) incentives • Misalignment of benefits and costs

21. Basic premises • Government ={Politicians, civil servants} • Both seek to maximize their own benefits • Their benefits include power as well as income (usually go hand in hand) • Politicians need to • be able to allocate benefits (patronage, public funds in various forms) • Satisfy their special constituencies Otherwise they are not re-elected

22. Perverse incentives • The holders of government power • Are interested in their own welfare • Are supposed to manage fisheries • They bear few consequences of their management • They do not benefit (at least not directly) from good fisheries management • They are normally not punished for poor fisheries management • So perverse incentives!

23. Political cost-benefit calculationof improved fisheries management • Benefits: • Voters grateful? • A thorny problem gone? • Costs: • Some losers (workers, suppliers, regions. …Losers are hateful; seek to punish. The press invariably supports them) • No more patronage to allocate (supports, funds => weaker political power) • Reduced size of bureaucracies • Uncertainty (of the outcome of a new controversial action)  An unattractive proposal – bad project

24. Democratic decision making:A simple example • Exogenous flow of benefits: y(t) • Share of population: z(t) • Share of government: y(t)-z(t) • Utility functions: V(z(t)), U(y(t) - z(t)) • Social welfare W(v,u) • Elections at time T • Terminal value to government S(T), s´(t)= z(t) • Holders of government maximize their present value of benefits

25. Socially optimal z Political allocation T Time Assuming simple functional forms (logrithmic utility functions) the following can be derived:

26. Misalignment of benefits and costs • Virtually every policy has winners and losers • Losers of improved fisheries management (suppliers, workers, certain regions, certain distributers, some government groups) • Gainers (fishery capital owners, crews, some government groups) Fisheries management belongs to box I !

27. Section IVA solution

28. Give fisheries management rights to fishers • No (few) perverse incentives • Benefits and costs better aligned Coase type of an efficient solution possible!! (Really a Nash co-operative solution to the bargaining game)

29. What form should the rights take • Many possibilities • Group rights (community of fishers) • Sole owner rights • Individual rights (e.g. ITQs, TURFS, shares) • Must be high quality (Coase) • Exclusivity • Security • Durability • Tradability

30. Specific examples • Shares in total benefits (like shares in a company) • Individual transferable quotas (ITQs) Both can be pretty strong property rights

31. Shares in total benefits Total benefits: V(a), a=vector of management actions Individual benefits: (i)=s(i)V(a) Max (i)=Maxs(i)V(a)=s(i)MaxV(a) MaxV(a) So, each share-holder will want to maximize the total value of the fishery!

32. ITQs(A bit more complicated) • Total benefits: V(Q), Q=time path of total quota • Individual benefits: (i)=b(i)V(Q), all i (identical apart from scale) Max (i)=Maxb(i)V(Q)=b(i)MaxV(Q) MaxV(a) So, each ITQ-holder will want to maximize the total value of the fishery! Can generalize this result!

33. What has been demonstrated • Fishers’ rights to manage themselves may result in efficiency • That will almost always lead to large stocks • That will generallyfacilitate accommodation of other interests • It will usually not be regarded as fair • Under certain arrangements (shares, ITQs) it probably will • Clearly, a favourable outcome can be helped by the proper arrangement of rights and negotiation

34. Section VConclusions

35. Huge global fisheries mismanagement • Governments are responsible • Objective reasons for that outcome • Perverse incentives and misaligned costs/benefits • Fundamental and lasting problem with government • Not a question of bridging a gap between science and politicians • By-pass the government problem by giving fisheries management rights back to fishers • Need to research the best arrangment for that • Closed shop • Coercive powers • Cost recovery (tax) powers

36. END