Using Markets to Make Fisheries Sustainable

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Around the world, over-fishing is leading to severe depletion of valuable fisheries.  This is as true in U.S. coastal waters as it is in many other parts of the world.  In New England waters, for example, after two decades of ever more intensive fishing, the groundfish fishery has essentially collapsed.  But, we are not alone.  According to the United Nations Environment Program, fully 25 percent of fisheries worldwide are in jeopardy of collapse due to over-fishing.  Clearly, something needs to be done.  Yet, what has long been considered the obvious answer – restrictions on fishing – has been shown time and time again to be the wrong answer.  The right answer is enlightened use of markets.

The fundamental cause of the depletion of fish stocks is well known to economists:  virtually all ocean fisheries are “open-access,” that is, fishermen – small operations or large corporations – can fish all they want.  These individuals and companies are no more greedy than the rest of us, but because no one holds title to fish stocks in the open ocean, everyone races to catch as much as possible.  Each fisherman receives the full benefit of aggressive fishing (that is, a larger catch), but none pay the full cost (an imperiled fishery for everyone).  One fisherman’s choices have an effect on other fishermen (of this generation and the next), but in an open-access fishery – unlike a privately-held copper mine, for example – these impacts are not taken into account.  What is individually rational adds up to collective foolishness, as the shared resource is over-exploited.  This is the “tragedy of the commons.”  What to do?

Government intervention is, alas, required.  Fishermen don’t welcome such regulation in their economic sphere any more than anyone else does.  And they have a point.  Conventional regulatory approaches have driven up costs, but not solved the problem.  And we know why.  If the government limits the season, fishermen put out more boats.  If the government limits net size, fishermen use more labor or buy more costly sonar.  Economists call this over-capitalization.  Costs go up for fishermen (as resources are squandered), but pressure on fish stocks is not relieved.

The answer is to adopt in fisheries management the same type of innovative policy that has been used for decades in the realm of pollution  control – tradeable permits, called “Individual Transferable Quotas” ( ITQs) in the fisheries realm.  Sixteen countries – some with economies much more dependent than ours on fishing – have adopted such systems with great success.  New Zealand regulates virtually its entire commercial fishery this way.  It’s had the system in place since 1986, and it’s been a great success, putting a brake on over-fishing and restoring stocks to sustainable levels ­- while increasing fishermen’s profitability!

There are several ITQ systems already in operation in the United States, including for Alaska’s pacific halibut and Virginia’s striped-bass fisheries.  More important, the time is ripe for broader adoption of this innovative approach, because a short-sighted ban imposed by the U.S. Congress on the establishment of new ITQ systems has expired.

The first step in establishing an ITQ system is to establish the “total allowable catch.”  The next step – and a crucial one – is to allocate shares of that total limit to fishermen in individual quotas that are theirs and theirs alone (read:  well-defined property rights).  Setting the individual quotas will not be easy.  The guiding principle should be simple pragmatism – using the allocations to build political support for the system.  Making the quotas transferable eliminates the problem of overcapitalization and increases efficiency, because the least efficient fishing operations find it more profitable to sell their quotas than to exploit them through continued fishing.  If you can’t catch your whole share, you can sell part of your quota to someone else, instead of buying a bigger boat.

In addition, these systems improve safety by reducing incentives for fishermen to go out (or stay out) when weather conditions are dangerous.  And it was just such perverse incentives of conventional fisheries regulation that were blamed for the tragic loss of life when a fishing boat was lost in a storm off the New England coast just a few winters ago.

Further, because ITQ systems eliminate the motivation for government to limit the duration of the fishing season, supplies available to consumers improve in quality.  Prior to the establishment of an ITQ system for Alaskan halibut, for example, the government had reduced the fishing season to just two days, but subsequent to the introduction of the system, the season length grew to more than 200 days.

A decade ago, environmental advocates – led by the Environmental Defense Fund – played a central role in the adoption of the sulfur dioxide allowance trading program that’s cut acid rain by half and saved electricity generators and rate-payers nearly $1 billion annually, compared with conventional approaches.  The time has come for environmentalists to join forces with progressive voices in the fishing industry and in government to set up ITQ systems that can keep fishermen in business while moving fisheries onto sustainable paths.

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9 Responses to Using Markets to Make Fisheries Sustainable

  1. Pingback: Whatever, as long as it works « The Droning Inquisition

  2. Pingback: Using Markets to Fix Markets

  3. Smoke and mirrors says:

    First, what does “total allowable catch” mean if not “restrictions on fishing”? What can ” individual quotas” mean if not “restrictions on fishing”. The use of politically expedient double-talk here is disappointing, coming from an eminent academic figure. Why else go out of your way to say “restrictions bad, markets good” when it’s clear both are part of both the problem and the solution.

    Second, not limiting the duration of the fishing season can have disastrous consequences because of basic biological constraints arising from seasonal breeding patterns (see the case of the Monhegan lobstery). moreover, the article makes it sound as though, by magic, markets can allow 200 days of fishing to be more sustainable than 2 days. More sustainable for short-term fishing livelihoods perhaps. But more ecologically sustainable? That’s preposterous. Stavins, unfortunately, never defines what it is that is being sustained – an all-to-common problem in the field.

    Third, improving economic efficiency does not equate to achieving ecological sustainability – another common misconception that ignores basic principles of system dynamics (ref. Meadows et al.). Again, it falls to “restrictions on fishing” to apply a sufficiency principle and establish ecologically-derived limits within which the market must be bound.

    I can’t help but feel that Stavins is perpetuating the error that Einstein cautioned us against: a problem cannot be solved with the same thinking that created ir. Markets, technology, efficiency and economic growth cannot solve the problems that markets, technology, efficiency and economic growth create, any more than the solution to obesity is to eat MORE. And yet this seems to be the perpetual clarion call among economists whose understanding of sustainability is rooted in business, not ecology.

  4. Why? says:

    Why use a market with government intervention whenever if left alone the market that’s in place will fix the problem anyways? If there are fewer fish, then the price of fish goes up, fisheries go out of business, and consumers substitute with something else until the price of fish comes back down, which would be about the time that the fish become more plentiful. If fisherman have an issue with going out of business, then let them come together to find a solution and then just have the government approve it. The only benefit of allowing the government to set quotas would be that the government would then have a direct impact on the cost of fish to the consumer (read: socialism). The market you propose isn’t a true market at all, and the quota’s value is based solely on the coercive power of government, rather than on actually saving the fish. If this systems intent was on saving fish population, then it would require that you knew the exact population to begin with prior to distributing allowable amounts of fish to fisheries. What if the quota is set to high? It won’t be very effective at saving fish, and if it’s set too low, the fisheries won’t be able to afford staying in business in the first place. That’s an awful lot of power to give to the government if you ask me.

  5. Smoke and mirrors says:

    @ Why? post:

    Your reasoning is based on several flawed assumptions, leading to the erroneous conclusion that markets “will fix the problem” if only we just leave them alone. These errors are commonly made by economists who assume infinite fungibility of all marketable goods while ignoring ecological and biophysical constraints. Here’s an example for illustration:

    Bluefin tuna is highly prized, particularly in the Japanese market. It is extremely rare, and being pushed toward extinction. The market demand for this luxury fish is such that an individual animal can be worth $50,000 or more. It will therefore always profitable to continue fishing, right up to the point when the very last bluefin fish in the ocean is caught and the species is extinct. Indeed, the rarer the fish gets, the more profitable the market will become. It seems very likely this will actually happen in the next decade or two in the absence of regulation. So, how will the market ‘fix’ this problem if left alone? Answer: it won’t. In a classic case of overshoot and collapse, unsustainable growth will reach a tipping point and the system will shift irreversibly to new state – one in which there will never again be bluefin tuna to fish.

    Eocnomists might assume that the fishermen will simply switch to another species. This sort of thing has already happened worldwide in fisheries, especially in the North Atlantic with the collapse of cod about a decade ago. But as species after species collapses, what will happen? Well, the economists chime in cheerfully, the fishermen will simply switch to being farmers or plumbers or something else.

    But what happens to the collapsed ecosystems? They take centuries to recover, if ever, depending on the severity of the damage. Soil erosion, deforestation, desertification, and a host of other ecological and biophysical problems display similar patterns of irreversible collapse.

    It is therefore foolish and irresponsible to assume that markets will simply fix everything if we leave them alone: ecological reality trumps economic ideology every time.

  6. Josh says:

    I’m curious if any studies have been done about longer-term effects on the market, esp. as regards to oligopoly and its subsequent effect upon relaxing total quotas (& other gov’t. pressures).

  7. Josh,
    There has been a significant literature analyzing the performance of itq and other tradeable permit systems in imperfect markets, and a survey of these is underway by Professor Juan Pablo Montero of the Catholic University of Chile. I suggest you ask him for a copy of his working paper. Good luck.
    RS

  8. Its great to see that the US are taking a long term look at the fishing and fish population problems. Here in Europe we have imposed restrictions and quotas on or fishmen but all it has done is make Walmart type fishing fleets with the small fisherman not being allowed to fish.
    Here in Ireland we only have a certain quota for our own waters but now the Spainish have 4 times our quota for our own waters due to european law. So Europe really havent restricted any thing to help the fish stocks they have just given other european countries access to better fishing grounds.

    The US need to be careful with there restrictions and quotas and make sure they are done for the conservation of the fish stocks and not for politics and money.

  9. Tim Smith says:

    Over fishing is a real problem. We need to be careful not to use up our precious resources for generations to come. Good article.

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