Innovation in Alaska Fisheries Management (And Why Innovation Isn’t Always Popular) Gunnar Knapp Professor of Economics Institute of Social and Economic Research University of Alaska Anchorage Prepared for Econ The Economics of Innovation: New Ideas for the Last Frontier University of Alaska Anchorage February 11, 2004

Twelve Questions 1.What is the “tragedy of the commons”? 2.What problem arises with “open access” management of fisheries? 3.What is “limited entry”? 4.How did Alaska fishermen feel about “limited entry” management? 5.What problems arise with “limited entry” management? 6.What does IFQ stand for? 7.How does IFQ management work? 8.When the Alaska halibut IFQ program began, who got the quotas? 9.How did Alaska fishermen feel about IFQ management? 10.What is the Alaska CDQ program? 11.How does the Chignik Co-op work? 12.How do Chignik fishermen feel about the Chignik Co-op?

What is “Fisheries Management”? All the rules that affect who can fish, how they can fish, where they can fish, and how much they can catch Fisheries management has multiple goals: –To protect fishery resources –To promote a profitable fishing industry –To achieve social goals (equitable distribution of benefits, cultural traditions, etc.) Fisheries management is very complicated and difficult because: –There are multiple goals, some of which conflict –Not everyone agrees about the goals –There is lots of scientific uncertainty

THREE TYPES OF FISHERY MANAGEMENT “OPEN ACCESS” MANAGEMENT WITH GEAR, TIME AND AREA RESTRICTIONS LIMITED ENTRY MANAGEMENT ALLOCATION-BASED MANAGEMENT (IFQ’S, CDQ’S AND CO-OPS) Each of these types of fishery management was an “innovation” and arguably a significant improvement over what preceded it. However, each faced significant opposition from fishermen And each led to unanticipated problems.

Why do we need management at all? ADVANTAGES OF NO MANAGEMENT No management costs Maximum personal freedom PROBLEMS WITH NO MANAGEMENT More and more boats enter the fishery Resources are over-fished “Tragedy of the Commons”

1. What is the “tragedy of the commons”? A resource which is owned in common, with no restrictions on individual use, will tend to be over-exploited.

A. “OPEN ACCESS” MANAGEMENT WITH GEAR, TIME AND AREA RESTRICTIONS This was the method of management of most Alaska fisheries until recently. HOW IT WORKS Anyone can fish Managers restrict the total catch by restrictions on how, when and where boats can fish ADVANTAGES Ends over-fishing and protects the resource Fair—anyone can fish PROBLEMS Restrictions impose costs, limit efficiency, and lower market value More and more boats enter the fishery Fisheries become overcapitalized: –Average catches per boat decline –Total costs increase More and more and restrictions are needed over time

What gear restrictions can lead to: Only sailboats were allowed in the Bristol Bay salmon fishery until the 1950s

2. What problem arises with “open access” management of fisheries? If a fishery is “open access,” so that anyone who wants to can go fishing, then even if the government is protecting the resource by limiting the total catch, the fishery will tend to become increasingly inefficient over time. As long as fishing is profitable more and more people will enter the fishery, so that the average catch per fisherman declines, until fishing is no longer profitable. Total costs go up without increasing value.

B. LIMITED ENTRY MANAGEMENT Limited entry was established for Alaska salmon and herring fisheries in 1970s. HOW IT WORKS Only specified permit holders are allowed to fish Managers restrict the total catch by restrictions on how, when and where boats can fish ADVANTAGES Ends over-fishing and protects the resource Limits the number of boats, increasing average profits PROBLEMS Gear time and area restrictions continue to raise costs Because fishermen are competing for fish, they focus on catching fish fast rather than on keeping their costs low or handling the fish well Not “fair” to those without permits

3. What is “limited entry”? Limited entry is the management system adopted for Alaska salmon in the 1970s to deal with the problem of open access—more and more boats coming into the Alaska salmon fishery, so that no one was making any money. With limited entry, a fixed number of “limited entry permits” were created. Only people with these permits were allowed to fish. Someone new entering the fishery has to buy or be given a permit from someone who is leaving. The original permits were given away for free to people with a history of fishing for salmon.

4. How did Alaska fishermen feel about “limited entry” management? Fishermen who got limited permits tended to like it. People who didn’t qualify for permits didn’t like it. Also some people objected philosophically to the concept of limiting access to a public resource.

5. What problems arise with “limited entry” management? Even with a limit on the number of boats, fishermen still have an incentive to invest in bigger and bigger boats so that they can catch a larger share of the resource. But if everyone builds a boat that is twice as fast and twice as expensive, they double their costs without any change in their total value—making the fishery less efficient and less profitable.

One 32’ Bristol Bay Fishing Boat Photograph by Norm Van Vactor

Two 32’ Bristol Bay Fishing Boats Photograph by Norm Van Vactor

This kind of fishery is not focused on efficiency Photograph by Bart Eaton

C. ALLOCATION-BASED MANAGEMENT: INDIVIDUAL FISHING QUOTAS (IFQ’S) COMMUNITY DEVELOPMENT QUOTAS (CDQ’S) HARVESTER COOPERATIVES (CO-OPS) Introduced in several Alaska fisheries during the 1990s HOW IT WORKS Individuals or groups are allocated a specific share of the catch They have much more flexibility in how and when they can fish ADVANTAGES Ends over-fishing and protects the resource Because they are no longer competing for fish, fishermen can focus on keeping their costs low and handling them well Fishermen can time catches to when market demand is high PROBLEMS Not “fair” to those without allocations More difficult to administer and enforce

Allocation-based management systems are very controversial. They offer signficant advantages: –Lower costs –Higher value –Safer fisheries –Increased industry interest in resource protection They bring dramatic change. There are winners and losers. –Allocations aren’t necessarily “fair” –Fewer processors are needed as fishing seasons are extended –Fishermen may deliver to different communities –Social change within fishing communities –Contrary to time-honored traditions of open access

The Alaska Halibut Fishery Before IFQ Management Classic open-access “derby” system Number of participating vessels grew from 1,000 in 1975 to 3,600 in 1983 and about 3,700 by 1993 Season length fell from 150 days in 1970 to 16 days in 1979 and just two one-day openings after the mid-1980s 1994 landings of 44 million pounds (20,000 tons) 1994 ex-vessel value of $84 million

The Alaska Halibut IFQ Program IFQ plan adopted in 1991 after three-year intense debate IFQ program implemented in 1995 Initial allocation of quota share to vessel-owners based on historical landings during “qualifying years” Crew members and hired captains did not receive initial allocations IFQ issued for seven registration areas and four vessel-size categories Numerous restrictions on transfers, leases and consolidation of IFQ holdings IFQ holder must be on board (with certain exceptions)

Distribution of Ownership of 1995 Halibut IFQ

Selected responses to 1995 Post-IFQ Quota Share Holder Survey: What have been the most positive effects of the IFQ program upon your operation? None (9) None to date. Zero, zip, nada, nothing, zilch. I can find no positive effects from the IFQ program. There are none. None. None. NONE!! No positives when your income is radically reduced. I can go fishing when the weather is nice and it’s easy because the [#!##’s] didn’t give me hardly any quota. There is absolutely no positive effects of the IFQ program. It has put me out of the Halibut and Black Cod fisheries.

Selected responses to 1995 Post-IFQ Quota Share Holder Survey: “What have been the most negative effects of the IFQ program upon your operation?” None (11) Zero. It’s been good. None. Even though I didn’t get as much fish as hoped for I was very happy with the program. No negative effects. None I can see as yet. None that I see. No negative effects on our fishing operation. I can think of none. None, except having to release fish when we catch too many.

Factors Affecting Attitudes Towards IFQs Attitudes towards IFQs were clearly related to initial allocation. – Fishermen who received little or no initial allocation tended to have negative attitudes towards IFQs. –Fishermen who received large volumes of initial allocation tended to have positive attitudes towards IFQs. Other factors associated with positive attitudes included vessel ownership, larger boats, larger volumes harvested, purchase of IFQ, and expectation of financial gain.

6. What does IFQ stand for? “Individual Fishing Quota”

7. How does IFQ management work? Each fisherman gets a specific quota (technically, a percentage of the total quota). She is only allowed to catch that many fish—and no more. Now she has an incentive to find the cheapest way possible to catch the fish, and to catch them at the time when the price is highest. This results in a lower cost and a higher value. Fishermen can buy and sell quota, which is essentially a right to catch fish.

8. When the Alaska halibut IFQ program began, who got the quotas? They were given away for free in proportion to how much halibut people had caught in the past.

9. How did Alaska fishermen feel about IFQ management? Those who got large quotas tended to like it a lot. They felt it made fishing more profitable, and safer, and more relaxed, and more businesslike. Those who got small quotas or no quotas tended to dislike it a lot. They felt it was very unfair.

10. What is the Alaska CDQ program? The “Community Development Quota” program gives a 10% share of most of the Bering Sea fish harvests to “CDQ groups” which are groups of villages along the coast of the Bering Sea. They sell these quota rights to large fishing companies. The CDQ program has brought tens of millions of dollars annually into rural Native communities of western Alaska, allowing them to benefit from the fisheries.

11. How does the Chignik Salmon Co-op work? In the Chignik salmon fishery, the Alaska Board of Fisheries allocated a share of the total Chignik salmon catch to fishermen that wanted to work together as a co-op. 77 out of 100 permit holders joined the co-op and have pooled their efforts so that they catch their share of the catch using just 20 boats—greatly reducing their costs, and also allowing them to increase the quality and value of their fish.

12. How do Chignik fishermen feel about the Chignik Co-op? The permit holders are bitterly divided about the Co-op. Many of those who joined feel it has been a great thing for them, allowing them to make a little money from a fishery where they had been losing money. Many of those who tended to catch more fish than average argue that they have been hurt by the co-op, because the co-op shares profits equally—and the share of the fish left over for those who don’t join doesn’t allow them to catch as much as they would have formerly. Also many co-op opponents feel that it is wrong to allow permit holders to benefit from a fishery when they aren’t actually fishing.

The management of Alaska fisheries has been evolving from open access towards allocation-based management. In general, those fisheries with catch allocations are those that are doing best economically. But catch allocations have been very controversial. They are the subject of intense debate in Alaska and elsewhere. 1. No Management (until early 1900s) 2. Open Access (since early 1900s) 3. Limited Entry (Salmon and Herring, 1970s) 4. Allocation-Based Management Individual Fishing Quotas (Halibut and Sablefish, 1995) Community Development Quotas (Bering Sea fisheries, 1990) Cooperatives (Pollock, 1999) Cooperatives (Chignik Salmon, 2002) Individual Fishing Quotas (Crab, 2004)