Market strategy for fisheries?

[vladimir]

From the Economist:

Economies of scales

BEFORE 1995 the annual fishing season for Alaskan halibut lasted all of three days. Whatever the weather, come hell or—literally—high water, fishermen would be out on those few days trying to catch as much halibut as they could. Those that were lucky enough to make it home alive, or without serious injury, found that the price of halibut had collapsed because the market was flooded.

Like most other fisheries in the world, Alaska’s halibut fishery was overexploited—despite the efforts of managers. Across the oceans, fishermen are caught up in a “race to fish” their quotas, a race that has had tragic, and environmentally disastrous, consequences over many decades. But in 1995 Alaska’s halibut fishermen decided to privatise their fishery by dividing up the annual quota into “catch shares” that were owned, in perpetuity, by each fisherman. It changed everything.



Bream of sunlight
Despite their salty independence, even fishermen respond to market incentives. In the halibut fishery the change in incentives that came from ownership led to a dramatic shift in behaviour. Today the halibut season lasts eight months and fishermen can make more by landing fish when the price is high. Where mariners’ only thought was once to catch fish before the next man, they now want to catch fewer fish than they are allowed to—because conservation increases the value of the fishery and their share in it. The combined value of their quota has increased by 67%, to $492m.

Sadly, most of the rest of the world’s fisheries are still embroiled in a damaging race for fish that is robbing the seas of their wealth. Overfished populations are small, and so they yield a small catch or even go extinct. Yet the powerful logic in favour of market-based mechanisms has been ignored, partly because the evidence has largely been anecdotal. Now a study of the world’s 121 fisheries managed by individual transferable quotas (ITQs), one form of market-based mechanism, has shown that they are dramatically healthier than the rest of the world’s fisheries (see article). The ITQ system halves the chance of a fishery collapsing.

By giving fishermen a long-term interest in the health of the fishery, ITQs have transformed fishermen from rapacious predators into stewards and policemen of the resource. The tragedy of the commons is resolved when individuals own a defined (and guaranteed) share of a resource, a share that they can trade. This means that they can increase the amount of fish they catch not by using brute strength and fishing effort, but by buying additional shares or improving the fishery’s health and hence increasing its overall size.

There are plenty of practical difficulties to overcome. In theory, for instance, you should allocate shares through auctions. But if fishermen do not agree to a new system, it will not work. So fishermen are typically just given their shares—which can lead to bitter, politicised arguments. In Australia, a pioneer in ITQs, a breakthrough came when independent allocation panels were set up to advise the fishing agencies, chaired by retired judges advised by fishing experts. The next test will come in November, when two large American Pacific fisheries decide whether to accept market management.

ITQs, and other market mechanisms, are not a replacement for government regulation—indeed they must work within a well regulated system. And they will not work everywhere. Attempts to use ITQs in international waters have failed, because it is too easy for cheats to take fish and weaker regulations mean there are no on-board observers to keep boats honest. And ITQs will not work in slow-growing fisheries, where fishermen may make more money by fishing the stock to extinction than they ever would by waiting for the fish to mature. But in most of the world’s fisheries, market mechanisms would create richer fishermen and more fish.

There was a time when fishermen were seen as the last hunter-gatherers—pitting their wits against the elements by pursuing their quarry on the last frontier on Earth. Those days are gone. Every corner of the ocean has been scoured using high technology developed for waging wars on land. Politicians and governments still seek to cope with fishermen’s poverty by subsidising their boats or their fuel—which only accelerates the decline. Instead governments should promote property-rights-based fisheries. If fishermen know what’s good for them—and their fish—they will jump on board.