Forholdet mellem regulator (prinsipal) og fiskere (agent) Niels Vestergaard Centre for Fisheries & Aquaculture Management & Economics (FAME) University of Southern Denmark

“Information critical for efficient management may be hard to centralize, or be asymmetric (people have different information), leading to inefficent management. Broadly viewed, natural resource problems are problems arising from incomplete and asymmetric information combined with incomplete, inconsistent, or unenforced property rights” (Hanna, Folke and Maler 1996)

Bergen conference 1997: Annual discards of commercial species in the North Sea fisheries is at least 1/3 of the catches Herring, mackerel and cod stocks are depleted Sole, plaice, haddock and saithe stocks are close to their lowest recorded levels The present control system has limited effect and does not prevent misreporting

North Sea cod: fishing mortality

Another illustration Fra ACFM rapporten om torsk i Kattegat (2004): The TAC is implemented by period rations for individual vessels. Ration sizes have been low in recent years and may have created incentives to discard (high-grade). As ration size has been higher in the Western Baltic there have been incentives for writing Kattegat catches into the Western Baltic. The recovery plan, agreed in 2004, stipulates strict rules for carrying and landing cod in Kattegat. Discards are not included in the assessments, and their magnitude is unknown. Essential assessment data (70% of landings) are only available from Denmark for 2003.

Observations Monitoring actual fishing practice is impossible due to the characteristic of the fish stock and hence control is incomplete Regulator therefore often lacks information, either information which the fishermen have or information which is due to uncertainty As a result regulation often fail to fulfil its goals

Observations #2 As a response, either the current regulation can be refined or the focus is changed towards correcting the control policy. However, the design of the management scheme can change substantial if the regulator decides to take the information problem explicitly into account.

The importance of uncertainty and asymmetric information UncertaintyAsymmetric information Stock sizeImportantNot important Natural growthImportantNot important CatchesNot importantImportant Cost functionNot importantImportant Output pricesImportantNot important Effort Not importantImportant

Asymmetric Information Fishermen is better informed about a variable or a function than regulator (society). Standard instruments can not be used. The concepts moral hazard and adverse selection become important. The principal-agent approach can be used, setting up an incentive scheme.

Catches: Moral Hazard Illegal landings and discard as a moral hazard problem that arises under quantity regulation, because individual catches are unobservable. Using the Segerson approach from nonpoint source (NPS) pollution, a tax scheme can be designed to secure optimal individual catches using stock size as the tax base.

The Mechanism T i (x) =t i (x* – x) where: x is the observable actual size of the fish stock. x* is the optimal stock size. T i (x) is the tax function for fishermen i. t i is the tax/subsidy rate, which can vary between fishermen.

Society problem Max  (E(ph i – c i (x, h i ))) x, h 1,..h n s.t. G(x) –  E(h i ) = 0 where: G(x) is the natural growth rate. It is assumed that G´(x) > 0 for x x MSY. E is an expectation operator.

Fisherman behavior Max ph i – c i (x, h i ) – (T i (x)) h i s.t. x = N i (h i, h -i ) N i (h i, h -i ) is an expression for how fisherman i perceives that the stock size is influenced by catches. h -I are catches for all fishermen than fisherman i.

Fisherman behavior Max ph i – c i (N i (h i, h -i ), h i ) – (t i x* - t i N i (h i, h -i ) hi The first-order condition with Cournot-Nash expectations is: p –  c i /  N i  N i /  h i -  c i /  h i + t i  N i /  h i = 0

Optimal Tax Structure The first-order condition for society is: p = E(  c i /  h i ) + E(  c i /  x + Σ -i  c j /  x) Alignment of the first-order conditions gives: t i = Q/(  N i /  h i ) where Q = the marginal social benefit of catches beyond optimal catches (Q<0).

Catches: Moral Hazard Individual variable tax rates: Trawlers between 50 GT and 199 GT

Discussion Lump-sum transfer back to the industry Information requirements –Individual biological response function Fishermen react to the stock tax Alternative to control policy or quota policy The analysis is a steady state analyse

Costs: Adverse Selection Society tries to collect private information about the cost function. It is possible, throughout inclusion of incentive compatibility restrictions in principal-agent analysis, to design a tax or subsidy mechanism that secures correct revelation of cost types. The price of correcting two market failures with only one policy instrument is that some inefficiency must be accepted. In other words, a second-best optimum is reached.

Costs: Adverse Selection #2 The inefficiency arises as an information rent that is given to the most efficient types in order to give these types an incentive to reveal themselves. Because of the resource constraint the standard Principle-Agent result do not hold for fisheries, the low cost agent must be allowed a higher effort level than under full information.

Costs: Instrument choice (result) With asymmetric information about cost, it can be shown that the so-called Weitzman result holds for a schooling fishery but not for a search fishery. The reason for this result is that there is interaction in the cost function between stock size and catches in a search fishery.

Costs: Instrument choice #1 Fisheries economics: Taxes or ITQs With regard to ITQs (property rights) it is often argued that they are expensive to implement. Purpose of the paper: Are taxes better than ITQs under imperfect information? The pollution control literature: Taxes and transferable permits are not equivalent under imperfect information. A classical article is Weitzman (1974).

Costs: Instrument choice #2 The result in Weitzman (1974): is the relative advantage of price over quantity regulation. is the variance of the error in marginal costs. C´´ is the curvature of the total cost function. B´´ is the curvature of the benefit function.

Costs: Instrument choice #3 Four conclusions: Under full information it does not matter if taxes and transferable permits is used It does not matter for the choice between price and quantity regulation if there is imperfect information about benefit If there is imperfect information about costs price regulation is preferred over quantity regulation, if the marginal cost function is steeper than the marginal benefit function Transferable permits are preferred over taxes if the marginal benefit function is steeper than the marginal cost function.

Costs: Instrument choice #4 Assumptions: The fishing fleet is homogeneous and entry and exit can be excluded The fishermen disregards the resource restriction Long run economic yield is maximised Steady-state is assumed q is aggregated catches, x is stock size and p is the price C(q, x) is the cost function, B(q) is the revenue function and F(x) is the natural growth.

Costs: Instrument choice #5 Assuming a schooling fishery, i.e. C(q,  ) or Assuming a schooling fishery with search cost, i.e. an additive separable cost function C(q,  ) + C(x), the Weitzman result can be generalized to fisheries But for a search fishery C(q, x,  ) is it not possible to generalized, hence impossible to say anything about the instrument choice

Costs: Instrument choice #6 For schooling fisheries, taxes are preferred over ITQs, if the marginal cost function is steeper than the marginal revenue function. That there is room for using taxes as an instrument is a fishery policy recommendation that can be drawn from the analysis.

Conclusions By introducing asymmetric information in the analysis of fishery policy, it is possible to analyse fishery problems in practice related to illegal landings and discards. New types of policy schemes are developed, incentives contracts, which are menus of different taxes (multiple market failures).

Conclusions #2 As many fisheries operate with licenses, introducing such contracts could be straightforward. However, more empirical work is needed and development of more realistic teoretical models are also needed.