1. Topic 3 Fisheries Management Part 1 Theory Lecture Notes By Ragnar Arnason Secretariat of the Pacific Community Coastal Fisheries Policy and Planning Course, 28/01/08 – 8/02/08, Apia, Samoa

2. Orientation Have completed:  Policy: What is it and how to formulate it  Legal framework: Constraints and obligations  Fundamental elements of fisheries economics Today (and for the rest of the course) :  Fisheries management and its application to the South Pacific fisheries Begin by basic fisheries management theory

3. Lecture 1 Fisheries Management: Introduction The institutional framework under which the fishing activity operates This may be set by (a)Social custom and tradition (b)The government (the fisheries authority) (c)The association of fishermen (d)Other means It may be explicit or implicit

4. An appropriate FMR Without an appropriate FMS, no long term profits With an approirpirate FMS realtively high profits $ Effort Poor management Good management

5. FMR: Main components Fisheries management system, FMS Monitoring, control & surveillance, MCS Fisheries judicial system, FJS All links in the same chain Interdependent Each must be designed w.r.t. the others

6. Methods for Fisheries Management: Fisheries Management Systems Biological fisheries management Economic fisheries management Direct Taxes Indirect Property rights

7. Equations Sustainable fisheries model G(x)-y = y = Y(e,x) = e  x c = C(e) = c  e 2 Dynamic fisheries model

8. Lecture 2.A Biological Fisheries Management Purpose: Increase the biological yield of the resource Methods: Protect young fish, spawners and habitat Common measures – TAC – Area closures – Seasonal closures – Gear restrictions – Pollution restrictions

9. Biological Fisheries Management: Effects Value, $ OSY CSY Effort, e The Sustainable Fisheries Model The Dynamic Fisheries Model Biomass, x Effort, e OSY CSY So, little or no long term gains Gains along adjustment path Note also the cost of management Loss Profits

10. Lecture 2.B Direct Economic Restrictions Purpose: Enhance the economic yield from the resource Method: Constrain fishing effort and capital Common measures: – Limited fishing effort (days at sea, fishing etc.) – Capital restrictions (vessel size, power, shape, type, equipment) – Investment restrictions – Gear restrictions (number, size, type)

11. Direct Economic Restrictions: Effects Value, $ OSY CSY Effort, e The Sustainable Fisheries Model The Dynamic Fisheries Model Biomass, x Effort, e OSY =CSY So, little or no long term gains Losses along adjustment path Note distortive effect Note also the cost of management Loss Profits

12. Lecture 3 Taxation Purpose: Obtain economic rents Method: Induce industry to reduce effort (in a wide sense) by making it less profitable Variants: – Tax on the volume of landings – Tax on the value of landings – Tax on inputs [Not recommended because of substitution effects] Note: Nowhere used as a fisheries management method

13. Effects of Taxes (on landings) Value, $ OSY = CSY CSY Effort, e The Sustainable Fisheries Model The Dynamic Fisheries Model Biomass, x Effort, e So, Long term gains equal to taxation revenue Private losses along adjustment path Remember the cost of management Loss Profits Tax

14. Lecture 4 Property Rights Purpose: Obtain economic rents Method: reduce or eliminate the common property externality => private incentives coincide with public objectives Variants: – Licences – Sole ownership – Turfs – IQs/ITQs – Communal property rights

15. Property Rights Regimes: Effects Value, $ OSY CSY Effort, e The Sustainable Fisheries Model Property right value So, long term gains equal to property right value Private gains along adjustment path Remember the cost of management The Dynamic Fisheries Model Biomass, x Effort, e e =0 x = 0.. Competitive Optimal

16. Property Rights (cont.) The above theory applies to all property rights regimes – Sole owner rights – Territorial use rights (TURFS) – Individual Quotas – Community rights However, the efficiency of the regime depends on the quality of the rights The higher the quality of the property right the more efficient the fishery

17. Quality of Property Rights Many important attributes The following are often quoted – Quality of Title (security) – Exclusivity – Permanence (durability) – Transferability

18. Property Rights Attributes: A Representation Transferability Security Permanence Exclusivity

19. Security Exclusivity Permanence Transferability Actual property right Perfect property right

20. Some ITQ property rights Security Exclusivity Permanence Transferability New Zealand Iceland 1 1 1 1 Norway

21. Q-measures of property rights QQ

22. Results of three ITQ systems

23. Lecture 5 ITQ-systems Shares in TAC (much superior to quantity quotas) Annual quota for firm i: q(i)=a(i)  TAC The q(i), being a property right, will be fished in the most efficient manner If the a(i) is a permanent asset the firm can plan and will adjust its capital structure to fit. Nota Bene: The ITQ is not a property right in what really counts; the fish stocks themselves. – Unlike e.g. a farm property right – No stock enhancement, genetic improvements, feeding, spawning assistance etc. will be undertaken by individual ITQ holders

24. ITQ markets and prices There will arise a market and a price for both q(i) and a(i). (Why?) These prices will faithfully reflect the marginal benefits of using (and holding) these quotas. (Why?) Price of q(i) will be approximately marginal variable costs of using these annual quotas. (Why?) Price of a(i) will approximately equal the expected present value of using the expected quotas for fishing. (Just as the value of any productive asset) It follows that the price of a(i) will provide a measure of the appropriateness of the TAC-policy.

25. Fisheries management under ITQs The fisheries authority just has to – Set the TAC – Enforce the property rights But setting the TAC correctly requires immense biological and economic information. (Basically everything about the fishery)

26. Minimum information management, MIMS Quota values, resource rents Total allowable catch, TAC

27. MIMS in the multispecies Context Total Quota, TAC Quota price Positive (i.e., fishery) Negative (i.e., stock enhancement) Unprofitable stock enhancement (subsidized releases) Profitable stock enhancement (ocean ranching) Unprofitable fishery (subsidized removal of predators/competitors) Profitable fishery (Commercial fishery)

28. Lecture 6 Community fishing rights Setting: A group of people (N  1) with property rights => they have a degree of common interest.

29. Can they manage themselves well? N=1, easy N>1, more difficult => need to bargain, negotiate etc. Fundamentally a bargaining game Nature of problem: – Must agree on procedures (voting, majority etc.) – Must talk – Must reach a conclusion Some formal framework (legal) may help

30. Available theorems If each group member’s benefits increase with total benefits he will support the common good. That happens e.g. in limited companies (i.e. in principle)

31. Advantages of self-management Vested interest in good management => (a) Good decisions (b) Minimum cost management Have much of the best information The government does not have to be involved

32. Fisheries management systems: Summary Only indirect economic methods work The most promising are: – Property rights Sole ownership Turfs (where applicable) ITQs (where applicable) Communal rights – Taxes Taxes on landings Taxes on the value of landings

33. Lecture 7 Monitoring, Control and Surveillance Data monitoring (monitoring and surveillance) – Gather data on the fishery and fishery operations for the purpose of management (landings, days at sea, fishing costs etc.) Enforcement monitoring (monitoring and control) – Detect violations of fishery rules – Induce correct behaviour – Reporting violations (citing)

34. Data gathering monitoring 1. Biological monitoring (for biological research, stock assessment etc.) – Examination of landed catch – Records of fishing behaviour (location, timing, gear, log-books, observers) – Field trips on research vessels, – Oceanographic research – Climate research – Modelling and prediction These activities are usually shared between the marine research agency and the enforcement agency

35. 2. Economic monitoring (economic research, costs and prices) – Study of fishing company accounts, – prices, – technology – fleet developments – fishing effort by gear and vessel type – harvesting functions, – cost functions These activities are usually carried out by an economic or fisheries economics research agency

36. The economic monitoring is a very important function. Without it: (a)the TAC and other management measures cannot be set optimally. (b) Progress in fisheries management cannot be judged. Nevertheless, this function is often underdeveloped compared to the biological research function. Best carried out by a special office or institute Note: With fisheries self-management centralized data monitoring is no longer necessary

37. Enforcement monitoring Different fisheries management systems employ different controls. => Different enforcement monitoring is needed for different fishereis management systems

38. 1. Biological fisheries management TAC: monitoring of landings (at landing sites) and catch (at sea) Area restrictions: monitoring of fishing locations (at sea, remote sensing, log books, black boxes) Seasonal closures: monitoring of vessels in ports, monitoring of vessels at sea (observation, remote, log books), monitoring of landings (off season species in the catch) etc. Gear restrictions: monitoring of gear (at sea and on land) Fish size restrictions: monitoring of landings and catch

39. 2. Direct economic restrictions Effort restrictions: monitor effort (days at sea, fishing time, vessel size and power, gear size etc.) Investment restrictions: monitor investments (vessel registry, vessel inspection, shipyards, import level, equipment certification) Vessel size and power restrictions: (see investment restrictions) Gear restrictions: (see biological fisheries management) Other restrictions: monitoring depends on the type of restriction

40. 3. Taxes Taxes on the volume of landings: monitor landings Taxes on the value of landings: monitor volume and price of landings Taxes on inputs: monitor the purchase and use of inputs. Tax on exports: Is it a good idea? May be in some cases.

41. 4. Property rights Licences: monitor fleets, check for licences (mostly in port) Sole ownership: not much monitoring is needed. (The owner will do it himself) Turfs: usually not much monitoring is needed. (The adjacent owners will do it themselves) Individual quotas: monitor catches (as landings in ports or (better) as harvests at sea or as volume in processing and trades; impose periodic (daily) harvest reporting requirements) Community or group rights: monitor adherence to the rights (areas, quotas etc.)

42. Note very well! The effort to monitor the various restrictions varies a great deal and, consequently the cost as well. Taxes on landings and some property rights systems (sole ownerships and turfs) are probably the easiest to monitor

43. Lecture 8 The cost of MCS Very significant Available estimates suggests between 3-25% of the gross value of landings (with a mean of some 8%). The most important cost items are: (i) Biological research (ii) Enforcement This high cost should affect: – The optimal fisheries policy – The choice of a fisheries management system

44. MCS costs (especially enforcement) Effort E comp MCS costs

45. Impact of MCS costs on the optimal fisheries policy Costs without MCS Costs with MCS Effort E*E**

46. Impact of MCS costs on the optimal fisheries policy -Very high management costs- Costs without MCS Costs with MCS Effort E*E**

47. Optimizing the MCS activity High costs => important to do MCS correctly and efficiently The problem is to minimize MCS costs subject to a desired level of MCS Note that there is a trade of between MCS costs and management regime effectiveness (The more MCS => the higher MCS costs => the more effective the FMR)

48. The optimal MCS level MCS activity $ MCS* Marginal cost Marginal benefits

49. So to determine the optimal MCS we need: An estimate of the MCS cost function (marginal costs) An estimate of the benefits of MCS (marginal benefits) These may be difficult to obtain!

50. Monitoring and enforcement technology At land and on sea Dockside monitoring On-board observers MCS vessels and airplanes Remote sensing (satellite, radar, reporting) Automatic recordings (black boxes) The paper trail method Optimal investment in MCS technology (cost-benefit studies)

51. Who should pay? Governments are subject to various problems of inefficiency including rent seeking: Only box IV is likely to be reasonably efficient

52. The principle for efficiency is that those that benefit should pay! This seems to recommend self-management

53. Lecture 9 Fisheries Judicial System; FJS Purpose (a)Process alleged violations (b) Apply sanctions as appropriate A key component of the FMR => Important to devise the appropriate FJS

54. The simple theory of crime Basic Axiom: Violations will occur if their expected value to the perpetrators is positive

55. Benefits of Crime Violations Profits Violations Marginal Profits Total Marginal

56. Costs of Crime Violations Marginal expected penalties Violations Expected penalties Total Marginal

57. The greater the benefits and lower the expected costs the more violations Violations $ Marginal $ Violations

58. More details: Expected value:  i x(i)  p(i), x(i) = outcome i, p(i) = probability of outcome I Expected value of a violation, V(z): Let z be a violation Let  (z) be the (expected) profits from the violation Let C(z) be the expected penalty for committing the violation => V(z)=  (z)-C(z)

59. Example of C(z) C(z)= p1 (discovered  z)  p2 (guilty  discovered)  p3 (penalty  guilty)  penalty  p*  penalty Expected costs of violations Arithmetic of probabilities => So basically p* will not be large in most cases!!

60. V(z)=  (z)-C(z) C(z)=p*  penalty But p* is usually very low => penalty will have to be high to make V(z) negative

61. To get few violations Low benefits of violations (i.e. unrestrictive rules) High probability of a penalty for violations (i.e. high p* this requires a high probability of detection and therefore high MCS costs) High penalties (This can substitute for high p*, i.e. high MCS costs)

62. The design of the FJS (1) In accordance with the theory of crime (2)Legal basis should make it sufficiently easy to convict – Clear, operative definiton of violations – A clear stipulation of the burden of proof (3)Effective processing of alleged violations – Administrative fines, special courts – Speedy processing.