25 February 2007

Sometimes There Are Simple Answers

If you follow this sort of thing, then you've noticed that one of the hottest policy/environmental/economic questions at the moment has to do with our fisheries, bad regulation and the tragedy of the commons. I assume that you're all familiar with the tragedy of the commons, which teaches us that a scarce resource that is simply there for the taking will be overexploited. In Coasian terms, in the absence of clear property rights, the resource will not move to its highest value use. As a result, we will as a society suffer a dead-weight economic loss.

The fisheries are a perfect example of a common resource that is not exploited optimally rationally because of perverse "tragic" incentives. [A reader makes the good point that the fishermen are acting rationally, given the incentives they face. In this circumstance, however, the unclear property right scheme insures that the resource is not being exploited optimally.] Whoever gets to a fish first, gets that fish and all the gain associated with it. Whoever gets there second (metaphorically) gets nothing. Fisherman therefore feel like they must get the most first, or get nothing. Fish are overfished and a valuable resource is misused. If one person owns a resource, she considers (among other things) its value today versus its value tomorrow. Since she is assured, for economic purposes, of realizing that future value, she will conserve the resource if doing so makes economic sense. She will protect the resource from theft and other depredation and she will reap the benefits of a social utility maximizing exploitation strategy.

If fisheries are commons, on the other hand, fish will just be eaten as fast as they can be caught, because no one can be sure that they will be the ones to profit in the future. As a result, we end up with too much fish on the market, effecting the supply of other foodstuffs that are underexploited. Also, fishing technology is pushed to capture as many fish as possible as fast as possible, whereas a wealth maximizing strategy might allow more differentiation between individual fish (small versus large or young versus old). When the push to take first, fast and completely has resulted in sufficiently advanced technologies, the fisheries start to decline and the resource is wasted.

In steps the government. I am no expert on fishery regulation, but it seems that the government has gone about its work in just about the worst way possible. Regulators have capped the total annual harvest from endangered fisheries except where the fishery has been entirely closed. As a result, the full cost of regulation has fallen on the fishing industry, which was only responding to the incentives it faced. Even worse, where a cap was introduced, the quota was filled on a first come first served basis. Catches were tallied against the cap as they came in and when the annual cap was reached, the fishery was closed. In other words, the government took the worst aspect of the tragedy of the commons -- the incentive to take the most fish first -- and made it even worse. Also, there is some evidence that, by taking steps to protect younger fish at the expense of older fish, on the theory that younger fish would breed more than older fish, the government was exactly wrong. Older fish are survivors who are ready to breed now. Younger fish might well be eaten before they are ready to start breeding sometime in the future. In short, regulation seems to have been a fiasco. As we all know, though, the government only has one response to failed regulation: new and more elaborate regulation.

This is particularly exasperating because there is an obvious, cost-free, permanent solution to this problem. The tragedy of the commons is that they are held in common. There is no single owner of the fisheries with the incentive, derived from clear and secure property rights, to impose a value maximizing exploitation strategy. The obvious solution, therefore, is to give the fisheries to a single owner. Each fishery could have its own owner, or they could all have a single owner. The owner could be chosen almost at random (I think that the fisheries should be given to me, since I came up with the idea) but the best solution would be to auction them off. No one is more serious about maximizing the value of a resource than someone who has just put up a lot of money. The only owner who is right out is any entity set up to hold the fisheries in trust for the peoples of the world. A regulatory bureaucracy by any other name would be as incompetent as the government.

Now, think about what it says about government, about us, that this easy, effective, cheap (indeed, potentially revenue raising) solution is absolutely politically impossible.

11 comments:

Susan's Husband said...

Alternatively, the government could set the allowed catch and auction off shares of the right to catch that many fish, if people are really wedded to some sort of government control. This would work best if the shares were permanent and transferrable. That would create incentives to lower the total allowed catch now to raise it to a higher sustainable rate later, because there would be an enforcement mechanism to see that everyone obeyed the lower limit.

Mike Beversluis said...

Um... who's going to tell the Japanese that they cannot fish in international waters?

David said...

Mike: I can only help one nation at a time. But you bring up a good point about international law and its uselessness.

Susan's Husband said...

I suspect Japan is simply reacting to the Tragedy of the Commons. I strongly believe that should Japan be presented with an enforceable system along these lines, they'd agree.

Susan's Husband said...

Dang, forget to add — are there any fisheries that aren't within 200 miles of someone's coast line?

Duck said...

Great post, David. Your proposal makes total sense, which is why it would never make its way into law. People who should be for privatization, like environmentalists, worship the commons as some throwback to some free, uncommercialized state of nature. Leftists abbhor anything that helps big business, even when it preserves natural resources and promotes jobs.

And who can be against the hardy family fisherman, who comes from a multi-generational fishing tradition of going out to see to test his manhood and provide for his family? He's as iconic as the family farmer who couldn't compete with the industrial farms of the big food corporations. If you've seen any episodes of the Discovery series "Deadliest Catch" you can't help but admire them, at the same time that you wonder if these are the most masochistic people on the planet.

We just can't keep the commons open for the sake of the little guy anymore. We'd be doing the world, and the little guy, a big favor by privatizing the critical resources of the planet.

Hey Skipper said...

David:

That is the best, most succinct, description of the Tragedy of the Commons I have seen in a long time, if ever.

John Resnick said...

David: Thought provoking indeed. I think the FTL question from last month will prove easier to answer.

[self ref alert] I spent a summer in college on a 300' mid-water catcher/processor fishing for pollock in the Bearing Sea. Supposedly, that summer was the first year in pollock regulation history that the Bearing Sea quota [for US-based companies, mind you] was reached. When you're grinding 16onx8off for 30days at a time for a tiny % of total catch, seeing the Russian, Japanese and Scandinavian ships on your horizon flaunting the rules is most infuriating – particularly when the forthcoming fall term wasn’t paid for. By the way, that was nearly 20 years ago and pollock is as available as ever at the supermarket. [anecdotal, I know]

The idea of absolute ownership is intriguing and curiously simple. But isn't the current regulatory body essentially the de-facto owner at this point since they make/enforce all the rules as to access, etc? Is it the lack of profit motive or absence of true market forces that makes the current "owner" incapable of realizing a fishery’s highest value. Or is it the fact that administrating something so vast and complex is infinitely complicated such that they’re hopelessly bogged in an inescapable [albeit self-created] bureaucracy? Wouldn’t any owner be?

Suggesting an owner would own a single species or specific fishery seems equally problematic A mid-water net capable of hauling back 20 tons of fish at a time doesn’t discriminate fish species very well. We had several issues to deal with, chief among them:. 1) fish that were too small to be run thru the on-board processing machines 2) fish that were NOT the designated species [ling cod, salmon, sharks, rock fish and all sorts of other stuff were commonly caught along with the intended catch. The rules [such as they were] dictated what must be done in each of those scenarios. And, yes, unfortunately, one of the mandated answers was returning what would be perfectly good fish [now dead due to the stress of the net, processing, etc.] to the sea as fish/gull food. In your scenario, I’ve caught “your” fish on my boat. Now what?

Don’t get me wrong. I’m fascinated by the idea. Just trying to figure out how it would work practically.

David said...

John: First, let me protest against the unfairness of bringing actual knowledge to bear on these questions. Everything is simpler without relevant knowledge.

Second, I think there are two answers. The first is that current fishing technology has been developed, over centuries, by the imperative to get the most first. If fisherman were assured of catching their limit, or that they could harvest tomorrow the fruits of what they invest today, fishing technology might be entirely different.

The second answer is that our not having exact answers as to how this would work is a bug of the system we're replacing. When resources are in private hands, owners and non-owners have an incentive to think about new solutions and come up with new answers. (Non-owners because they can buy the resource or sell the idea.)

This is what is wrong with any sort of government or ngo board holding the fisheries in trust. In real life, we all know that a trustee won't make as good use of resources as an owner -- nor should they since trustees should necessarily be more risk averse. Bureaucrats, no matter who pays them, won't even be asking the right questions.

john resnick said...

David: your complaint is duly noted and filed appropriately with the helpful folks at the DSB complaint office.

And, believe me, intellectually I'm with you. Just trying to hash thru it. [and I'll admit to thinking out loud here which means these aren't fully formed or fortified thots]. I’m a firm private property / efficient markets believer.

Shifting the entire ownership structure, while it would certainly decrease the natural tendency to catch all and as fast as you can, wouldn't assure fisherman of catching their limit. Nothing can do that -- there are too many other variables out of their control. Part of what’s at issue here is where to focus energy on the commodity’s supply chain. Currently, as non-owners, the “pre-catch” fisheries management decisions are left to governing bodies. So, certainly, they could shift some of their focus from viewing the supply chain as beginning at what’s in the net to what’s in the sea.

Even so, it’s not like planting seedlings in a newly harvested clear cut or raising cattle on leased government range land. Take salmon for example. Here in the NW it’s a never-ending battle between the commercial guys on the coast, the Native tribes, the recreational anglers, the hydro-electric power generating networks/agencies and, of course, our friends the Environmentalists™. So it seems part of the trade-off in the absence of a profit motive driven owner is at least the pretense of impartiality. If I can make more money and have more control over “my” commodity by telling the Indians they can’t have exclusive rights to gill net in the Columbia River anymore, why wouldn’t I? [and, yes, I know asking more questions is proving your second point].

You’re right though in the end. To say that government and bureaucrats is the very best answer we could come up with is indeed a sad conclusion to reach.

David said...

John: But now we really are in Coasian territory. If the property rights are clear and alienable, then it doesn't matter who we give ownership to in the first instance. The person with the highest value use will find a way to get the resource.