THE EVOLUTION OF RIGHTS BASED OR INCENTIVE BASED FISHERY MANAGEMENT AND ALLOCATION OF FISHING PERMITS

Transcription

1 THE EVOLUTION OF RIGHTS BASED OR INCENTIVE BASED FISHERY MANAGEMENT AND ALLOCATION OF FISHING PERMITS Gary D Libecap University of California, Santa Barbara National Bureau of Economic Research, Cambridge, MA. Lima, Peru, March 14, 2017

2 OUTLINE OF PRESENTATION Potential value of fisheries depends on management, not the resource alone. Venezuela s fabulous oil wealth is largely dissipated due to mismanagement. Open Access Problem. Lack of Property Rights. Response to Open Access. Some effort controls, but often unsuccessful. Examples. Move to incentive-based, rights-based systems. Data. Why they work. Resistance/issues. The Future.

3 OPEN ACCESS FISHERIES: THE PROBLEM Tragedy of the Commons Many fisheries are rich and can generate high net economic returns. Under open access very little net returns. Cause: The common property problem. Fishing effort expands until net returns zero! Too many fishers, too many boats, low-value product.

4 TRAGEDY OF THE COMMONS Why are fisheries open access? Easy entry. Difficult to control access and use, to define property rights, compared to land. Use by the poor. Sustains local communities. Political pressure to keep open. Public resource. Politicians and bureaucrats have authority.

5 TRAGEDY OF THE COMMONS For many years after WWII, this did not matter. Stocks large, under exploited. Gradually, however, this changed: New entry. Stocks declined, harvests/unit of effort fell. Too much capital, too many fishers. Poor communities. Regulatory response: Effort controls limit entry, seasons, equipment controls. Generally, not successful. Few examples of local common property management less migratory, low-valued species. Most regulation not successful.

6 TRAGEDY OF THE COMMONS Global fisheries contain large potential benefits/profits, perhaps $1 trillion, annually. Value does not come from resource alone, but from how people use it. Profits only realized if fisheries are managed sustainably. Currently, the World Bank estimates that $50 billion is wasted/lost annually. Misalignment of incentives if open entry. Incentive to harvest rapidly.

7 EXAMPLES California Anchoveta fishery. Among most valuable US Fisheries 1930s-50s. Overharvest, depletion, stock collapse. Never recovered. North Atlantic Cod Pacific Northwest Halibut Fishery: Effort controls. Seasons. Not successful.

8 SOLUTION Cap on entry (limited entry) or other effort controls are insufficient expand vessels, fishing time. Rights-based systems. Sole ownership, ITQs, IVQs, TURFS, community. Found worldwide. At least 24 fishing nations employ ITQs as a major part of fisheries management. 25% of the global catch is taken under ITQs! Benefits come from incentives and not from the resource. Earned benefits.

9 RIGHTS BASED MANAGEMENT WORLD WIDE

10 RIGHTS BASED MANAGEMENT AND QUOTA ALLOCATION Set an annual Total Allowable Catch usually biologically determined. Shares in the TAC. Limited number. Halts entry. Tradable. Most efficient fishers. Reduce excess vessels. Permanent. Long-term time horizon. Investment in new vessels. Investment in crews and training. Discovery of new fisheries. Innovation in product, process, technology. Protect the stock. Shares valuable only if the stock is viable.

11 EVIDENCE OF BENEFITS OF SECURE PROPERTY RIGHTS Other resources: Minerals, land, timber. Conservation, long-term wealth and economic growth from secure property rights evidence from cross country/resource. Fisheries: Grafton et al, 2002; Costello et al, 2008; Arnason 2012, Fishers capitalize expected value of benefits. Changes incentives. Fisheries: Reduce entry; excessive harvest; over capitalization; innovation in markets and production, discovery of new fisheries. Improved quality of landings. Access capital. Quota serves as collateral. Long-term expectations. More wealth generated. GNP rises. Tax revenues rise. Can have stable, limited taxation for government revenue, administration of TAC.

12 SHARES ARE PROPERTY RIGHTS Property rights: the legal right to use, invest in, trade an asset. Characteristics of Property Rights: 1 Divisibility 2 Exclusivity 3 Transferability 4 Duration 5 Quality of Title-Certainty. 6 Flexibility Eliminating any of these reduces value of a property right.

13 THREATS TO PROPERTY RIGHTS AND WHY THEY MATTER Threats that reduce benefits of property rights. Short ownership time horizon. Less long-term investment, conservation incentive, trade, innovation; changes resource use practices. Uncertainty of ownership. Less security leads to less trade, investment, innovation, conservation incentive. Greater taxation of returns. Reduces expected returns of investment, innovation, production, trade. Uncertainty of ownership and reduced returns, less incentive to invest in new knowledge, equipment, train crews, processing innovation, marketing innovation.

14 FISHERIES: AUCTION VS GRANDFATHER How to allocate quota/shares? Grandfathering: Private role dominant in resource use. Allocate based on historical catch. Auction (Repeated): Government role dominant. Outcome prediction: Repeated auction reduces long-term fishery revenues. Adds uncertainty. Less investment, innovation in new stock discovery and new methods. Changes incentives for stock preservation. Reduces contribution to the economy and society.

15 EVIDENCE ON ALLOCATION SYSTEMS Allocation methods Grandfathered Equal Auction Vessel/gear based Australia 21 3 Canada Chile 4* Estonia 9 9** Iceland Netherlands 5 3 New Zealand 61 25* Russian Federation 10 10** USA 4 1 USA and Canada % 5% 21% 6%

16 ADVANTAGES OF GRANDFATHERING Assigns quota based on historical catch. Commitment to existing fishers with success in the fishery. Quota size determined in the market. Tradable. Security for financing. Keeps capital in the industry. Rewards most efficient fishers. Experience. Local, time and place specific knowledge. Insights into the stock. Rewards enterprising fishers, who discover new fisheries/fishing opportunities.

17 ADVANTAGES OF GRANDFATHERING Aligns incentives with stock value: Human/physical capital invested depend on the stock. Does not weaken international competitiveness. Does not distort industry investment. Time horizon, expected returns. Design cost: Limited potential for corruption in allocation. Reallocation is costly. Technical, administrative, company costs. Rent seeking.

18 ALTERNATIVE ALLOCATION Political allocations: Maintain open access, informal controls if any. Artisanal fisheries. Equally Cap entry and then uniform allocation. Disadvantages skills, experience, entrepreneurship. To the poor. Could undermine revenues, investment, and conservation. Randomly. Lottery. Reallocation? Disadvantages skills, experience. Auction: Seems fair, gives revenue to state. Repeated auction. Adds uncertainty, loss of revenue, time line reduced, lowers incentives for investment and stock conservation.

19 FISHERIES: AUCTION Auction Fishing right allocated based on winning bid. Characteristics determined by government officials--politicians/bureaucracy. Who can participate? Competition? Size of allotment? Duration? One time auction? Repeated? Trade? Consolidation? Revenues to the state. Tax.

20 AUCTION When are auctions used? Well-defined owner. Controls asset. No incumbent producers/users. Sell asset or production rights. Must have numerous, competitive, independent bidders. Maximize sales revenue. TAX. Open up resource to specific parties. Competitive auction reveals value.

21 AUCTIONS LIMITED IN PRACTICE Auction: Examples (Non fisheries). US off shore oil and gas deposits. US electronic spectrum. Complex. Political objectives. Air emission permits. California. EU ETS. Revenue imperative. In fisheries, auctions very limited. Abandoned/scaled down. Russia, Estonia (Vetemaa, et al, 2002; Anferova, et al, 2005; Lynham, 2014). Fleets hurt by loss of funds, poor enforcement. Some new (Patagonia Toothfish, Black Cod) or collapsed fisheries (Squat Lobster) with no or few incumbents Chile (Lynham, 2014). Marginal auctions, up to 10% of TAC, to encourage entry or flexibility. New entry generally has not resulted. Artisanal share has not grown via auction.

22 PROBLEMS WITH AUCTION Complexity of design, size, allotments, collusion. Costly. Game the system. Waste. Adds uncertainty. Will bidders win? Can result in concentration of fleets. Only wealthy can bid. Colllusion. Hard for fishers to know what to bid. Revenue transferred to the state. Away from industry. Shortens time horizons. Uncertainty. Lowers investment. Reduces international competitiveness, exports, revenues.

23 RIGHTS-BASED MANAGEMENT Despite success, controversial: Ownership Ideological reasons, many resist granting private rights to a public resource. Politicians and Bureaucracy resist because rights based management reduces their role. Ownership denies access to some fishers has to happen to solve the openaccess problem (Tragedy of the Commons). Distributional objections. Rights or quota holders earn more. Envy and pressure for redistribution. Allocation of quota or rights: Political or Grandfathering. Pressure to auction. Fishery has rebounded. More wealth. Others want it. Assumption is that the allocation mechanism does not matter. It does!

24 CONCLUSION Fisheries are potentially incredible valuable. This potential also is often wasted. The Tragedy of the Commons. Experimented with multiple solutions. Incentive-based or rights-based management works. Set TAC, distribute shares or quota. Best results Secure property right as in New Zealand. Tradable, long-term, secure. Investment, collateral. Generates wealth efficiency, jobs, exports, vibrant communities, tax revenue. Allocation of quota matters! Grandfather. Everywhere, all the time. Suggests economic and biological benefits. Provide quota security in an already insecure, competitive industry. Auctions can undermine quota security, add uncertainty, transfer income.