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Government As Definer of Fishing Rights

Ocean overfishing provides a classic illustration of the tragedy of commons. Because no one owns the fish in the sea, there are no incentives for fishermen to constrain their catch. Leaving fish for the future means they are available to others to catch. Government managers have tried to regulate the problem away, but the result has been a wasteful race for fish. A better approach emerged in the 1990s with the introduction of  individual transferable quotas (also called catch shares).  By receiving predetermined shares of the total allowable catch each season, fishermen are no longer compelled to race for the fish. The economics of a fishery improves dramatically and the fishery becomes more sustainable.

Unfortunately, because catch shares eliminate the problem of too many boats chasing too few fish, some congressional lawmakers with short time horizons are mounting a campaign against them in the name of  jobs.  To wit, when considering catch shares in a fishery the “Saving Fishing Jobs Act of 2011” defines fishermen as all permit holders, whether they have a record of catch or not, and requires 2/3 of them to approve a new catch share program. Non-fishing permit holders are likely to oppose a catch share program because their initial allocation is little, if any, share of the fish.

Ironically, such a ploy only serves to lock a fishery into a lower paying seasonal jobs instead off higher paying year-round jobs. Is it better to have 10 seasonal paying jobs earning poverty level wages of $7,000 a year under a race for fish or five year round fishing jobs earning $50,000 without the race? These tradeoffs should be weighed when lawmakers tout that they are saving jobs.

The political campaign at the national level now being mounted against catch shares illustrates another important lesson: When it comes to relying on higher levels of government to define property rights the costs of establishing those rights should be considered. Granted, given its monopoly on legitimized coercion, government can overcome the problem of enforcement, but there are information and rent-seeking costs to consider.  These costs are likely to be much higher at the national level than relying on lower levels of governance or private collective action (see Fred McChesney’s work on “Government as Definer of Property Rights“).

In short, the change that catch shares create in the nature of fishing jobs–from a larger, part-time, more seasonal workforce to a smaller, full-time, higher paid work force–is both economically and ecologically superior in the long run.

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Namibia Has A Lesson For Migrating Yellowstone Bison

Last year’s massive winter bison migration from Yellowstone National Park caused significant damage to surrounding ranches. Says one landowner: “When we’ve got 30 to 40 [bison] coming through my place at one time, they want to go through the fences, rub on my house, destroy my irrigation pipes.”

Federal and state authorities captured and returned as many as they could to the park during the rough winter, but many were still left to roam and cause damage to property and livelihoods. As opposed to a private owner whose animal roams onto another’s property and causes property damage, Park officials are not liable for bison damage. Fed up with the current situation, Montana cattle ranchers and county officials filed a suit in federal court asking the District Judge Wayne Phillips to decide whether bison from the park should be able to roam freely on adjacent ranches.

The southern African nation of Namibia has a more severe problem of wildlife-human conflicts — e.g., marauding lions that kill livestock as well as humans.  But it took a property rights approach to the problem — one that allows those who bear the costs of free-roaming wildlife to reap the rewards. In the mid-1990s, the national government took the bold step of turning ownership of the wildlife back to the people through community ownership. In so doing it allowed local residents living in wildlife corridors to benefit not only through jobs at these conservancies but joint ventures with wildlife businesses. Instead of government and outside entities garnering the returns from the rising value of wildlife tourism and safari hunting, local residents could now benefit. As a result, attitudes from locals changed.

Consider this response from a local landowner. He lost six of his sheep when a leopard came into his corral one night. Naturally he wants to be compensated for his loss, but unlike the situation around Yellowstone he is also sensitized to the overall value of leopards to the economy: He responds to the leopard loss differently: “The economy of the country is going up because of these animals.”

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Allocating Fishing Rights: Auctions or Grandfathering?

The conventional view is that resource rents arise from the existence of a natural resource and are not related to human entrepreneurship. Thought of in this way, rents created in a fishery following the adoption of individual transferable quotas (ITQs) merely reflect a return on Mother Nature enhanced by removing excesses in fishing effort built up under years of open access.

While the value of the resource itself cannot be doubted, there is strong evidence that additional rents arise from innovations in production as well as from users sharing information and coordinating harvests (see Deacon 2009 and Leal et al. 2008), both of which are stimulated by ownership claims to the fishery. Moreover, the amount of rents created is dependent on how the rights are allocated.

Some economists contend that ITQs are most efficiently allocated through auctions such as planning for Gulf shark fishery catch shares, but an article just published in the Annual Review of Resource Economics, by PERC senior fellows Terry Anderson and Gary Libecap, and Icelandic economist Ragnar Arnason, makes the case that “grandfathering” fishing rights to local users or recognizing historical  participation in a fishery generates more rents. Their analysis shows how grandfathering increases rents by raising expected rates of return for investment, lowering the cost of capital, allowing for specialized local knowledge, and providing incentives for collective action.

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The Value of Secure Property Rights: Evidence from Global Fisheries

That’s the title of a new NBER Working Paper by Corbett A. Grainger and Christopher Costello. The abstract:

Property rights are commonly touted as a solution to common pool resource problems. But in practice the security of these property rights varies substantially owing to differences in design. In fisheries, the design of individual transferable quotas (ITQs) varies widely; the consequences of these design differences on economic outcomes has not been studied. To test whether the security of these property rights affects asset values, we compile a unique dataset to examine the relationship between the exclusivity of property rights and the dividend price ratios for ITQs. We find evidence that stronger property rights lead to higher asset values and lower dividend price ratios in ITQ fisheries. This pecuniary effect of property rights security informs the current policy debate on the design of property rights institutions for managing natural resources.

Chalk that up as more evidence of the importance of ITQs and other forms of catch shares, which PERC has advocated for many years. This paper will also be presented at an upcoming PERC workshop entitled “Lessons Learned from Rights-Based Fisheries Management.”

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Hat Tip To EDFish

Next month, fishers in the Pacific groundwater fishery will operate under a new management system called catch shares. This market-based system gives fishers the rights to a share of the total allowable catch, and has proven to halt or even reverse declines from overfishing. Don’t expect results overnight; it will take time to get the system to function properly and to produce the economic and biological benefits possible with catch shares, but do expect positive outcomes down the road.

A news report from San Francisco’s KQED has the story.

(Hat tip to EDFish)