April 06, 2006

Transferable fishing quotas and equity

The underlying problem of most declining fisheries is the lack of adequate property rights. Each fisher has little incentive to care for fish populations because he doesn't own them; a prudent fisher does not benefit himself but the remaining, non-prudent fishers. Collective efforts aimed at regulating catch, such as the "maximum sustained yield" and "maximum sustained economic yield" approaches, have proved biologically unstable (leading to the collapse of fish populations) and economically wasteful (leading to too many and too powerful vessels and aparels).

Several governments have recently implemented transferable fishing quotas as a way to overcome these problems. Colin W. Clark summarizes in the journal Population Ecology the benefits of this system compared to the old "common pool" fisheries:
Individual quota systems can improve the economic (and biological) performance of a fishery in at least three ways. First, because he is assured of his quota, the fisherman can arrange to catch it in the most cost-efficient way. Thus individual quotas overcome the problems of the "derby" fishery, where fishermen compete to obtain a share of the total seasonal catch quota while the season remains open. They also counter the problem of overcapacity by removing the underlying incentives. Second, if quota ownership is transferable, fishing costs may be reduced as quotas are traded from less efficient to more efficient fishermen. Third, because the value of his quota depends on the state of the fish population, the fisherman will favor conservationist management strategies that maintain or increase the resource stock. In many individual-quota fisheries, the fishing industry has supported and organized conservation activities and research programs.
Thus:
[A] properly organized ITQ [individual transferable quotas] system does have the potential to overcome the overfishing and overcapacity problems.
But there is something Clark doesn't like:
ITQs can amount to an unjustified, and highly unpopular, transfer of wealth from the public to specially favored individuals. In practice, many fishermen or entrepreneurs have become inordinately wealthy following the inception of ITQ programs. This distortion of the public welfare can be prevented by means of fair taxes or royalties. [...]

Most countries have recognized in principle that their marine resources belong to the nation at large, so that no justification exists for granting fishing quotas for free to specific individuals. By charging landings royalties, as in other resource industries, the government can retain a portion of resource rents. Exactly what share of the rents (beyond management costs) should be collected by the state is a political question, one that the fishing industry will try to bias in its favor. Another method for resolving the problem is through auctions of limited-duration quotas. [MF: Owners of limited-time quotas have an incentive to obtain the maximum economic benefit within the time allotted and no natural incentive to preserve the stock beyond that time. Auctions of permanent quotas are probably more efficient.]

One argument that can be rejected immediately is that the industry should get 100% of the resource rents, because only this will motivate conservation and efficient fishing. In fact 50% will also motivate conservation and efficiency, as would 0%, given that the fishermen are still making normal profits.
I agree with Clark that getting 100% of the rents is not the only way to motivate conservation and efficient fishing (by the way, what criterion does Clark use to tell what is a rent and what is a "normal profit"?). But we can be certain that getting 100% of the rents is a better motivation than getting 50% or 0% of the rents. If all the rents from your efforts go to someone else you have little incentive to make those efforts in the first place. In any case, why should the public at large get an income from the efforts of fishers? Why should I, sitting on my armchair and running no risks, get a rent from the efforts of a fisherman?

I don't feel like I "own" fisheries just because I am part of a sea-bordering nation and because the official law says so. I don't feel entitled to a compensation by the new owner of a quota. Although I would prefer governments to give the quotas to me for free and I am a little envious of the sudden wealth of the actual recipients, five minutes from now I will have forgotten my misfortune and I will go on with my life as usual. I want to be able to buy fish. I prefer that the operation of fisheries is managed and financed privately and not by tax money. I want seas teeming with life. So, I am ok with governments granting quotas for free instead of auctioning or getting rents from them.

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