Fishing technology and rent dissipating Anders Skonhoft Dep. of Economics NTNU

1.Introduction FAO statistics: –9% of the world fish stocks are depleted –18% overexploited –47% fully exploited –21% moderately exploited Average for the world. Much more dramatic in traditional fishing grounds (e.g. EU coastal waters)

Reasons –Institutional structure Both within nations External factors (straddling stocks, migration, etc.) –Valuable fish stocks More valuable stock: always higher exploitation pressure –Highly efficient fishing technology

More efficient fishing technology –Individual beneficiary (at least in the short term) –Collectively disaster; depressed fish stocks as well as depressed profitability for the industry as a whole ??? –Short-term vs. long-term –Institutional structure of pivotal importance

In general: More efficient production, new products: The well-known riving forces behind increased material welfare. Pioneering studies: Solow(1956), Abramovitz (1956): 75% of productivity growth due to technological improvement (TFP growth) Confirmed by numerous later studies with much better data Also sector studies, i.e., agriculture. –Much of the same picture, see, e.g., Hayami and Ruttan 1985

In what follows: –Technological change/efficiency improvement in a fishery. –Stylized model/reasoning within the institutional structure of ‘unregulated common property type’. In many fisheries (not at least in developing countries, and in large inland fisheries) still the prevailing management scheme –What happens when fishing technology becomes more efficient? Stock, harvest, rent… –What type of remedies?? Changing institutional structure? Input control?

2.Some evidence Post-war period rapid progress in fishing technology –Larger boats –Better equipped –New synthetic materials –New finding equipment and techniques –Etc, etc…

Dramatic reduction in number of fishermen (in Norway and elsewhere) Capital stock fluctuating… Catch fluctuating Total factor productivity growth (TFP) Norway: 0.8% per year ( ) (Hannesson 2006) Correcting for lower fish stocks: Higher

But large problems with these calculations!! But the broad picture clear

3.Technological change and the regulated fishery Basic insight from the Gordon-Schaefer model (sole owner equilibrium fishery), or PV-rent maximizing (social planner model) of more efficient harvesting technology: –More effort use –Smaller stock (but no problems….Xmsy, or..) –Larger rent So everything works well!! More efficient technology is an unmixed bless

Gordon-Schäfer model Stock TC TR Xmey

4. The unregulated fishery Many fisheries still exploited in an unregulated manner (remember: few regulations (at least quota setting) in any fisheries until the beginning of the 1980’s) ‘Open-access’ model has served as a benchmark for many years (e.g., Gordon 1954, Homans and Wilen 1997). Stylized model: Total rent dissipating. Means: zero-rent for an efficient as well as an inefficient technology. New capacity (vessels) flows in and out.

Here a more general approach: The fishermen are exploiting a fish stock in a myopic profit maximizing manner. Myopic exploitation (…short sighted and neglecting the future…) and no value is imposed on the stock (zero shadow price) Widely used exploitation scheme. Baland and Platteau (1996): ‘unregulated common property’. See also e.g., Bromley (1991). Not only in fisheries; grazing exploitation (i.e., Saami reindeer herding), wildlife exploitation, etc. Important feature: The number of fishermen (or capacity) fixed; local common, no entry), but lack of norms, regulations, etc.

Model: –Population growth –Catch function q ‘catchability coefficent’. Technology parameter (‘TFP’) –The fishermen aims to maximisze short-run profit

h: Contingent upon cost/price ratio, scale properties…and harvesting efficiency (q) Non-linear first order difference equation. Possible oscillations and unstability, but harvesting stabilizes (cf. May 1976). Possible expansion path:

Fish stock expansion paths

Rent (profitability) expansion paths

What is going on here? –More efficient technology means smaller fish stock in the short-term as well as the long-term –More efficient technology yields highest rent in the short-term, but lowest in the long-term –The dynamic system will for realistic parameter values (intrinsic growth rate of the fish, etc.) settle down an equilibrium where total harvest=natural growth

Long-term equilibrium results: –Stock size, harvest,… and rent depending on harvesting efficiency (q)

Equilibrium rent and efficiency Efficiency q Rent

Improved technology/efficiency mixed bless!! It may increase as well dissipate the rent. Remarkable result. Remember improved efficiency is assumed to be cost free (‘manna from heaven’). The myopic nature of the fishery drives the result, but also externalities. The theory of the second best (Lipsey and Lancaster 1956)

Rent, efficiency and number of harvesters n2 n1 n2>n1 Efficiency q Rent

Rent, efficiency and value of harvest p2 p1 p2>p1 Efficiency q Rent

5. Conclusion Simple model with stylized institutional structure But holds in many instances. –Fisheries in developing countries –Open seas fisheries –Quasi-regulated fisheries (quota cheating, etc.) Myopic exploitation instead of long-term considerations Then new technology mixed bless! New technology a possible disaster in the long-term.