1. International (fisheries) agreements and game theory

2. 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?

3. 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

4. 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)

5. 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)

6. 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

7. 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

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

9. 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?

10. 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

11. Collapse! Norwegian spring-spawning herring9
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

12. 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

13. 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

14. 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

15. Bioeconomic modelling: from open access to full cooperation

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

17. 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

18. 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

19. 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

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

21. Biology
Logistic growth F(x)
Biomass x

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

23. Production
Harvest function:
E: Fishing effort
q: Catchability

24. Sustainability
F(x) = h
Steady state

25. Steady state fish stock
Graafisesti!

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

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

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

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

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

31. Open access effort