Topic 15: Fisheries Economics

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Topic 15 Fisheries Economics

• David Letson
• Marine Affairs/Economics
• University of Miami

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The Basics

• Fisheries are renewable resources, like forests.
• Unlike forests, we harvest the growth each year.
• Open access and ill-advised public policies.
• We will consider
• efficient management and
• reasons for spectacular counterexamples.

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Concerns

• Bycatch
• Uncontrolled access
• Technological advances
• Globalization
• Habitat destruction
• Allocation commercial recreational
• Transboundary stocks

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Tragedy of the Commons

• Garrett Hardin Science 1968
• Resource accessible to all but belonging to none.
• Individual motivation versus public well being.
• Resource characteristic or a human institution?

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Why do they keep fishing?

• Economic motivation
• capture of benefits
• costs of depleted stocks
• subsidies
• Overfishing is rational but inefficient.
• Identity as fishers.

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Descriptive Statistics

• UN/FAO marine species over-exploited
• US is sixth largest producer
• Recreational fishing also important
• Flat growth since 1989 understates real decline
• Economic losses.

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ExampleUS Groundfish

• Edwards and Murawski
• Multi-species groundfishery off New England
• 70 reduction in effort would maximize value
• Seven-fold increase in stocks
• Three-fold increase in sustainable yield
• Add value 150M/year.
• Realization depends critically on property rights.

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What is a fishery?

• Stock of fish
• initial size
• growth rate
• recruitment
• growth of individuals
• mortality
• Fishing enterprises
• fishing effort
• catch
• costs and revenues

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Fishing effort

• A composite input
• inputs besides fish stocks.
• Measure of inefficiency.
• Includes
• boats, nets, traps
• crew
• spatial distribution of stocks, fishers,
  consumers
• time spent fishing.

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A few words aboutBiology
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Biological Assumptions

• Growth of fish stocks is a function of the
  initial stock (Schaefer logistical growth).
• We focus on recruitment, individual growth, and
  natural mortality.
• We dont consider salinity, temperature,
  currents, weather, predator/prey relationships,
  pollution, loss of habitat, etc.

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Static Economic Model Simplifying Assumptions

• Simple, Schaefer bell-shaped curve
• Fish sizes and prices are constant
• Homogeneous fleet Cost of effort per vessel is
  constant
• No significant barriers to entry (e.g. no
  limitation on fishing permits, cost of purchasing
  a boat is not significant, etc.)

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Economics of an open-access fishery

• Total sustainable revenue
• Total cost of harvest
• Maximum Sustainable Yield
• Maximum economic yield

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Maximum Economic Yield (MEY)

• Maximum economic yield effect level, occurs where
  MC MR
• Total (aggregate) profit maximized for the entire
  fishery
• Optimal allocation of effort
• Societys inputs (capital, labor, etc.) used
  efficiently relative to other alternatives and
  opportunities.
• Maximum sustainable yield (MSY) is not the same
  as MEY.

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The Problem Open-Access (Tragedy of the
Commons)

• Fisheries are common-property resources
• Users cannot exclude others from harvesting
• More enter the fishery and compete for a
  declining share
• No incentive to limit effort because someone else
  would benefit

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Technological Improvements Solve Problem?

• Catch (revenue) per unit of effort (cost)
  increases and/or
• Cost per unit of effort decreases, BUT
• More vessels are attracted to the fishery
• Revenue and/or cost savings per vessel are
  dissipated
• Open access equilibrium shifts to lower yield
  level
• Increase risk of recruitment over-fishing and
  stock collapse.

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Improved Technology Only Rotates the Total
Cost Line
Max Yield
Total Cost of Effort
Max Econ. Yield
New MEY
TechnologyLowers Cost of Effort
Yield in lbs or Cost in
Yield or Revenue
Biomass
OAE
MSY
MEY
New OAE
Effective Fishing Effort (Boats, Nets, Days, Etc.)
OAE - Open Access Equilibrium
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Other Factors Contributing to Inefficiencies of
Open Access Fisheries

• Asset fixity Specialized vessels and gear may
  hinder exit from fishery
• Special tax incentives, e.g. Capital Construction
  Fund.
• Subsidized fishery loans, e.g. Fisheries
  Obligation Guarantee Program (FOG).
• Anticipations (expectations) of future limited
  entry controls by government.

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Extensions

• Fishers not homogeneous.
• Time lags Slow, painful adjustments.
• Multi-species. Multi-nation.
• Individuals sometimes do cooperate.
• Regulators do not always act in social interest.

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Management Considerations

• Traditional commercial fishery regulations (e.g.
  catch limits, fishing season) may reduce risk of
  over-fishing, but only increase cost of fishing
• Simple limited entry approaches may still lead to
  capital stuffing (e.g. increases in vessel
  fishing power)
• Assigning pseudo-property rights Individual
  transferable quotas (ITQs)
• Catch a specific amount fish sizes
• Total of quotas equal to efficient total catch
  for fishery
• Transferable among fishers

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Fisheries Management (I)

• Will future catches compensate for todays
  restraint?
• Facilitate transfer of resources to beneficial
  use?
• How will regime affect prices and harvest costs?
• Will improved stocks attract additional effort?

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Fisheries Management (II)

• Usual approaches
• catch quotas,
• trip limits,
• bag limits,
• gear restrictions,
• limits on fish size, and
• seasonal and area closures.

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Fisheries Management (III)

• Usual ways Raise harvest costs, with profits
  still zero.
• Effort increases to take advantage of the
  improved stocks and catch rates.
• Need use rights for fish stocks.

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Individual transferable quotas (ITQs)

• Allocates shares of TAC to individuals.
• Fishers still decide who, when and how.
• Design issues
• eligibility, duration, transferability
• Initial allocation.

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ITQ Programs Some Pros and Cons

• Pros
• Ownership (property rights) expected to foster
  proactive conservation management (Core
  assumption)
• Buying/selling of shares promotes an efficient
  (market oriented) approach to down-sizing fleet
• Allows producers flexibility to harvest fish for
  high quality market segments (Consumers may
  benefit, too).
• Cons (Mainly equitability concerns)
• May encourage concentration of shares (supply)
  and marketing power
• Arbitrariness of initial allocation creates
  windfall wealth for vessel owners
• Crews and/or others in the fishing community
  ignored in allocation process.
• In neoclassic economics, market-oriented
  solution usually require some type of ownership
  rights for sellers and buyers.

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A Few Words About...Recreational Fishing
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Management Review

• Restrictiveness correlated with success.
• Complexity of fishery, success inversely related.
• Unpopular programs do not succeed.
• Failure necessary before restrictions accepted.
• Success creates pressure to increase access.

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Summary and Conclusions Commercial Fishery
Economics

• Simple bioeconomic models can demonstrate the
  societal inefficiencies of open access, common
  property commercial fisheries and related
  over-fishing risks.
• Improvements in fishing technology have only
  amplified commercial fishing effort in open
  access situations.
• Regulations only focusing on MSY are second
  best compared to MEY.
• ITQ systems attempt to address the problem via
  ownership incentives, but the equity of ITQ
  systems have been criticized.

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Conclusions

• World fisheries in decline.
• Open access encourages over-harvest.
• Subsidies worsen problems.
• Management must reduce effort, protect habitat.