FREC 424--Resource Economics

Fisheries

Stock dynamics for economically useful species reflect interactive biological and economic factors. Some stocks and habitat systems (e.g., commercial livestock operations) are fully privatized and (presumably) efficiently managed. Some privately-owned stocks use open-access habitats (e.g., cattle on common grazing lands) which may be over-used, so that the carrying capacity of the habitat is degraded. This "tragedy of the commons" (Hardin) reflects a market failure: the common-property habitat resource is under-priced, and users have no incentive to conserve. Marine fishery resourcew are entirely common-property because of their open-access nature: it is not feasible to have private ownership of either the stock or the habitat.

The Schaeffer model treats net stock growth as a quadratic function of stock size. In the absence of harvesting, the carrying capacity of the habitat defines the maximum equilibrium stock size where net growth is zero (reproduction equals natural mortality). Net growth is positive for smaller stocks levels.

A stable equilibrium occurs at any stock level where harvest equals net growth and the stock is generating a sustainable yield. If harvests exceed net growth, stock levels decline.

The peak growth rate defines the stock's maximum sustainable yield (MSY). Continued harvesting in excess of sustainable yields will result in severe depletion or even extinction.

We assume the price of fish is constant; the marginal cost of fishing effort is constant; and harvest per unit of fishing effort is proportional to stock size. We can define an Effort-Yield function which is a mirror-image of the Stock-Growth function. Although biologists often recommend harvesting at MSY, this isn't economically efficient, since it doesn't account for costs of harvesting. Static efficiency occurs at E^* < E_MSY where the MRP of effort equals MFC. In Tietenberg's Fig. 12-2 this is where the slope of the TR (Benefit) schedule equals the slope of the TC schedule: at the this point ("tangency") the vertical distance between revenues and costs is maximized.

Dynamic effciency accounts for discounting. If r > 0 and future profits are discounted relative to present profits, effort level E^** and harvests should be higher than in the static model. As r is increased, E^** may exceed E_MSY. As r approaches infinity, E^** approaches E_OA, the point where TR = TC and long-run profits are driven to zero.

In an open access fishery, individual vessels have no incentive to conserve the resource, since any fish they leave can be taken by the next vessel. The asset value of the fishery is ignored. This open-access externality implies an infinite discount rate. The open-access fishery keeps attracting new vessels and more aggregate effort until all profits are dissipated (TR = TC) at E_OA. Tietenberg's Fig. 12-3 compares sole-owner and open access fisheries. Open access implies involves more fishing effort, more stock depletion, higher harvest costs, and elimination of both current and future industry profits.

Some stocks may face risk of extinction because of depensatory stock growth: reproduction is impaired by very low stock densities. Extinction may occur under open access if stock reproduction is slow and the marginal revenues from the last individuals (which may be very high due to scarcity) exceed the marginal costs of harvesting them. (Rhinos and elephants are good examples.) In some cases where the stock's growth rate is less than the discount rate, stock extinction may be a theoretically efficient management strategy.

Aquaculture essentially privatizes fish stocks; it becomes profitable as open-access substitutes are depleted and scarcity increases prices. Fish may be confined in ponds, raised in privatized waterways, or ranched. Other apparently open-access resources may be privatized informally (see Tietenberg's Example 12.2 about Maine's harbor gangs).

Various policies may be used to correct open-access externalities. Traditional policies include area closures, season closures, vessel restrictions and gear restrictions. These policies target (and may even approach) biological MSY, but they are economically inefficient by definition since they all reduce efficiency and increase costs. Industry profits are simply dissipated by reduced harvest efficiency rather than by stock depletion.

Economically efficient policies include (1) taxes on fishing effort and (2) individual transferable fishing quotas (ITQ's). An optimal tax on effort rotates TC upward so that it intersects with TR at E^**. Industry profits are captured as tax revenues to the government rather than simply dissipated. Vessels earn zero economic profits (after tax) so there is no incentive for excess boats to enter the fishery and over-fish it.

ITQ's essentially privatize the fishery by entitling holders to specified harvests. The sum of all ITQ's should equal the optimal industry harvest level. ITQ's can be bought and sold between vessels, and are acquired by the most efficient vessels. The market value of each quota is the present value of the net rent stream from it. Efficient ITQ systems don't require much government enforcement, since quota-holders police their own fisheries. The government can allocate quotas by auction or simply issue them to current vessels. In either case, future fishermen have to buy quotas to enter the fishery. If there are too many vessels with quotas, the government can tax the quotas and/or use tax revenues to buy back and retire some quotas.

Nations traditionally claimed jurisdiction over waters within three miles of their coastlines--the maximum effective range of cannon. More recently, many nations have declared 200-mile "exclusive economic zones" to improve control of off-shore fishing and sea-bed mining resources. International treaties have been negotiated to protect whales and other marine mammals.