Overfishing and the impending collapse of fisheries

June 9, 2010

Lynne Kiesling

Why is it so difficult, in terms of politics and transaction costs, to define and enforce property rights in fish? If we fail to do so, some important fish species are likely to go extinct due to overfishing, such as the bluefin tuna. Migratory fish like the bluefin pose the biggest policy challenges, and it’s difficult to implement a property rights policy like catch shares — the combination of the fish migration and the international, deep water fishing makes negotiation and policymaking difficult (plus in the case of tuna there’s regulatory capture — the NGO in the tuna fishing industry, ICCAT, routinely caves to Japan’s arguments not to reduce fishing limits).

The other day Alex Tabarrok wrote about fishery declines, highlighting the important and exciting research on catch shares of marine environmental economist Chris Costello. Alex’s post is full of useful and informative links, including a new Reason TV video on catch shares.

I always cover fisheries when I teach environmental economics, both because the economics are fascinating and difficult and because the more educated and aware we are of our policy failures, perhaps the more likely we are to actually implement better policy as we come to the brink of species extinction. I am not usually a “doom and gloom” girl, but this is one area where doom and gloom are warranted, unfortunately.

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Posted by lkiesling

“The central station and the isolated plant”

May 14, 2010

Michael Giberson

H. S. Knowlton said, “In the establishment of many kinds of modern business the question of cheap power is one of fundamental importance, and in not a few cases the industrial manager finds it a most difficult problem to decide between installing an isolated plant and contracting for central station service.” That’s from Knowlton, “The central station and the isolated plant,” Cassier’s Magazine, 32 (August 1907).  Here are a couple of quotes I liked:

To the modern central station man it seems preposterous that scores of small installations, often poorly operated, with wretched load factors, inferior supervision and an oft-times reckless disregard of fixed charges, should be tolerated by keen business men.  Duplication of generating capacity seems to him an idle waste of capital.  But the incubus of distribution cost sets the limit to the minimum profitable power rate, and far too often there is a lack of exact information as to the cost of distribution to particular customers.  The problem of ascertaining it is one of the utmost difficulty, as far as making its influence felt on specific rates is concerned, but it is one of the most fascinating questions in the field of modern electrical engineering.

I’d say that possibilities for distributed energy resources linked with smart grid capabilities makes this question once again “one of the most fascinating questions in the field of modern electrical engineering,” at least within the sub-field of power systems engineering.  Here’s another quote:

No one dreams of the extinction of the central station; it stands upon the solid foundations of maximum potential generating economy and minimum inconvenience to the customer, and even in the face of complex distribution charges and rate making processes which a none too friendly public finds difficult to understand, there will always be a large clientele for the commercial company to supply.

As history has it, the superior economics of the central station approach helped it dominate the electric power industry.  But superior economics in general doesn’t mean superior in every specific case, and changing technologies and energy prices means that all large power consumers should ask themselves the “make or buy” question from time to time, or as Knowlton puts it: central station or isolated plant?

NOTES: The Knowlton article was found via a footnote in John Neufeld, “Price discrimination and the adoption of the electricity demand charge,” Journal of Economic History, Vol. 47, No. 3 (Sep., 1987).  Cassier’s Magazine volumes are available online via Google Books (link to the Knowlton article in volume 32).

Interested readers might also check out The Isolated Plant magazine, first published in December 1908.  The lead article in volume 1, issue 1: “The central station vs. the isolated plant: their respective fields,” by Percival Robert Moses.  (Moses begins, “Has the isolated plant any logical right to exist at present, and if so, is it’s right only a passing one of a few years duration?”)

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Posted by Michael Giberson

Endangered species for sale, for their own good and ours

July 21, 2009

Lynne Kiesling

At Aguanomics, David Zetland takes on a topic that I find greatly interesting and important — using private property rights to conserve endangered species, reduce poaching, and enable indigenous communities who live around such animals to thrive without species extinction as a consequence. In fact, one of my first-ever posts back in 2002 was about the Irbis Enterprises work with Mongolian herders and snow leopards. I also discussed property rights in tigers in a 2005 post and a 2006 post. Note that Irbis Enterprises is now part of the Snow Leopard Trust.

David observes

That’s why the Brazilian rainforest is disappearing — because government policy makes it easier to slash and burn and move on than to conserve the greenery.

The way to protect the rainforest, the whales, etc. is with stronger property rights, and individuals and companies (e.g., the Nature Conservancy) are set up to provide that protection. (To learn more about this kind of free market environmentalism, visit the Property and Environment Research Center.)

Note also that property rights are not just a binary yes-no either-or. Ownership implies a variety of rights (the frequent metaphor is that a property right is a bundle of sticks), and if you have defined, defensible, divisible, and alienable property rights, then you are more likely to get the beneficial outcomes David discusses.

For example, if you own a piece of property between my property and a lovely mountain range, if I value my view by enough, I can buy your development rights on your property. If that happens, then you and subsequent owners can build on the property, but not in a way that impedes my view. In that case the divisibility of your property rights means that you can profit from selling me a right that I value more than you do. [With thanks to Randy Simmons, from whom I've plagiarized this example.]

Think about what a boon this would be in the rainforest. Organizations like pharmaceutical companies and environmental nonprofits could own the land and the plants, water, and animals on it, and could exchange specific development rights that were contingent upon not destroying the assets. Think about the implications for another current tradeoff in land use in Brazil — rainforest vs. clear-cutting to plant soybeans for soy biodiesel. If the big ag companies had to pay to buy the rainforest, that would change the economics of soy biodiesel, not to mention the implications of rainforest owners being able to retain development rights and divide up the bundle of rights.

This divisibility is also how conservation easements work — a property owner sells (or gives, in the case of it being a charitable contribution) a piece of his/her bundle of rights.

The idea is pretty intuitive for land, watersheds, viewsheds, etc., but how about animals? To my mind, animals are more like water and less like land; animals move, and that means I think the characteristic of the property right in animals is the ability of the community to define and enforce use rights. That means treating the animal population as a common-pool resource and defining use rights (number allowed to kill per year, for example).

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Posted by lkiesling

Animal conservation through prices

February 26, 2009

Lynne Kiesling

The fundamental cause of most environmental problems — whether air pollution, climate change, or species extinction, for example — is ill-defined property rights. Ill-define property rights lead to inefficient resource use decisions, resource overuse, and accelerated resource use. The effect of human action on the rate and pattern of species extinction is an example of this issue. Places where people have found ways to define property rights in endangered species have seen them return to healthy, robust populations (such as elephants in Kenya). Some previous KP posts have addressed species extinction.

This proposal from a team of biologists is another idea in the direction of establishing property rights in endangered species: require property developers to buy financial contracts tied to the health of a species:

Under their plan, the government would determine the cost of protecting a species if it becomes endangered. That money would be set aside to fund contracts with payouts pegged to species health. The contracts would be sold to landowners and developers whose actions directly affect the animals, though the contracts could be freely re-sold.

Should animal numbers fall beneath a predetermined threshold, contracts would be voided, and money devoted to anticipated recovery programs. If the species thrives, investors would be rewarded, with profits growing in direct proportion to species health.

Despite the snarky comments in the Wired blog post, this is an idea worth elaborating on and testing (using economic laboratory experiments, of course). The experimental testing would be crucial for ensuring that such a policy would achieve its intended objectives, and not result in, for example, strategic species arbitrage transactions.

Very interesting.

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Posted by lkiesling

Barun Mitra: Sell the Tiger to Save It

August 15, 2006

Lynne Kiesling

I heartily recommend Barun Mitra’s op-ed column in today’s New York Times on the importance of property rights in the conservation of the tiger:

Yet for the last 30 or so years, the tiger has been priced at zero, while millions of dollars have been spent to protect it and prohibit trade that might in fact help save the species. Despite the growing environmental bureaucracy and budgets, and despite the proliferation of conservationists and conferences, the tiger is as close to extinction as it has been since Project Tiger, a conservation project backed in part by the World Wildlife Fund, was launched in 1972 and adopted by the government of India a year later.

If we truly value the tiger, this crisis presents an opportunity to help it buy its way out of the extinction it now faces. The tiger breeds easily, even in captivity; zoos in India are constantly told by the Central Zoo Authority not to breed tigers because they are expensive to maintain. In China, which has about 4,000 tigers in captivity, breeding has been perfected. According to senior officials I met in China, given a free hand, the country could produce 100,000 tigers in the next 10 to 15 years.

Yes, precisely. Instead of pricing the tiger at zero and creating a profit opportunity for poachers, why not enable the business of tiger farming? That’s what kept the bison from going extinct in the 19th century. Defining property rights over resources that have value, including wildlife, increases the likelihood that they will avoid extinction due to poaching.

Another great resource on tigers is Michael ‘t Sas-Rolfes’ PERC Policy Series analysis from 1998. His thorough analysis includes references to a lot of valuable field experts, including Mitra.

Don Boudreaux’s take on the article is much the same as mine; no surprise, there.

3 Comments | Economics, Environmental policy | Permalink
Posted by lkiesling

WILLINGNESS TO PAY TO AVOID EXTINCTION

August 19, 2005

Lynne Kiesling

How cool is this? Tim at Environmental Economics points us to an upcoming Sotheby’s auction of saplings from a tree thought to be extinct.

This is a nice example of a field experiment in something that is awfully difficult to do: determining aggregate willingness to pay to avoid extinction.

In my environmental economics class I ask students how much they are willing to pay to reduce the probability of tiger extinction (because I love tigers!). Problem is, you guessed it, a version of the knowledge problem. People can only evaluate willingness to pay when they have a context in which to evaluate opportunity cost, and typically it’s through market processes that we discover our subjective evaluation of opportunity cost. But if you just walk up to someone at the zoo and ask them how much they are willing to pay to avoid tiger extinction, they have no frame of reference for determining that price. So the numbers you would get from such a survey are highly suspect.

This auction provides an alternative that could generate valuable and more accurate data on WTP to avoid extinction. Auctions are easier to do for plants than for animals, though, and entire ecosystem areas are even harder than that. [irony] Oh, wait, I have a thought … what about clearly and transparently defining and enforcing property rights? I wonder if that might do it … [/irony]

2 Comments | Economics | Permalink
Posted by lkiesling

HAWK MOUNTAIN SANCTUARY

September 1, 2004

Lynne Kiesling

Hawk Mountain Sanctuary is a great example of private initiative and willingness to “walk the talk” in private “internalization” of environmental “externalities” (for background on why I am putting these things in quotes, see this post on the Energy Star certification and irrelevant externalities, this post on network reliability as a public good, and this post on network reliability as a differentiated product; much of what is true for networks is also true for environmental interdependencies).

Hawk Mountain’s history is fascinating. The Pennsylvania government had put a bounty on the head of goshawks, and in 1929 the bounty of $5/bird was a decent income. So the goshawk was hunted almost to extinction. Conservationist Rosalie Edge saw news articles and pictures depicting the carnage, and took action:

In 1934, Mrs. Edge came to Hawk Mountain and leased 1,400 acres. She installed a warden on the property, a New England bird enthusiast named Maurice Broun, and Maurice’s wife and bird conservation partner, Irma Broun. The shooting stopped immediately and the next year, Mrs. Edge opened the Sanctuary to the public as a place to see the beautiful but persecuted birds of prey. She purchased and deeded the 1,400 acres to Hawk Mountain Sanctuary Association, incorporated in 1938 as a non-profit organization in Pennsylvania.

Hawk Mountain was the first private nonprofit wildlife sanctuary in the U.S., and it continues to this day in its mission of raptor preservation and public education.

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Posted by lkiesling