Reduce Overfishing By Defining Property Rights

Problems of overfishing in our oceans continue, notwithstanding the increasingly stringent seasons, schedules and quotas that governments are mandating in the fishing industry. Such unintended consequences emanating from following a command-and-control regulatory policy is not surprising — fishermen compensate for reduced numbers of fishing days by bringing in as large a catch as they can on allowed days, endangering both the fish populations and their own lives. And quotas are notoriously hard to monitor, and themselves provide perverse incentives to catch mature fish unless the quota is defined in terms of pounds instead of number of fish.

Indeed, an NPR story from Wednesday 5 November (scroll down to “New England Fish Stocks Dwindle”) told the tale of decreasing fish populations in the North Atlantic, even after a decade of increasingly stringent regulations:

For 10 years, fishing regulators in New England have been trying to balance the competing interests of fish and fishermen. Despite stiff regulations, fish stocks of cod, haddock and other ground fish have not reach sustainable levels. Regulators are now making another effort to preserve the dwindling supply.

These efforts continue to fall in the category of control-and-manage, and even supposedly forward-looking analyses of the fishing problem, such as the Pew Oceans Commission report from June, 2003, retain the emphasis on control-and-manage instead of aligning economic and environmental incentives. This old-style perspective retains restrictions on the number of fishing days, stiff quotas with no trading, and other regulations that introduce rigidity into the industry without any thought to creating incentives that enable flexibility and creativity in figuring out how to align the long-run interests of the fishermen and the fish, both of whom have interests in the long-run sustainability of the fish population.

But fishermen do not have the incentive to act in their own long-run interest when the regulatory and legal institutions are constructed to treat fish populations as a commons managed by quotas that are rigid and difficult to enforce.

Ocean fishing is a poster child for what Garret Hardin famously but incorrectly called the “tragedy of the commons.” To see the argument, think of a common pasture in a medieval village. Suppose the village has 50 residents. If we treat this pasture as an open access resource, we each can pasture as many sheep as we want on the pasture. Individually, each one of the 50 of us weighs the benefits of pasturing an additional sheep against the cost. The benefit is clear — having another well-fed sheep — and the cost is negligible (except for the purchase price of the sheep, of course).

But what happens as the pasture becomes more crowded? Once we have a lot of sheep congestion on the pasture, every additional sheep grazing on the pasture imposes a cost on all of the villagers who are pasturing sheep on this open access resource. After that congestion point, additional sheep grazing reduces the food available to all other sheep. That means that if I pasture more animals, my sheep may not all get to each enough, but I am not bearing the full marginal cost of my decision to pasture an additional sheep — my fellow villagers who also use this open access resource also bear some portion of the cost, even if they have not themselves pastured additional sheep.

Problem is, we each individually face this incentive. So every villager will, in the absence of any rules or exclusion from the open access resource, have an incentive to pasture more animals than the pasture can sustain.

That is how treating a resource as an open access resource leads to overuse, in this case overgrazing. Thus Hardin’s problem should actually be called “tragedy of open access” instead of tragedy of the commons.

Today and throughout human history, resources have been owned and managed in commons without such overuse. Commons need not lead to tragedies. The key to avoiding the tragedy is the combination of defining property rights, enforcing property rights, and governing the use of the commons. Each of these three actions has costs and benefits, and those costs and benefits are likely to vary from case to case, depending on region, industry, and technology.

Often this discussion about resource management is carried on in a very binary, 0-1, open access or purely private property rights framework. But in reality the choice of property rights framework is

• a continuum between open access and pure private and
• a choice, not an immutable characteristic of the resource itself.

By continuum I mean that almost nothing in life is purely privately owned (except, as my co-author David Haddock and I like to say, your toothbrush) or purely open access. Life is a network of interlocking commons, with varying degrees of definition of property rights, varying degrees of enforcement, and various governance institutions. By choice I mean that through our political institutions, we often choose to manage resources in different ways for different reasons that have little to do with whether or not they are ?privatizable?.

The policy choice to manage ocean fishing as a commons with strict day restrictions and non-tradable quotas is a crystalline example of this issue. There is nothing immutable about fish schools that makes the right to catch them difficult to define and enforce, although the fact that fish move around a lot does make physically defining the rights specifically more costly. For that reason I think it?s likely that given existing technology, we are likely to see governments determining fishing quotas for the present.

But making the quotas non-tradable is an appalling policy decision on the part of our governments, and is the primary cause of the continuing deficiency in fish populations in the North Atlantic. Fishing rights are not well-defined property rights unless they are alienable, or unless the rights-holder can buy the rights of others or sell his rights to someone else.

ITQs, or individual tradable quotas, would give fishermen an asset that they could buy and sell, based on the government?s establishment of the total allowable catch (hopefully, as I said above, defined in pounds and not in number of fish). The fishermen could then decide based on their knowledge of their skills and interests, and on the prevailing prices for the ITQs in the market, whether or not it?s worth it for them to stay in the business or not. They make the choice, not the bureaucrats.

In the current policy environment, without tradability, the bureaucrats are deciding who will and will not be in the fishing industry, and that decision is not necessarily based on opportunity cost, comparative advantage, or being a low-cost, productive fisherman, which are the dimensions that would get factored in if the fishermen had a market for their assets. Put another way, the current system is not only inefficient and leading to continued strains on fish populations, it is also extremely unfair to fishermen by not allowing them to capture the full potential value of their quotas as true assets.

ITQs are of course still going to be prone to monitoring costs by having to weigh each catch, but the transferability of the right extends the fishing incentive from a short-run one to a long-run one. If I have an ITQ and I go out and fish the bejeesus out of the population now, there will be fewer fish for me in the future, and that will reduce the value of my ITQ, regardless of whether I use it or sell it. That means that ITQs are going to have more of a self-enforcing tendency than the current quotas do.

Thursday?s Wall Street Journal had an editorial on ITQs and fish populations, which made essentially the same points as I have here and points out the phenomenal success that New Zealand has experienced with ITQs:

The good news is that a market-based solution is already flourishing around the world. Individual fishing quotas (IFQs) are the equivalent of cap-and-trade pollution programs. Government authorities cap the total allowable catch and then allocate quotas among fishermen, usually based on the historical catch. The quotas become a “property right” that can be bought and sold among fishermen — helping to reduce fleet capacity. And because fishermen have access to a guaranteed share of the catch, they don’t race to compete, fishing seasons lengthen, prices rise and fish stocks grow.

Consider New Zealand, where IFQs started in 1986 and today cover 45 species, or more than 85% of the total commercial catch from Kiwi waters. Prior to IFQs, New Zealand had watched the catch of such key commercial species as red snapper fall by 43% from 1978 to 1983.

Since the introduction of IFQs, the country has seen a 37% decline in the number of quota owners, mostly in fisheries that were overfished and had overcapacity problems. Its 2002 assessments of main fisheries show that 80% are at or above sustainable target levels. The overall market value of New Zealand’s IFQ fisheries has more than doubled in real terms from 1990 to 2000, even as fish stocks have grown. Examples from Iceland, Australia, Greenland and the Netherlands show similar impressive results.

This Environmental Defense analysis by Fujita, Hopkins and Willey is a great summary of the issues and the potential value of using market incentives and processes through ITQs (in fact, I assign this article in my environmental economics course). I also recommend this editorial by Don Leal that originally appeared in the Oregonian in 2002.

Enabling fishermen to treat their fishing quotas as true assets, complete with alienability, is good for fish, good for efficiency, good for consumers who are going to want to eat fish well into the future, and fair to fishermen. The existing quota system is egregiously inefficient, is appallingly unfair to fishermen, and is contributing to suffering fish populations.