International (fisheries) agreements and game theory

Why is international fisheries management important? What are the major international agreements governing the exploitation of marine fisheries? An example of failure How can game theory help in explaining and predicting the behaviour of countries?

International agreements: characteristics Countries negotiate on exploitation of common environmental & natural resources Negotiations slow, countries or groups of countries may later find it optimal to deviate from the agreements Disagreements on the size of environmental and natural resources Lead even to military conflicts

List of International Environmental Agreements London Convention on the Protection of Wild Fauna in Africa (1900; never ratified) International Convention for the Regulation of Whaling (1946) Convention for the Prevention of Pollution of the Sea by Oil (1954) Antarctic Treaty (1959) Treaty Banning Nuclear Weapon Tests in the Atmosphere, in Outer Space and Under Water (1963) Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space (1967)

List of IEAs Continuing Convention on International Trade in Endangered Species (CITES) (1973) International Tropical Timber Agreement (1983; renegotiated in 1994) Vienna Convention for the Protection of the Ozone Layer (1985) Framework Convention on Climate Change (1992) Convention on Biological Diversity (1992) International Conference on Population and Development (1994) International Convention to Combat Desertification (1994)

Overexploitation of fish stocks historical records from 1600’s resources are scarce, negative externalities harvesting technologies have developed in the 1960’s important food source and industry for many countries Consequences: international conflicts, decreased economic value of fisheries

Law of the sea convention 1982 Established the Exclusive Economic Zones (EEZ) for the coastal states (200 nautical miles from the coastline) 90 % of the marine fish stocks are found inside the EEZs Fisheries disputes remained 1992 UN Conference on Environment and Development, Rio 1992

Transboundary Fish Stocks EEZ 1 EEZ 2 SH = Shared fish stocks STR = Straddling (and highly migratory) fish stocks EEZ = Exclusive Economic Zone

UN Conference on Straddling and Highly Migratory Fish Stocks 1993-95 Attempt to establish property rights for the remaining 10 % of marine fisheries Suggests cooperation through regional fisheries organisations What are the optimal structures of these organisations?

Example: the Norwegian spring-spawning herring One of the most valuable fish stocks in the world Stock was depleted in 1970’s due to intensive harvesting Migratory pattern changed Fishing moratorium was declared for almost 20 years

Collapse! Norwegian spring-spawning herring 9 x 10 14 12 10 8 Spawning stock biomass (kg) 6 Collapse! 4 2 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Time

Fisheries economics and game theory Rational countries maximise their net present value from harvesting for given strategies of other countries Equilibrium where unilateral deviation not optimal Cooperation vs. non-cooperation

Nash solutions to the fishery games Non-cooperative, Clark 1980: Every fishing nation harvests at maximum effort until it is no longer profitable. At this equilibrium the stock is below the optimum of the most efficient country - “tragedy of the commons” Cooperative, Kaitala & Pohjola 1988: The surplus benefits from cooperation are equally divided between the fishing nations. Thus the countries in a three-player game receive their threat point payoff + a third from the benefits generated by cooperation

Coalitional games If countries can form coalitions with each other the solution of the game may be changed The bargaining strength is then also defined by the coalitions Stability of coalitions Coalitional free-riding vs. individual free-riding

Bioeconomic modelling: from open access to full cooperation

Agenda Bioeconomic = biological models + economic models National vs International fisheries management International: non-cooperation vs. cooperation

Bioeconomic modelling National level: Fishermen exploit a common fish stock, say herring. Biological model predicts the development of the stock without any economic activities  natural equilibrium For economic analysis production function is needed, how the resource is harvested h = Ex Further, we need prices to build objective functions for the agents interested in harvesting the stock  economic equilibrium International level: Countries exploit a common fish stock

International cooperation: how to share benefits Assume an agreement is reached for the two countries. Then the question remains how they should allocate cooperative benefits A further question arises whether they find the agreement satisfactory on this path. In practice countries negotiate on TACs (Total Allowable Catch) After receiving the national TAC they still need to implement national management (open access, TAC, ITQ (Individual Transferable Quotas), ITE (Individual Transferable Effort) Shapley, Nash barg

Game theory and fisheries Countries exploit common fish stocks Strategic incentives to subsidise the national fleet and create overcapacity  biological and economic inefficiency Game theory helps to explain the reasons and find ways to reach sustainable agreements

Schäfer-Gordon model Gordon (Journal of Political Economy 1954), Schäfer (1957), Scott (JPE 1955)

Biology Logistic growth F(x) Biomass x

Logistic function R: intrinsic growth rate x: fish stock K: carrying capacity of the ecosystem

Production Harvest function: E: Fishing effort q: Catchability

Sustainability F(x) = h Steady state

Steady state fish stock Graafisesti!

Steady state harvest Insert steady state stock into production function : Graafisesti

Economics Assumptions: Fish price per kg constant Unit cost of effort c constant (constant marginal cost). Note marginal revenue not constant.

Optimum Maximise economic yield by choosing E. max FOC: (7) Graafisesti!

Comparative statics dE/dR > 0 dE/dK > 0 dE/dc < 0 dE/dp > 0 dE/dq ?

Open access Unregulated fishing. E.g. no international fisheries agreement. Fishers (countries) enter into the fishery until profits (rent) is equal to zero.

Open access effort