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

An address at the FAME workshop

Social and natural science in marine renewable resources

University of Southern Denmark June 6-8 2007

Ragnar Arnason

Organization of Talk

I. The fisheries management problem

II. Who is responsible?

III. Why fisheries mismanagement?

IV. A possible solution

V. Main conclusions: Summary

Section I.The fisheries management problem

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)

Global Fisheries Rents LossGlobal Fisheries Rents Loss

Sustainable global fishery: Current and profit maximizing outcomes

Current

Profit maximization

Difference (optimal –current)

Fishing capital 22 m. GRT 8 m. GRT -14 m. GRT Fishing effort 13.9 m. GRT 7.3 m. GRT -6.6 m. GRT

Harvest 85 m. mt 93 m. mt. +8 m. mt. Biomass 123 m. mt 254 m. mt. +131 m.mt.

Profits -5.3 b. USD 41.6. b.USD 46.9 b.USD Rents 0 b. USD 50.8 b. USD 50.8 b. USD

0 10 200

100q effort( )

cost effort( )

effort CurrentOptimal

Global fishery: IllustrationGlobal fishery: Illustration

Global fishery: Another view

0 200 4000

50

100Sustainable revenues and costs

Revf x( )

Cf x( )

x xBiomass

Growth,

yield

Current

Optimal

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!

Section IIWho is responsible?

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

Why have governments mismanaged?-- Four hypotheses -

1. Lack of fisheries science understandingNo – 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

2. 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.)

Four hypotheses (cont)

3. 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

4. Lack of will (political will)!

This hypthesis I cannot reject!

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

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(i) Perverse incentives(ii) Misalignment of benefits and costs(iii) Rent-seeking

Icelandic cod:Actual vs. optimal harvest

0,00

200,00

400,00

600,00

800,00

1000,00

0 500 1000 1500 2000

Biomass (1000 mt)

Gro

wth

an

d h

arve

st σ=0

σ=0,5x

Static optimal

Surplus growth

Actual harvest

Icelandic cod:Catch rule (set 1995)

-100

0

100

200

300

400

500

0 200 400 600 800 1000 1200 1400 1600 1800 2000

Fishable biomass (1000 mt.)

HF

F

Vöxtur stofns 25% aflaregla Hagkvæm aflareglal Enginn hagnaður

25% catch rule

Optimalrule

Icelandic cod:Actual vs. optimal harvesting

0

200

400

600

800

1000

1200

1400

1978 1982 1986 1990 1994 1998 2002

Har

vest

(10

00 m

t)

Actual harvest Static optimal 1-d feedback

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

Section III

Why?

Why choose to mismanage?

Focus on two reasons:

1. Perverse (inappropriate) incentives

2. Misalignment of benefits and costs

Basic premises

i. Government ={Politicians, civil servants}

ii. Both seek to maximize their own benefits

iii. Their benefits include power as well as income (usually go hand in hand)

iv. Politicians need to– be able to allocate benefits (patronage, public funds in

various forms)– Satisfy their special constituencies

Otherwise they are not re-elected

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!

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

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

Assuming simple functional forms (logrithmic utility functions) the following can

be derived:

Time

z

T

Socially optimal

Political allocation

(0)

1 r T

y

e

Misalignment of benefits and costs

Distribution of Costs

Narrow Wide

Narrow I II Distribution of benefits Wide III IV

Fisheries management belongs to box I !

• 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)

Section IV

A solution

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)

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

Specific examples

• Shares in total benefits (like shares in a company)

• Individual transferable quotas (ITQs)

Both can be pretty strong property rights

Shares in total benefits

Total benefits: V(a), a=vector of management actions

Individual benefits: (i)=s(i)V(a)

Max (i)=Max s(i)V(a)=s(i)Max V(a) Max V(a)

So, each share-holder will want to maximize the total value of the fishery!

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)

So, each ITQ-holder will want to maximize the total value of the fishery!

Max (i)=Max b(i)V(Q)=b(i)Max V(Q) Max V(a)

Can generalize this result!

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

Section V

Conclusions

• 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

END