Environmental economics – international issues
Håkan Eggert
Handelshögskolan – Göteborgs Universitet
Autumn Semester 2005
Fishery
management
Alber Klaus
Lung Norbert
Introduction
The following paper is going to
discuss the problems which results from international fishing and will name
important reasons why an international fishing management is urgently needed.
Moreover, we will explain static and dynamic aspects of fisheries and we will
show particular challenges for the international management. In the end of this
paper we try to state some improvements and solutions for the international
problem which is increasing steadily and we hope to give some good aspects that
everybody can understand and can try to process this approaches.
The population on planet earth is
growing constantly and will reach around 9 billion people in 2054.[1]
Most population growth is expected in urban areas where in the year 2007 half
of world population will live.[2]
If we focus on the fact that more than 60 percent of population live in the
coastal areas, where most of the big cities are situated, the future challenges
and problems respectively will increase enormous. The soaring growth rates of
world population in coastal areas lead increase the pressure of coastal areas
and thus, important breeding grounds for fish like the mangrove forests and
lagoons are polluted or actually depleted.[3]
Furthermore, with the new
technologies of the fisheries industry sea-grounds and coral-reefs are going to
destroyed which are fundamentally necessary for fish stocks and moreover
millions of fish which are caught are going to put back into the sea dead or
deadly injured because they are caught unwanted, e.g., dolphins, turtles,
sharks, etc.[4]
International fishing management is
urgently needed
The present problems of diminishing
fish stocks, the new technologies which are used in the fishing industry like
trawls which are destroying the sea-grounds and coral-reefs and not at least
the increasing world population which has a rising demand on fish and the
pollution of the sea are important reasons and emphasize the big need for an
international fishing management which is setting rules and regulations for the
fishing industries and is cooperating with fishing nations, NGO’s (non
governmental organizations) and the fishing industry itself.
Furthermore, the international
fishing management has to find solutions for the problems and has to improve
the situation for a long run balance between saving fish stocks and a
commensurate fishing-rate. There are already some approaches which are believed
to better the situation and help the fish stocks to recover as well as “good”
conditions for the fishing industry, especially the future situation of the
fishing industry.[5]
Despite the fact that through the United Nations Third Conference on the
law of the sea and the resulting expansion of fisheries jurisdiction of Coastal
states from 12 miles to 200 nautical miles the management problem of capture
fisheries could be partly solved, still widespread overexploitation and
mismanagement of capture fishery resources occurs which results in spectacular
fishery resource collapses.
The big challenge of fishery management and therefore the need for more
sophisticated policies is the fact that the resources, in contrast to other
management subjects, are mobile and invisible prior to capture and additionally
very vulnerable subject to unpredictable environmental shocks, thus covered in
uncertainty. These two adjectives of fishery resources results in the fact that
it was very difficult and costly to assign specified property rights which
leads to the main handicap for fisheries management, the common pool nature of
the fishery resources.
Many economists believe that the
fundamental problem of fisheries and over-fishing respectively is the
well-known “tragedy of the commons”. Without correspondent property rights to
fish stocks no single fisherman has a little incentive to conserve the stock
and thus, the catch as many fish as possible and jeopardize their own future
and income. A United Nations report points out that around 25 % of world’s fish
stocks are seriously over-fished. This emphasizes moreover, the importance for
an international fishing management which coordinates and perhaps places
property rights to fish stocks. [6]
The major management problems of capture fisheries is indeed the common
pool problem, meant the ill-defined property rights of the resources with the
two logical consequences of overexploitation and overcapitalization through a
structure of perverse incentives to fishermen in cases where the authorities
take action to restrict harvests and try to conserve the resource. (The
phenomenon of perverse incentives and the resulting overcapitalization should
be explained more firmly later on in terms of static and dynamic approaches to
the economics of fisheries management)
Static
approach to the economics of fishery management
First, the biological model of fishery resources has to be explained as
it is the foundation of every economic model. Speaking about the fishable
biomass in a resource, the size of this biomass is influenced by the
recruitment or the entry of new fish, the growth of individual fish, the
natural mortality and of course, the fishing mortality, meant the harvesting.
Natural equilibrium is reached when the fishing effort is zero and the
rate of recruitment and growth is just offset by the natural mortality.
Now that the biological mechanics of adjustment of fishery resources has
been shortly explained we can continue to the static approach to the economics
of fishery management.
An appropriate and by economists often applied static model for
economics of capture fisheries is the “general production”-model by
Gordon-Schaefer[7]:
The figure above shows the basic Gordon-Schaefer static economic model.
The horizontal axis explains the size of the biomass and the fishing
effort respectively, while the vertical axis shows the growth of the biomass.
The asymptotic curve TR expresses the growth of the biomass of a resource. It
starts logically at zero, and because the biomass cannot grow indefinitely due
to the fact that the aquatic environment is finite, approaches asymptotically
some upper limit, the aforementioned “natural equilibrium” which cannot be seen
on the graph above, but would be the logical continuation of the curve TR until
it crosses the horizontal axis again.
Regarding now the harvesting and the fishing effort respectively which
is also measured on the horizontal axis and also expressed by the asymptotic
curve TR, you can say that when harvesting equals the growth of the biomass at
a certain size of the biomass, then harvesting at that size of the biomass
occurs at a sustained yield basis. This sustainability can be achieved for
every size of the biomass between 0 and the natural equilibrium, while in the
Gordon-Schaefer model this sustainable yield is maximized at MSY, the
harvesting related to the top point of the curve TR.
When now introduced also prices and costs, we can transform the curve TR
into sustainable revenue from harvesting as we assume that the price for fish
is constant. That is why the term TR means total revenue. Additionally, we
receive the total cost curve which is the straight line called TC. When now
regarding the figure we can see a point at which the gap between the
sustainable revenue and the total costs is largest. This is the point called
the maximum economic yield, the point at which the resource rent is maximized.
This is the point MEY on the asymptotic curve.
But now we come to the big problem of the already before mentioned
common pool nature of fishery resources. The reason why is that fishery is an
open access one with no regulations. Therefore no one appropriates the resource
rent and would cumulate to fishermen as supernormal profits. As well known from
the zero profit theory from the model of perfect competition the harvesting
would expand to that point where the resource rent is zero at the point where
the cost curve and the revenue curve cross each other at the downward slope of
the revenue curve, this point is called OAY in the figure above. This point is
called the bionomic equilibrium and expresses the overallocation of labour and
capital to the fishery, and overexploitation of the resource from society’s
point of view.[8] Another manifestation of
the common pool problem can be seen in the already aforementioned
overcapitalization problem which we will explain now more firmly.
This problem arises when the authorities intervene in the fishery with
harvest limits, but do not have control over the size of the fleet. In this
case the allowable harvest becomes the common pool and it becomes rational for
fishermen to compete for shares of this allowable harvest, therefore be well in
excess of what is required to for the harvest. This effect leads to shorter and
shorter fishing seasons and as a result also to product deterioration and
processing capacity which is not utilized over long periods of the year.
The difficulty of the adjustment from bionomic equilibrium to maximum
economic yield is the fact that a shift from OAY to MEY requires that there’s a
period of resource investment during which the harvest is held below
sustainable yield. This period of reduced fishing effort may be long and
painful dependent on the nature of the resource.
This fact also induces the big failure of the static model because it
creates the illusion of a swift and easy adjustment, thus an illusion of
certainty, and ignores the unpredictability of prices and costs and the
resource and environmental uncertainty of capture fisheries. Therefore the
static model has to be extended to a dynamic approach which regards the fishery
resources as natural capital and takes the economic theory of capital and
investment into account.
Dynamic
approach to the economics of fishery management
In the dynamic approach the resource stock, the biomass is seen as
natural capital in which one can invest or disinvest. The economic management
problem is to find the optimal investment or disinvestment programme, thus the
optimal size of the resource in order to maximize the present value of the
resource rent through time. Therefore this optimization is a process of trading
off current benefits against benefits to come or forgone through investment or
disinvestment.
This problem can be solved by the application of the maximum principle
in a mathematic model that we will not explain more firmly. However, the core
of this mathematic model we receive by applying the maximum principle is the
conclusion that one should invest in the resource up to the point when the
present value of the marginal sustainable resource rent equals the cost of the
investment which is the forgone current marginal rent from the resource.
That sounds quite complicated to understand, but in fact it presents a
more or less drastic resource investment programme which states that if you are
away from the optimal size of the biomass, you should focus on reaching the optimal
stock as fast as possible.
The problem of this approach is that it ignores the fact that the
conventional capital, namely the fleet and processing capacity, and the human
capital, namely the fishermen, are not perfectly flexible and cannot be easily moved
to alternative uses in order to reduce the fishing effort in one resource and
achieve an optimal investment programme without high losses.
Furthermore the model also implies that at bionomic equilibrium the
resource rent is exhausted which is also not necessarily true. It says that
with a declining biomass the unit harvesting costs rise which is only true when
the fishery resource is spread uniformly throughout its aquatic area. But there
are lots of fish species which have strong schooling tendencies. Therefore, due
to the development of new effective means of harvesting, harvesting can remain
profitable even at declining stock levels.
As a result also the dynamic model doesn’t offer a general solution for
the common pool problem and has to be modified substantially. The phenomenon of
overcapitalization is still existent and still has to be fought at its origin.
Solutions and
improvements in fishery management
There are many different approaches
concerning fishery management policies. Some approaches are more related to a
better situation for the fishing industry and some for an increased improvement
in fish stocks and environmental aspects. Of course, it has to be found a
middle way because the fishing industry will never adhere voluntarily to regulations
if they lose much money of if there are not penalties to pay if regulations are
breached. The most important and named approaches are, among others, Total
Allowable Catch (TAC),[9]
Input controls, licensing and restricted entry, effort controls, gear
restrictions and catch rules, and closed areas and closed seasons.[10]
However, two fisheries management approaches have been created to
address the fundamental common pool problem and the perverse incentives which
lead to overexploitation and overcapitalization.
The first one is the so-called “command and control” policy. This policy
is a combination of the most obvious form of restrictions on total harvest with
a “limited entry” programme or license limitation programme with the objective
of restricting the flow of labour and capital into the fishery. Furthermore, a
modified version of this policy would be the limited entry programme combined
with a “buy-back” scheme which means that the authorities buy fishing vessels
in order to remove them from the fishery.[11]
The failure of this policy is that it ignores the fact that the capital
in fishery doesn’t exist of one single input but of a bundle of inputs with no
fixed proportions between them. Therefore it is impossible to control all
inputs and fishermen have it easy to just substitute uncontrolled for
controlled inputs.
A second approach attempts to change the incentives themselves in form
of “output control”.
This policy is called the system of individual transferable quotas. ITQs
represent a harvesting right to catch fish in designated areas over a one-year
period. This right is divisible and transferable among individual fishermen or
companies although the limits of the individual
share of the total quota must be strictly adhered to. To ensure
exclusivity, the government records the amount of fish landed and processed.
The first and big advantage of this policy is apparent. The fishermen
have no incentive anymore to compete with one another for shares of the harvest
and the incentive which leads to overcapitalization is simply removed.
Furthermore, this system implies cost-minimizing behaviour of fishermen and
therefore increases the fishing season and has a positive impact of product
quality, output prices and also competitiveness.
It is more or less a sophisticated combination of increasing economic
benefits from fisheries and ensuring sustainability, although it is not
universally applicable. For example it can be hardly applied for multispecies
fisheries because targeting of individual fisheries may be difficult or
impossible and unit values of different species may vary a lot.
An alternative to the ITQ system would be a community-based scheme under
which fishermen gain property rights to the resource itself, but on a
collective basis.[12]
However, both, the ITQ system as well as the community-based scheme, give
the fishermen an incentive to regard the resource as long-term assets whose
conservation or maintenance is in their own interest. Which one of these two
approaches is more suitable depends on the specific case, but at least you can
say that these two approaches are most likely feasible to fight the common pool
problem and the perverse incentives structure which can be regarded as the
origin of the dilemma in capture fisheries. The example of New Zealand, where
ITQs have been already introduced, shows how positive the effect of this system
on the fishery industry can be, now it’s time to wake up and introduce these
kind of systems all over the world in order to save finally one of the most
important environments on planet earth.