Lecture 31

Common-Pool Resources: Commercially Valuable Fisheries

Byeong-Hak Choe

bchoe@geneseo.edu

SUNY Geneseo

December 2, 2024

Course Summary

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Common-Pool Resources: Commercially Valuable Fisheries

Commercially Valuable Fisheries

• In 2009, the World Bank and the Food and Agriculture Organization of the United Nations (FAO) released a report called The Sunken Billions: The Economic Justification for Fisheries Reform.

• The controlled raising and harvesting of fish is called aquaculture.

Commercially Valuable Fisheries

• Economic and Market Context:
  • Marine capture seafood accounts for 20% of the $400 billion global food fish market.
  • Downward pressure on producer prices due to:
    • Market power of processors and retailers.
    • Growth of aquaculture (now 50% of food fish production).
  • Economic Losses: Approximately $50 billion per year due to overfishing, poor management, and economic inefficiency.
    • Over the last 30 years, losses sum to over $2 trillion.
• Potential for Reform:
  • Well-managed marine fisheries could provide sustainable economic benefits.
  • Supports millions of fishers, coastal villages, and cities.

Human Interaction with Biological Populations

• Commercial Value:
  • Provides strong reason for human concern about future of species.
  • May promote excessive harvest leading to overexploitation.
• Institutional Frameworks:
  • Influence conservation incentives.
  • Crucial for protecting resources.

Key Renewable Resource-Management Issues

• Choosing Sustainable Harvest Levels:
  • How do we choose among sustainable levels of harvest?
  • What sustainable level of harvest is appropriate?
• Interactive Resources:
  • Stock size determined by biological considerations and societal actions.
  • Today’s actions affect future resource availability.

Efficient and Sustainable Harvest Levels

• Efficiency vs. Sustainability:
  • Will efficient harvests always result in sustainable outcomes?
  • Efficiency involves maximizing net benefits from resource use.
• Institutional Fulfillment:
  • Do current institutions provide incentives compatible with efficiency and sustainability?
  • Many normal incentives are incompatible, leading to overharvesting.

Overharvesting and Common-Pool Resources

• Open-Access Fisheries:
  • Many commercial fisheries are open-access common-pool resources.
  • Suffer from overexploitation due to lack of exclusive rights.
• Global Fisheries Status (FAO, 2021):
  • Total fisheries and aquaculture production reached 214 million metric tons in 2020.
  • 92% of fish stocks are fully exploited or overexploited.
  • 35.4% of global stocks are overfished.

Tragedy of the Commons

• Definition: The overuse and depletion of a shared resource when individuals prioritize their own self-interest over the collective good.

• Key Cause: Personal benefits from exploitation are immediate, while the costs are shared across all users.

• Challenges:

  • Lack of effective institutions prevents resource asset value from being protected.
  • Leads to overuse, depletion, and long-term economic and environmental harm.

• Solutions:

  • Develop strategies that balance efficiency with sustainability.
  • Implement institutional reforms to address issues like overfishing and ensure equitable resource management.

Efficient Allocations—Bioeconomics Theory

• \(S^{*}\): Maximum Sustainable Yield (MSY) Population.
  • Population size yielding maximum growth.
  • Corresponds to the largest sustainable catch.

• \(\overline{S}\): Natural Equilibrium (Carrying Capacity).
  • Population size without external influences.
  • Stable Equilibrium: Movements away set forces to restore it.
• \(\underline{S}\): Minimum Viable Population.
  • Below this, growth is negative; population declines to extinction.
  • Unstable Equilibrium.

Sustainable Yield

• \(G(S_{0})\): the sustainable yield for population size \(S_{0}\).

  • Since the catch is equal to the growth, population size (and next year’s growth) remains the same.

• Definition:
  • Catch equals the growth of the population.
  • Can be maintained perpetually.
• Determining Sustainable Yield:
  • For any population size between \(\underline{S}\) and \(\overline{S}\), sustainable yield is found where catch equals growth.

Static Efficient Sustainable Yield

• Is MSY Efficient?:
  • No, because efficiency involves net benefits, not just maximum catch.
• Static Efficient Sustainable Yield:
  • Catch level that, if maintained perpetually, maximizes annual net benefit (benefits minus costs).

Economic Model Assumptions

1. Constant Price of Fish:
   • Price does not depend on the amount sold.
2. Constant Marginal Cost of Fishing Effort:
   • Cost per unit of effort is constant.
3. Catch per Unit Effort Proportional to Population Size:
   • Smaller populations yield fewer fish per unit of effort.

Harvest-Effort Functions

• Relationship between Catch and Effort:
  • Increasing effort rotates the harvest function.
  • Sustainable yield is at the intersection with the growth function.

Sustainable Yield Function

• Effort vs. Sustainable Yield:
  • Shows the sustained yield associated with different levels of fishing effort.
  • Increasing effort initially increases yield, then decreases it after a point.

Determining Efficient Level of Effort

• Total Revenue (\(TR\)):

  • \(TR\) = Price × Quantity Caught.

• Total Cost (\(TC\)):

  • \(TC\) = Marginal Cost of Effort × Units of Effort.

• Efficient Effort Level (\(E^{e}\)):

  • Where the difference between \(TR\) and \(TC\) is maximized.
  • Marginal Benefit equals Marginal Cost.

Impact of Technological Change

• Effect on Efficient Effort Level:
  • Technological improvements lower marginal costs (e.g., better sonar detection).

• Results in increased effort, lower population size, larger annual catch, and higher net benefits.

Market Allocation in a Fishery

• Sole Owner vs. Open Access:
  • Sole Owner: Maximizes profit by choosing efficient effort level (\(E^{e}\)).
  • Open Access: Leads to overexploitation, effort level increases to where profits are zero (\(E^{c}\)), creating the external costs:
• External Costs:
  • Contemporaneous External Cost: Overcommitment of resources, reducing current profits.
  • Intergenerational External Cost: Overfishing reduces stock, lowering future profits.

Example: Harbor Gangs of Maine and Other Informal Arrangements

• Informal Arrangements:
  • Fishers form “gangs” to restrict access to fishing areas.
  • Enforce territories to prevent overexploitation.
• Benefits:
  • Higher catch per trap.
  • Larger lobsters, fetching higher prices.
• Success Factors:
  • Strong leadership.
  • Social cohesion.
  • Complementary incentives like individual quotas.

Public Policy toward Fisheries

• Policy Responses:
  • Raising the real cost of fishing.
  • Implementing taxes on effort or catch.
  • Reducing or eliminating harmful subsidies.
  • Establishing catch share programs.

Public Policy toward Fisheries

Raising the Real Cost of Fishing

• Early Policies:
  • Banning efficient gear (e.g., barricades, traps, thinner monofilament nets, gill netters).
  • Limiting fishing times and areas.
  • Achieving yield corresponding to the efficient effort level (\(E^{e}\))

• Inefficiency Resulted:
  • Increased real resource costs, involving utilization of resources.
  • Overcapitalization in fishing fleets.
  • Substantial loss in the fishers’ net benefit.

Public Policy toward Fisheries

Taxes as a Policy Tool

• Implementing Taxes:
  • Tax on fishing effort (or catch).
  • Increases cost to fishers, reducing effort.

• Advantages:
  • Encourages cost-effective fishing methods.
  • Government collects tax revenues.
  • Net benefits retained by society.

Public Policy toward Fisheries

Perverse Incentives: Subsidies

• Negative Impact of Subsidies:
  • Reduce operating costs (e.g., fuel), encouraging overfishing.
  • Lead to overexploited stocks and illegal fishing.
• Global Fisheries Subsidies:
  • Governments spend about $35 billion per year.
  • Equivalent to 20% of the value of global marine capture.
• WTO Agreement on Fisheries Subsidies (2022):
  • Prohibits harmful fishing subsidies.
  • Targets IUU (illegal, unreported, or unregulated) fishing and overfished stocks.
  • Provides technical assistance to developing countries.

Catch Share Programs

• Definition:
  • Allocate a portion of the total allowable catch (TAC) to individuals, communities, or cooperatives.
• Types of Programs:
  • Individual Fishing Quotas (IFQs).
  • Individual Transferable Quotas (ITQs).
  • Territorial Use Rights Fisheries (TURFs).
  • Fishing Cooperatives.
  • Community Fishing Quotas.
• Global Adoption:
  • Nearly 200 programs in 40 countries.
  • Cover more than 500 species.

Catch Share Programs

Individual Transferable Quotas (ITQs)

• Key Characteristics:
  1. Quotas specify a share of the total catch.
  2. Total quotas equal the efficient catch level.
  3. Quotas are freely transferable among fishers.
• Advantages:
  • Encourage efficiency and cost-effective methods.
  • Align individual incentives with sustainability.
  • Promote technological innovation.

Practical Challenges in ITQ Implementation

Bycatch Issues

• Definition: Bycatch refers to unintended species caught during fishing.
• Some fishers may not have sufficient ITQs to cover the bycatch
• Dumping bycatch results in a double waste:
  1. Wasted harvests: Jettisoned fish are not likely to survive
  2. Smaller stocks

High-Grading Concerns

• Definition: High-grading occurs when quotas are based on weight, but the value of the catch depends on the size of individual fish.
• Fishers may discard smaller fish to make room for larger, more valuable ones, even if smaller fish meet the quota.
• Impacts:
  • Leads to double waste.

ITQ vs. Traditional Size and Effort Restrictions

Example: Atlantic Sea Scallop Fishery

• Management Approaches:
  • Canada: Implemented ITQ system.
  • United States: Used traditional size and effort restrictions.

• Canada:
  • Maintained higher stock abundance.
  • Increased revenue per sea-day.
  • Fishery revenue increased due to higher catch per effort.

• United States:
  • Declined stock abundance.
  • Decreased revenue per sea-day.
  • Harvesting of undersized scallops.

Effectiveness of ITQs in Fisheries Management

Global Study on Fisheries

• Scope: Analyzed over 11,000 fisheries globally from 1950 to 2003.
• Key Findings:
  • Fisheries with catch share rules (e.g., ITQs) experienced much less frequent collapse.
  • By 2003, the fraction of collapsed ITQ fisheries was half that of non-ITQ fisheries.

Additional Study on ITQs

• Scope: Examined 20 fish stocks post-ITQ implementation.
• Key Findings:
  • 12 stocks showed improvement in size.
  • 8 stocks continued to decline.

• ITQs can sometimes help but are not a universal solution.

ITQs or TURFs? Species, Space, or Both?

Advantages and Challenges of ITQs

• Advantages:
  • Popular and species-based, fostering efficient harvesting and conservation incentives.
  • Assures a sustainable total allowable catch (TAC).
• Challenges:
  • Enforcement difficulties.
  • Externalities:
    • Gear impacts on ecosystems.
    • Spatial and cross-species externalities, which can increase under ITQs.
  • Competition over timing of harvest:
    • Productive periods may increase external costs (e.g., bycatch, juvenile stock impact).
  • Coase theorem limitation:
    • High transaction costs hinder solving remaining externalities through ownership rights.

ITQs or TURFs? Species, Space, or Both?

Advantages and Challenges of TURFs

• Advantages:
  • Solves issues of time and space management.
  • Protects sensitive areas and habitats.
  • Facilitates management of interspecies interactions and habitat conservation.
• Challenges:
  • Conflict and coordination problems within local cooperatives.
  • Scale mismatch: TURFs may not align with the natural range or habitat of the species being managed.

ITQs or TURFs? Species, Space, or Both?

When to Use ITQs or TURFs

ITQs

• Effective for marine fisheries.
• Suitable for large-scale, species-based management.

TURFs

• Advantageous in developing countries with weak institutional structures.
• Most appropriate for small, local populations or specific areas.

• No one-size-fits-all solution:
  • Each method has a niche depending on the context, species, and institutional capacity.
  • Combining ITQs and TURFs may optimize fisheries management in some scenarios.

Exclusive Economic Zones (EEZs)

• United Nations Convention on the Law of the Sea:
  • Grants countries rights up to 200 miles offshore.
• Significance:
  • Enables national management and enforcement.
  • Protects coastal resources.
• Limitations:
  • Highly migratory species remain unprotected.
  • Open oceans (high seas) still face overexploitation.

Russia’s “Peanut Hole”

• Location: A high seas area in the center of the Sea of Okhotsk, surrounded by Russia’s EEZ.
• Significance:
  • Previously a global commons outside Russia’s jurisdiction.
  • Known as the “Peanut Hole” due to its unique shape.
• Challenges:
  • Overfishing by international fleets posed threats to fish stocks.
  • Difficulty in coordinating sustainable management of resources in this area.
• Resolution:
  • In 2014, Russia gained control of the “Peanut Hole” under UN Convention on LOS (Law of the Sea) provisions, integrating it into its EEZ.

Marine Protected Areas and Marine Reserves

Motivation: Challenges of Regulating Only Catch

• Unregulated factors:
  • Type of gear used and harvest locations.
• Environmental impacts:
  • Damaging gear affects targeted species (e.g., capturing unsellable juveniles) and non-targeted species (bycatch).
  • Harvesting in sensitive areas (e.g., spawning grounds) can harm sustainability.

What Are MPAs and Marine Reserves?

• Marine Protected Areas (MPAs):
  • Defined as areas reserved to protect natural and cultural resources.
  • Protection levels range from minimal to full.
• Marine Reserves:
  • A subset of MPAs with full protection (e.g., no harvesting, high protection from threats like pollution).

MPAs and Marine Reserves

Benefits

1. Species Protection: Prevent harvest within reserve boundaries.
2. Habitat Preservation: Reduce damage caused by harmful fishing practices.
3. Ecosystem Balance: Protect pivotal species to maintain biodiversity and productivity.
4. Spillover Benefits:
   • Larger populations lead to increased catches outside reserve boundaries.
   • Example: Papahānaumokuākea Marine National Monument showed spillover benefits for tuna species.

MPAs and Marine Reserves

Challenges

• Short-term Costs:
  • Harvesters face immediate reductions in fishing areas.
  • Delayed benefits impose costs (e.g., interest on loans).
• Political Opposition:
  • Harvesters who do not perceive benefits may resist reserve proposals.
• Present Value Considerations:
  • Benefits must be large and timely enough to offset short-term costs.

MPAs and Marine Reserves

International Efforts and Innovations

• Global Initiatives:
  • The Convention on Biological Diversity (1992) aims to conserve 10% of marine ecoregions.
• Eco-labeling Incentives:
  • Link seafood certification (e.g., Marine Stewardship Council) to adjacent MPAs.
  • Proposal: Use “sustainability credits” to protect fish stocks and encourage sustainable practices.

Commercially Valuable Fisheries

Conclusion

• Overfishing is a Global Issue:
  • Leads to significant economic and ecological losses.
• Efficient Management is Essential:
  • Requires appropriate policies and institutions.
• Market-Based Solutions:
  • ITQs, TURFs, and catch share programs show promise.
  • Align economic incentives with conservation.
• International Cooperation:
  • Critical for managing shared and migratory stocks.
  • Agreements like the WTO’s fisheries subsidies agreement are steps forward.