THEORY AND PRACTICE

Introducing Property in Fishery Management - A. Scott
Property Rights as a Means of Economic Organization - R. Arnason
Selection of a Property Rights Management System - L. G. Anderson
Resistance to Changes in Property Rights or, why not ITQs? - B. J. Mccay
Current Property Rights Systems in Fisheries Management - R. Shotton
Group and Community-based Fishing Rights - R. Willmann

Introducing Property in Fishery Management - A. Scott

University of British Columbia, Department of Economics, 2329 West Mall
Vancouver BC, V6T 124 Canada
<adscott@interchange.ubc.ca>

1. INTRODUCTION

This lead-off presentation briefly sketches the historical emergence of property rights from ancient open-access to modern licensed regulatory regimes. It then outlines what property rights mean from an economic point of view, with special emphasis on their characteristics: especially duration, exclusivity, and transferability. Permits and licences are seen as property rights that are weak and have little of these characteristics. The evolution of individual transferable quotas (ITQs) is shown as the development of the old system of licences, with more of the valuable characteristics added. This provides the basis for other lectures in the series and in a final section I show how the property-like ITQs can be the building-blocks for voluntary fisherman self-regulation and cooperation.

Many of the points referred to here are taken up in other presentations. There is indeed a great deal of healthy overlap. If what is presented here seems unclear or wrong, perhaps the other approaches will correct, or confirm, these impressions.

To keep the discussion as simple as possible, I focus on an offshore fishery concerned with a single, valuable species of fish. I assume at first that the fishery is neglected by the administrators and later becomes subject to various regulations. I acknowledge that many of the most important fisheries are found along the beach or close inshore, so that complications to my approach would arise. I also acknowledge that in many of the most important fisheries, more than one species are caught together, and I find some space to discuss the role of ITQs in this most difficult of managerial problems. Then, I return to a simplified one-species offshore version and introduce ITQs, combining many of the features of the old system of regulation in support of a total allowable catch (TAC) for the season with features of a system of property rights in land.

Other assumptions will be obvious. I say almost nothing about the managerial complications of divided international powers over fisheries, that may be shared because of stock migration or by the position of an international boundary. ITQs would be useful there too, but there is not enough space to discuss multi-national fisheries.

I have two apologies. First, I write about fishermen when it would be more appropriate today to use the word fishers. Second, I have tried to avoid writing like a cheerleader for property rights in the fishery. As the lead-presentation, I have tried to build on how fishermen and governments have behaved and what they have revaled that they want. Fishermen have given little thought to the losses of the rest of the economy arising in the wasteful and costly ways that competing fishermen have been induced to adopt. Here too I have steered away from these problems of general economic efficiency within and beyond each fishery. I have not dealt with the use of fishing effort in separate fisheries at different seasons, or with the lives of fishing people who divide their time between fishing and other occupations. The system of transferable property rights can be very important to them, but I leave these opportunities to other lecturers.

2. A LITTLE HISTORY OF OFFSHORE AND OCEAN FISHERIES

2.1 The open fishery

In the old days, when offshore fish stocks were large and fishing fleets were small, there was no call for either private ownership or government regulation. As well, private ownership of fisheries was effectively banned by the English king and his barons in the Magna Carta, in the 13^th century. This action was followed by hundreds of years of free fishing in English waters.

In the waters of other countries, somewhat similar arrangements prevailed. As a result, within most European countries, both inshore waters and the adjoining high seas were regarded as “common property” of all those who wanted to fish. Between countries, however, foreign fishermen were sometimes excluded. Exclusion policies required policing and regulation. They reflected an economic protectionism. Their regulations were not to preserve the fishstocks, but to preserve the local markets for the local fishermen.

Indeed, the kind of fishstock specific, biological regulation known today was absent in nearly every ocean-type fishery until the 19^th century. Until then, as far as I know, the main fisheries in all the seven seas were free, open-access and unregulated.

As the growing cities provided increasing markets for both fresh and salted fish, more and larger vessels put to sea for longer periods. Offshore and distant-water ocean fisheries expanded steadily over many centuries. But for long the fishstocks were so large and robust that the expanded fishing hardly affected the catches. That is why the occasional “fish war” was not for possession of dwindling fish stocks - they were not dwindling. The fish wars were fought to capture, for one country’s vessels, both monopoly positions over the richest markets and possession of places for vessels to winter or to dry fish.

However, by the mid-19^th century, ocean fishing activity had expanded to a dangerous level and each year's fishing left the stock a little smaller than the year before. Although fishing costs per ton began to rise, the world’s markets were willing to pay these higher costs and expansion continued. The world’s offshore fishermen began to realize that they were directly competing with each other for the catch. As they competed, their hours at sea, and the dangers of winter fishing, all rose. Gradually they began to “race” each other, installing more powerful gear, larger vessels, and planned to spend more days at sea for a given catch. These competitive responses to the scarcity of each fish stock raised their costs further. Some fishermen began to fill their holds with fish they would have rejected a generation earlier: fish that were undersized or belonging to other less valuable species. That was the position of most of the offshore and ocean fisheries on both sides of the Atlantic toward the beginning of this century. Some inshore fisheries were closed to foreigners. There was only a 3-mile limit, and beyond it the open-access of the high seas. There was little or no government regulation of fisheries for biological reasons. Table 1 illustrates this evolution of property rights in fisheries.

Fishermen argued that the declining catches were someone’s fault. They pressurised government to ban the foreigners and the part-time fishers. When that did not help, they wanted government to ban some ways of fishing: some types of vessel; kinds of gear, some seasons, or some sizes of fish. Governments obligingly banned some of these things, resulting in shorter seasons, larger net-meshes, and so on. At first governments had no real theory about how these bans were supposed to help - but that did not matter much because at that time governments had no way of enforcing their bans anyway. At the same time, some governments invested in hatcheries for demersal species, especially plaice. They had no real theory about how a few million eggs would restore the main sea fisheries. So these random regulations and random hatchery operations made little difference.

2.2 The coming of regulation

In the last decades of the century governments’ advice began to come not only from perturbed fishermen, but also from scientists. Starting with fresh-water fisheries, then with inshore fish, and salmon, knowledge spread about spawning, migratory behaviour, age structures and so on until there was some confidence that regulations, applied to some species of fish, might actually conserve the stocks and increase the catches.

Today, regulations based on biological theories can be found everywhere. Two main types are applied to offshore fishing. One is gear control, usually prevention of the use of nets with small mesh, of certain kinds of trawls, and of large powerful types and sizes of vessel. The other is the closed fishing season which is a common technique.

At first the chief purpose of regulation was to help the reproduction of large fish. To do this, the fishery tended to be run so as to allow the escape of spawning and under-sized fish. When this proved inadequate, steps were taken to regulate and reduce the total amount of fishing effort with which a stock came in contact. First seasons became shorter, then the total size and fishing power of the fleet was controlled and reduced. To do this, the number of fishermen was limited and the fishing licence, at first merely a part of the administrative and enforcement system, became a sort of proof of a personal fishing right, akin to a deed.

No other sector or occupation has been so subject to control and regulation. Fishermen agreed to them because, while they argued about the means, they agreed with the purpose. They knew that individual fishermen could not be expected to restrain themselves. This is what is called an open-access situation, one where the individual fisherman, acting alone, has no incentive to do what would benefit the group as a whole.

But the regulatory regimes, as other presentations will show, had serious disadvantages. Fishermen, government administrators, biologists and academics, began to look for a better way. It was agreed that compulsion was necessary. No individual will, by himself, voluntarily fish less or use less destructive gears, for he would be pretty sure that he would not get a full share of whatever benefit resulted. As this year’s Nobel Prize winner, Amartya Sen, insisted years ago, people in the fishermen’s position want what he called assurance. They will make sacrifices for future gain, agreeing to a smaller catch, or fishing under frustrating regulations, if they are assured that everyone else must do the same. All the same, no other sector of the economy was so tangled up in changing, ad hoc regulations. When it was found in the 1960s that regulatory techniques could not stop more vessel owners from applying more and more fishing capacity, two new types of control were suggested.

One was a royalty. It was well-known, from people’s response to prices, excise taxes and customs tariffs, that the less the suppliers got paid, the less they produced. The idea was that, applied to the fishery, the higher a royalty on landed fish, the less the fleet would catch and land. But this idea was resisted. Fishermen preferred coping with the kinds of regulations with which they were familiar than figuring out how much fishing to do every day, to keep on the profitable side of a price plus tax. The idea made administrators uneasy: they had been trained to think about changing openings during the season, when their information about stocks changed. It was hard to picture these persons changing prices or taxes, taking cross-pricing of other species into account. Consequently the royalty alternative has never taken hold.

The other new idea was restricting access. There had always been a few observers who recommended that since regulation had become necessary, because of the over-fishing made possible by open access, the obvious policy was to close access to the fishery. There were a number of ways of doing this.

Table 1: Historical evolution of property rights in fisheries.

	1000 AD	1215 Magna Carta	1600 Grotius	1750 Naval powers	1900 Exhaustibility	1960s	1990s
Inland
Pond	Stock right	Stock right
River	Catch right	Catch right				Regulated
Tidal
River	Catch	Free		Free	Regulated	Regulated & licensed
Inshore	Catch	Free		Free	Some regulated	Regulated & licensed	ITQ
Offshore	Catch	Free	“None”	Free	No regulation	Regulated & licensed	ITQ
National sovereignty		Declared	“None”	3-mile limit		12 to 50 non limit	200 (EEZ) non limit
				Treaty Waters		Fishery Treaties	Fishery treaties
				“Open seas”			Law of the Sea

The one chosen in many fisheries was limited licensing. To start, the number of licence-holders who could fish a particular stock was fixed. Then ways were tried to reduce this number. But, as you know, this simple idea was defeated when it was found to give the remaining licence-holders an incentive to “stuff” their vessels with more and more equipment, capacity, and size. The administrators’ regulatory problem was still there.

There were a number of ways to fix this. Most of them involved putting a limit both on the number of licences and on the permitted inputs (effort) available to each licensee. In Iceland in the 1970s, for example, there was a limit on the number of hours during which each licence holder (each vessel) could fish. In other places there was a limit on the size of the licensed vessel, or its horsepower, or perhaps the number of traps or nets that it could carry (for an inshore fishery). In 1984 in Australia’s northern prawn fishery (also “inshore”), a composite gear or input unit evolved. These were all improvements on simple limited licensing, and versions of them are still being refined. But in offshore fishing they still involved each licensee racing for the catch, and searching for ways around the limits. Each vessel wanted to beat the other vessels and beat the regulators too.

A second approach was to pursue a territorial approach. In one variant the control of the fishery is assigned to one person, or group, be it a corporation, cooperative or community. Control by a group can go beyond co-management by local fishers and government, to something like ownership. The approach is geographical or spatial - it treats the fishery and its environment as though they were a lake or a piece of land. It has been especially advocated for fisheries that are inshore, in shallow water, and most actual examples, which are traditional fisheries, are inshore and lagoon situations.

A third approach is my subject here. It involves extending regulation by catch and open season to regulation by setting of a catch quota. Instead of limiting the amount of capital or effort for a fixed number of vessels, it simply limited the catch per vessel. It emerged by trial and error in Iceland, and as a privatizing expedient in New Zealand. For many fisheries, it removed all or nearly all the wasteful and costly incentives at one stroke. For these fisheries, there was no longer any reason to spend money on ever more elaborate vessels or equipment.

Between 1979 and 1999, catch regulation for selected species and stocks was updated by adoption of quotas. By far the most serious initial policy problem was the transition: who should get quotas, how large should they be and at what price? The usual answer, as is apparent from other presentations, has been “grandfathering”. This is a procedure in which each licensee’s future quota, as a percentage of the TAC, is based on his average catch in past years as a percentage of the total catch at that time (while this sounds simple, in the pioneering systems it had to be modified to take account of recent local events, such as when various complementary fisheries were open, preventing a fisherman’s participation in both). Further, its actual introduction revealed many hardship and special cases, and occupied the time of many administrators for many, many, months.

Another expected problem was that of enforcement. In the past, the closing of a body of water had been easy to monitor, for any transgressor was clearly visible to all. But under quotas, there would be no closures. Instead each fisherman’s actual cumulative catch had to be compared with his own and his rented quotas. Some complicated systems of inspecting and auditing licensees’ catches in relation to their quotas had to be devised, both at sea and at the dock. Experience has permitted some of these complex systems to be simplified.

Much more can be said about the development of regulation by quotas. The chief advantages were that the incentives to race and to over-investment and capital stuffing were greatly reduced. This saved the fishermen money and made the job of the fish managers easier. It further brought about the possibility of deferring catch when market prices were low or when other fisheries were not, and enabled the catch to be taken when prices were high and when fishermen and their vessels were free.

My chief point is that improving regulation was still the purpose. In each country the originators had their own local reasons for going over to catch quotas. They did not think they were introducing a revolution. They expected that, as with previous types of regulation, there would still be administrators, inspectors and watchers, and biologists calculating official TACs. As far as I can see, the public servants and the biologists never regarded the licences of the time as a kind of property, and so did not consider that they were inserting more of the characteristics of property into fishery management.

3. INTRODUCING PROPERTY

3.1 What property in the ocean means

While it is sometimes said that some fishery “belongs to” or is “reserved to” particular users, we know that this does not reflect any individual property right. The truth is that, compared to, say, farming, under most systems of law individual ownership in the fishery is rare. A good common-sense explanation of this was given by Hugo Grotius, a great international lawyer and a philosopher. His 17^th century explanation relied on his observation of the two conditions for holding property in a thing. First, he said someone had to have the power to appropriate the thing and hold it in possession against others. Second, he said the thing had to be scarce and exhaustible, so that it was worth-while going to the trouble of holding it as property.

Taken together, his two conditions help to explain why fresh-water fisheries, in rivers, lakes are often private property. First, fresh-water fish populations have long been exhaustible. Second, it is possible to fence out poachers and trespassers. The two conditions also lead to a prediction that many tidal inshore and beach fisheries will be private: the shellfish and so on are scarce and exhaustible, and it is sometimes feasible to exclude outsiders.

These two conditions are usually not satisfied in offshore or ocean fisheries. In Grotius’ time, there were lots of fish for everyone, and anyway, it was not feasible for most countries to exclude outsiders and foreigners. Grotius made much of this. He asserted that because neither condition was satisfied, there could be no private property, and no national sovereignty, on the high seas. His assertion, appealing to reason and natural law, became enshrined in international law as the “freedom of the seas.”

Grotius’s two conditions also correctly predicted that until this century in most systems of law the swimming, uncaptured fish could not be subject to ownership. A stock of fish offshore is not analogous to a herd of domestic animals, exhaustible but subject to fencing. It is analogous to a population of wildlife or of birds, that shifts from place to place. Till recently such a population was thought to be proof against depletion by hunting. Anyway, a person who claimed to own wildlife was unable to enforce his claim against others Therefore the English common law, like other systems, says that wild animals and wild fish (even fish reared in a hatchery) cannot be subject to property law until they have been caught and brought into the possession of the landowner, hunter or fisherman. This reasoning lies behind the common-law origin of the current “law of capture”. Possibly a person may own a fishery as a place, but that person may not own any of the wild fish in it until they have been brought into private possession, alive or dead.

As a matter of fact, the medieval monarchs did try to enforce their personal ownership of some wild creatures: sturgeons especially, but also whales. But at that time either one or the other of Grotius’s two conditions was not satisfied, so it was predictable that the monarchs would not be able to enforce their ownership claims for long. Today, as we shall see, Grotius’s two conditions may now be satisfied. There are some private rights to land fish, and these can sometimes be interpreted as ownership of the fish even before they are captured. Fishing rights in Iceland and New Zealand are good examples.

3.2 What powers has the holder of a property right?

In brief, these powers were three-fold and can be found provided for in any system of law regarding property in land or water: (a) power to use the thing (or manage it); (b) power to dispose of it (to sell it or grant it); and (c) power to take its yield (e.g. as a crop, rent or royalty).

Consider the fisherman in his role as the owner of a fishing vessel. He has all three powers over it: he can run it, sell it and take the profit from doing these things. But now consider the same fisherman in his role as occupier of the fishery itself. This role does not give him powers to manage it or dispose of it. All he has is the third power, the law of capture: the power to take and keep the fish he catches. The absence of the first two powers deprives him of any incentive to look after the fishery.

To illustrate, if he were the kind of fisherman who tried to manage and exploit the fishery with care and prudence, he would not be rewarded. Although his care might have made the fishery more valuable, he would never have the powers needed to capture this extra value. His efforts would have a near-zero yield to him. That is why, lacking the necessary ownership powers, almost everyone in an offshore fishery finds it not worth while to look after it.

4. THE CHARACTERISTICS OF PROPERTY RIGHTS

4.1 Measurement of rights

Actually, in any system of property law, there is a range of the names of the rights that an individual may hold over a piece of land or a body of water. In common-law countries, for example, he may hold an easement or a lease over a piece of land, or he may hold all powers over it, as a freehold owner. The holder of a lease typically has more powers over the land than the holder of an easement, and the holder of a freehold has more powers than either of them. In other countries, there will be a similar range of kinds of property right.

It is commonly said that a freehold right is “complete”, while the other two rights are incomplete or deficient. “Completeness” is a poor way to order them or classify them, but it has the grain of the quantitative idea. If instead we think of all property rights as being made up of characteristics, then we can say that the differences between the rights is in the amounts of each characteristic that comprise them. Understanding these characteristics is helpful in itself. It gives an insight into what makes a particular property right suitable for the functions it performs.

Before turning to the fishery, consider a simple example. A person drives into a private parking lot and is given a ticket, or a check. The ticket is evidence of a licence. Like an easement and a lease, a licence is a type of right over land. It is a rather primitive kind of right, with little of the usual standard characteristics. Consequently, it gives the holder, the driver, few powers. He cannot grant the parking right to anyone else, nor choose how his part of the lot is to be used. A licence to park can be considered a feeble property right having almost none of the characteristics of the right that is held by the owner of the lot.

A fishing licence is much like a parking licence. It gives the fisherman a right of access to the resource and to do something there. To understand this here, it is essential to realize that an administrative fishing licence or permit as a kind of property right, one that had few of the characteristics of a right and that therefore offered few of the powers of right ownership.

4.2 A short survey of characteristics

What are the characteristics of a property right? To survey them, consider the right that a farmer has over his land. Any holder of this right to land gets the benefit of four different and potent characteristics. These characteristics are not abstract, they are tangible and conceptually measurable. (Note that the three powers that ownership gives to the holder of a property right are not the same as the five or six characteristics, or dimensions, of a property right. The powers can be likened to the outputs of a property right; while its characteristics are more like its inputs).

The first characteristic is exclusivity, the freedom from interference by a holder of his enjoyment of his right. The more legal interference, the less exclusive the right. Every kind of property right has some exclusivity, but none is completely exclusive. Consider a right to fish. The question to ask is, to what extent must the rightholder take into account the actions and decisions of his neigbours? If his right is like that of a fishfarmer over a pond, it may be highly exclusive. If however it is like that of an Atlantic cod fisherman beyond the 200 mile line, it has little exclusivity.

After exclusivity, the second characteristic is duration the length of time the holder’s powers may be enjoyed. A right can be exclusive, yet have a very short duration, like a three-month’s rental of a house. Many open-access ocean fishery rights lack other characteristics, but they effectively have a long duration; even permanence. Other fishery rights, such as licences and permits have a short duration. What counts here is the effective total duration after automatic renewals have been taken into account.

The third characteristic is security (or quality of title). Most holders obtained their rights by grant from an earlier right-owner. Since owners may not grant what they do not own, the question arises about how good the prior owner’s title was. Much of so-called property law is devoted to resolving or preventing disputes about who has the better property title to a piece of land. But a grant is not the only way of getting a good and secure title. Under some systems of law, especially in a new territory, being the first user or appropriator entitles one to become the owner. Sometimes one can get title by just squatting on a piece of private, but unused, land. And one can get a right to use land, or to do something on it, by recourse to contracting with the owner, or even by paying him to disregard his rights to stop you from creating pollution or some other nuisance. All these procedures may once have been traditional or customary, but have since been improved by registration arrangements, checked by the courts, and subjected to legislation. But since all persons’ land titles have some possible flaws, every right-holder faces some risk that their ownership may be challenged by someone else. Low security in a title works like uncertainty in fishing: potential buyers tend to deduct a “risk premium” from what they are willing to pay to get it.

The final characteristic discussed here is transferability. In the past there was little need for ocean and offshore fishing rights to be transferable. They were not exclusive - anyone who wanted one could get it for almost nothing from the government. Why bother buying from a holder? But when offshore rights became more exclusive, transferability was wanted (it may also be called assignability, marketability or exchangeability). All degrees of transferability are possible. On land, most freehold rights are highly transferable and most leases are transferable with the permission of the landlord. But there are exceptions - some landlords will not allow their tenants to sub-let a house. In the fishery, when licences were just part of the system of biological regulation, licences were usually personal, and not transferable. It rarely mattered, for in those days anyone could get his own licence.

4.3 Why each characteristic of a right is desirable to the right-holder

When people acquire property, they may be able to choose the kind of property right they will hold: a leasehold, or a freehold for example. Up to a point, they can choose the right with the characteristics they want. Generally speaking, the more of all characteristics a right has, the more it is valued and the more it costs.

Duration is valued because it allows the right holder to get the pay-off in later years from the investments he has made in the earlier years. Indeed, if a right’s duration is short, and is not necessarily renewable, the holder will avoid any long-run improvements or investments. In a fishery, it encourages the right-holder to make costly changes in the size and age structure of the fishstock that may result in larger and more profitable catches even if there must be an extended waiting period.

Exclusivity is valued because it protects the right-holder from interference with the fishstock and with fish catching. In a fishery, we have seen that the low exclusivity of the average fisherman’s licence forces him to compete, every time out, with other vessels for his usual share of the catch.

Quality of title is valued because it saves the right-holder from the costs of protecting and enforcing his rights to be fishing. In most public fisheries, the fisherman’s right is secure; but he may be surprised by new arrangements and regulations that in effect arbitrarily reduce the characteristics of his right.

Transferability is valued because it allows the holder to make the best use of his time and capital, by selling his right if he so wishes.

Some analysts add other useful or essential characteristics, such as flexibility, enforceability and divisibility to this list of four, but they are not needed in this discussion.

When a person's property right is said to be “complete” or perfect it means that the right can be shown to have all these four characteristics, each one to the fullest possible extent. Now apply all this to the right of a fisherman over the fishery. Of the four characteristics of a property right, we find that his public right of fishing has: no exclusivity; long, but meaningless, duration; great security, for what it is worth; no transferability.

Thus, to put all these ideas together, to be like a farmer's ownership rights to manage, dispose and profit from his land, the fisherman's public right of fishing must be changed. His right must have more of two characteristics: exclusivity and transferability.

4.4 “Standard” types of real property rights

There are many types of standard property interest in land are recognised today. A freehold or fee-simple right for example is rich in all four characteristics. A leasehold can be much the same, but with a shorter duration. A licence can be like a lease, but with little or no exclusivity or transferability. The unfamiliar profit-à-prendre allows the holder to take something from another's land or water, while the similar easement allows its holder to do something on another's land or water. Both these can be transferable and exclusive. All are very old, traditional, common-law types of ownership interest in land. Over the centuries they have been adapted for new purposes by their holders and these have been assimilated into the rights by repeated exposure in the courts. Owners have gone to the courts to resolve disputes about who owns a right to property, and what ownership entitles them to do with it. The court's decisions have gradually changed the characteristics of the various rights. For example, the holder of a lease originally had security against encroachment by his landlord, but not much security when others tried to dispossess him. Today, thanks to refinement in the common-law courts, the title of a leaseholder is good against all the world.

Other types of property right in land are quite modern and have been deliberately created by acts of the legislature. An interesting example is the strata-title condominium, an ownership right with carefully-limited exclusivity and transferability. It was created by Australian and Canadian legislatures to replace clumsier ways by which occupants could “own” their space in an apartment building. A third type of property right in land, has been created by the legislature as part of its land-disposal and resource-management policies. Examples are the mineral patent (freehold), Crown grant, lease and claim. Governmental legislatures have also created a number of other resource-using grants, permits, leases, licences, reserves, titles and so on. All these have many of the characteristics of property rights, such as exclusivity transferability and duration even when not advertised as “property”.

The government’s offshore and ocean fishing licence was different again. It arose out of administrative laws, not land-disposal laws. Thus it can perhaps be likened more correctly to a dog licence or a building licence. One reason was that governments had not “owned” the offshore fishery resource in the same sense that they owned the inshore shallows and the public lands. They could not by licensing an offshore fisherman, give him all the three powers of ownership for they had not all the powers themselves.

5. VIEWING THE ITQ AS A PROPERTY RIGHT

5.1 Background

Earlier (Section 2.2), I pointed out that ITQs were introduced to improve the existing licensing systems. There was little idea of creating a property right, or of giving the old “right” additional characteristics. In Section 4, I regard the licence as a potential right and will compare its characteristics with those of the ITQ.

5.2 Behaviour in a fishery without exclusivity

Under closures and equipment regulation, the fishermen’s licence had little or no exclusivity. There were no boundaries across the fishstock and so no connection between a vessel’s impact on the fishery today and its own part of the total catch a few seasons later. Both the good things and the bad things the vessel did while fishing were so dissipated over the entire fishery that it had no incentive to worry about them. This changed a little when limited licensing started, and again when each vessel’s licence gave it powers over a limited part of the stock. But these modifications hardly changed the licence-holder’s perfectly reasonable belief that his actions had no perceptible effect on his future catch. The stock was not his. Therefore he had little personal incentive to obey the regulations or to help to improve them. For the most part, the system forced him to adapt. First, he must adapt to the regulations by competing relentlessly within the open seasons, using the permitted equipment; and second, he must adapt the regulations to the competitive struggle by avoiding them when he could and negotiating to get them changed in his favour when he couldn’t.

5.3 How ITQs gave the fisherman more of the powers of ownership

The added exclusivity characteristic of the quota licence changed his behaviour. From having to act as though he were a tolerated poacher, it gave him some powers to act as though he were an owner. There are three general powers of ownership: to manage the asset, to transfer or sell it, and to take the income from it. The ITQ certainly gave the fisherman the third power. Instead of merely allowing him to go out and compete with others until the TAC was reached, it entitled him to a definite fixed percentage of the TAC - that is to the yield itself. The fishermen, as a group, had been given the third power of ownership. By it they collectively acquired something like a profit à prendre in common, a standard property right in land. Each fisherman had a fixed share of this yield, and so he possessed the third power of ownership.

The duration and security characteristics of the ITQ also gave the holder the second power of ownership: management. As for short-run management of the harvest, it gave him the power of deciding when and where to land his fish, and for what market. No longer were regulatory closures needed that governed when all fishermen must land and sell their catch. As for long-run management of the size and composition of the future fishstock, it happens that there is no other way to ensure it than by varying the size and composition of earlier catches. And, under ITQs, these earlier catches belong to the quota holders. Thus there is a direct, though fractional, link between what a quota-holder takes from the stock today, and what will be available for him to take in future years. Therefore, subject to regulation, each quota-holder has a modest ownership power over management. Of course, these powers of management are divided among the holders in proportion to the quota shares, so it is difficult for them actively to manage. Nevertheless under quotas it is a greater power, and opportunity, than under regulation.

What about the first power of ownership: of transferring and bequeathing it? At first, in Iceland and New Zealand, the quota licence was not transferrable. It was not clear what its originators had in mind. However, with a few years’ experience fishermen applied pressure to make their quota licences permanent, and transferable. It was easy to see why. Permanence gives the quota holder opportunity to act more like a farmer. He can develop markets for fish landed at particular times and of a particular quality. He can acquire vessels and equipment adapted to fishing for smaller amounts over a longer period of time, without cut-throat racing on the grounds. Transferability allows any right-holder to allocate his time and attention to the fishery in accordance with the other uses of his time and capital. If he has other opportunities, he can sell or rent his right permanently or for a period of time. If he is doing well, and has economies of scale, it allows him to acquire more rights when he and his crew and vessel have the time and opportunity. These arguments generally persuaded the governments. The quota became movable from holder to holder, between long-term holders and from long-term holder to short-term renter, not by being turned in to government and re-allotted, but by private grant, sale or bequest.

Thus, although the quota concept itself does not call for a marketable certificate, in practice the quota licences have all acquired long duration and transferability.

5.4 Competitive behaviour under property ownership

To proceed, we may compare the behaviour of the fisherman under licensing and under ITQs. We noted earlier that the licensing system forced him to adapt by competing relentlessly within the open seasons using the permitted equipment. The ITQ-property-rights concept changed this. He no longer had to incur costs to keep and increase his share of the TAC. These costs were abolished, and his profits increased by that amount.

Of course, competitive behaviour did not vanish. Somewhat as economists define competition among farmers (behind their fences) as keeping down costs, raising quality and finding good markets, so the fishermen (their quotas established), compete in landing catches economically, raising quality and finding good markets. Those who want to expand buy more quota from those who would rather transfer to other fisheries or to other sectors of the economy.

Also as noted, under licensing, fishermen had maintained their past sharing of the TAC by circumventing the regulations. I will not claim that avoiding the inspectors does not also occur under ITQs. But, the point is, much of the incentive to do so had vanished. They do not need to cheat and poach to maintain their share. Some continued to do so, but most of them found it easier to acquire more quota or to give more of their time to other fisheries or jobs. (Recent data on the new Alaska ITQ systems confirm that illegal behaviour had been greatly reduced).

Finally, I noted above that under licensing, fishermen had battled against the regulations. Regarding the fishery as the government’s, they had only a limited interest in improving it. For example, when a fishery was exploited by vessels of different types, subject to different regulations, many of the regular meetings had been devoted to squabbling about how the catch was to be divided between the openings for the vessels of different gear types, or from different communities. The point is that the conferences were not devoted to the exchange of information on how to increase the stock or its value. Indeed many fishermen had an incentive to conceal the special information they had required, rather than contribute it to the improvement of stock management.

5.5 Digression on the tontine and transferability

Transferability also allows retirement. The curious things that happens when there is no transferability can be illustrated with a tontine. It was a club-like arrangement invented about the same time as Grotius was explaining the freedom of the seas. Each person in a group, all about the same age, would put some money in a fund. They shared the fund’s income equally, much as in a mutual fund today. As each shareholder died, the fund’s income was re-divided, among the reduced number of survivors. With the years each survivor’s income became larger and larger. Finally only one person was left. He or she received the entire income. When he died the capital of the fund would go to his children. Other members’ children got nothing. One family prospered because shares in the mutual fund were not transferable.

What was a desirable feature in a tontine was a flaw in the design of the earliest versions of limited licensing and ITQs. In these early versions, the number of active licences was to be reduced by attrition: by the death or retirement of the licence holders. But, what the designers had not provided for was that as time passed and some fishermen dropped out, those who remained would be ageing. In 15 years 65-year-old holders would be 80. The longer they stayed on, the greater the reward for staying still longer. It was like the old tontine. No one would have an incentive to retire. Eventually one old surviving licensee would be found doggedly trying to take the entire catch with one vessel. The answer to this bizarre situation was of course to allow holders to transfer their licences by sale or bequest. Then the government would have to think of some other way of reducing the number of licences, perhaps by a buy-back scheme for vessels or licences, perhaps by re-auctioning some licences, or by using a lottery. All such devices have been used.

5.6 Conclusion

To conclude, the main points have been two-fold. First, the increase in the characteristics of the licences held by fishermen have increased the effective and legal powers of the fishermen (to get income from harvesting the yield of the stock; to participate in the management of the stock, and to deal in the ownership of the rights). Second, these expanded powers have turned the regime of regulations and licences into one of property rights.

6. TESTING THE ITQ IN MULTIPLE-SPECIES FISHERIES

6.1 The bycatch situation

The potential of the property approach can also be seen when we remove the simplification that the offshore fleet confronts only one stock of fish. Imagine that there are several species that feed together. For illustration assume just two species and that the second has a low value. There are usually markets for both species. Typically, vessels like trawlers and seiners, having unselective gear, catch both species. The second species is commonly referred to as a bycatch. A bycatch is not necessarily a new problem.

6.2 The “capacity” problem and the social problem of bycatch species

Vessel owners or skippers have a “capacity” problem to solve even in the absence of any policy, regulation or property right. For simplicity, imagine that on a trip each vessel of given capacity, travels to the grounds, brings in equal quantities of both species in its catch, fills its hold, returns to port and sells the two species at market prices. Because trip costs are the same regardless of the mix of species in the catch, economists define the two products as being in “joint supply”.

The vessel's limited capacity is partly occupied by the species that sells for a lower price. The more valuable the popular species, the greater the gain from dumping the low-value species. That is, the vessel’s returns are reduced by the act of filling half the net and half the hold with the low-value species. Carrying this species is like a “tax” on carrying to port, the high-value species.

This fisheries joint-supply problem has familiar equivalents in all natural-resource industries. For example, both miners and loggers must take some low-grade material in the process of removing high-grade product. Sometimes the second product is regarded as a low-value commodity, sometimes as a high-cost waste or pollutant.

The skipper can try either of two different strategies. The first is avoidance. He can try selective fishing. He attempts to learn where the desired species are concentrated, and heads for where the high valued species abound (unless it is too remote). The typical skipper finds selective fishing difficult; that is, the catch of the “better” fish per trip is too low (or the cost per fish of the higher value is too high). He rejects a selective-fishing strategy and settles for a run-of-the-mill mixture.

The second strategy is dumping: the skipper brings the low-value species on board, but dumps then the side over to make room for the preferred species. He may sort through every netful, or he may just select whole netfuls by keeping some and dumping the others. Compared with carrying less popular species home, this strategy has obvious benefits, the jointness of supply is broken.

To what extent will fishermen as a group follow the dumping strategy? Some will be deterred because there are some extra costs associated with it. For example, a vessel that always had to dump half its catch to get rid of low-value species would incur the costs of twice as many sets of the net on each trip. Furthermore, the more some fishermen “high-grade” by dumping, the higher will be the market price of the remaining bycatch carried to market, and the more some fisherman will decide to carry more of the bycatch back to the port. These two influences will reduce, but not stop, a fisherman from dumping. His general rule, will be: continue dumping a low-value species unless the cost of doing so exceeds the gain from selling the high-value rather than the low-value species.

6.3 Bycatches: comparison of two regimes with a bycatch species

6.3.1 Introduction

Dumping is adopted in a free fishery, because the low-value species occupy capacity on the vessel - not because of any regulation or quota. Since the vessel owner does not own the wasted fishstock, he does not think that dumping is a source of extra cost; for him it is a way of avoiding costs. Society bears the cost of wastage and perhaps of extinction of over-fished and dumped bycatch species. Dumping has led to demands for government regulatory policies to reduce it. I imagine and compare alternative regimes: anti-dumping regulations versus ITQs.

6.3.2 Bycatch handling behaviour where the high-value species is regulated by closures

One policy in use is a prohibition of dumping and to fine those caught. However, the skipper may choose to disregard the prohibition, taking the chance that he will be caught only occasionally, adding the expected fine to the cost of dumping until it is greater than the gain from dumping. The government may increase the expected fine by placing observers on each vessel. The heavy cost of observers is billed to the vessel owner; consequently small vessels are not usually required to carry observers.

An alternative regulatory policy, that reduces the expenses of prohibition and observation, is to close a multiple-species fishing ground altogether. The low expense of this policy however is deceptive. It might be called procrustean, in that the main catch is reduced to a size dictated by the survival of another species. For example, where the species are caught in a 50 - 50 ratio, the private cost of saving each threatened-species fish is the foregone net profit on the main-species; if the ratio is 65-35, the cost is the foregone net profit on the two main-species; and so on.

6.3.3 How these problems look under an ITQ regime

Some critics imply that when ITQs are introduced, dumping begins. They seem unaware that there will always be some dumping of low-value species as long as vessels have capacity limitations. The critics’ argument is that ITQs give the skipper more reward for dumping the low-value species than he gets under anti-dumping regulations. This is hard to understand, and is probably wrong. Indeed, under ITQs the skipper is in less of a hurry than under regulation, and so can tolerate more extra load of the low-catch species, than if there were no ITQs.

Setting up an ITQ system for the low-value species will make no difference to the skipper’s behaviour. He will continue to dump the low-value species as long as the costs of dumping are less than the extra gain from freeing up his capacity for the high-value species.

6.3.4 When the second species has a high value

If the second species is valuable, the skipper’s dumping rule will give a different result. In a fishery with no regulation, or with anti-dumping regulation, he will no longer regard the second species as a nuisance. Instead he will bring them on board and carry all his catches to port. It is here that the critics of ITQs are correct. If the skipper has a quota for the first species but not for the second, he will wish to land both species but will be prevented from doing so by enforcement system for the quota system. Then it can correctly be said that the ITQ system will force him to dump valuable fish, which he would not have done under the alternative regime.

The most obvious remedy is to introduce a quota system for the second species, which the skipper can acquire. This solution has been tried, and can work. I have described elsewhere an open market in short-run quotas for various species, which a skipper may acquire after he has landed the bycatches. It runs into difficulty if there is a social or external reason for not catching the second species, even if its market value is high. For example, it may be that the second variety in the fishery does not belong to another species, but may be under-age or under-sized fish of the first species. Or, it may be that the second species is under a moratorium. Then a quota to take such fish cannot be bought or rented because it does not exist. It seems that a realistic solution would be to create new quota licences even for closed and protected species. If the species is valuable, they will be eagerly sought, at a price, by skippers who want them as an alternative to their dumping them as bycatch.

The greatest difficulty will be found where there are many species, all caught together. Then the ITQ property-right approach runs into large individual control costs. Most systems of regulation are difficult to apply when there are dozens, perhaps hundreds, of kinds of fish caught together. The ITQ system is no exception.

6.4 A suggested set of rules

In studies some years ago I sketched how the bycatch problem could be solved if every species can be placed under divisible and transferable quotas, each species subject to its own TAC.

i. Vessels using unselective gear may not enter areas with two vulnerable species without acquiring quota for each species.

ii. Quota must be assigned to every fish of all species caught on board. Sufficiency of quota for the main species can be checked at the dock. Checking quotas against landings for the bycatch-species quota however will have high enforcement costs, perhaps requiring randomised monitoring by on-board observers.

iii. Vessels whose quota for step (ii) is deficient must buy more, probably by cell phone or radio purchase or rental on the organized quota market. Obtaining quota for marginal species may involve paying a higher price than the fish are worth. Some sellers will no doubt demand repayment in the form of delivery of the bycatch species to a particular dealer or in the form of later returns of similar quota, or perhaps in the form of quota for the main species, perhaps for a future year. If the terms are strict, the skipper may be tempted to dump and face the possible penalty.

iv. Although their total bycatch must be covered by quota, vessels may economise on their capacity to hold, transport and market it by discarding the quoted bycatch. Possibly, dumping should be allowed if the second species has a low market value. Little is gained by lugging it to the market. This would be no more an anti-social waste than a farmer's decision to discard the cullings from his fruit trees. Vessels' short-run decisions to take this costly action will probably in the long run induce their investment in technology and in capacity to move themselves and the whole fleet toward an equilibrium solution: catching and landing bycatch in the same proportions as the TACs.

7.1 Remaining issues

Two main property-right topics remain to be covered. One is the prospect of fishermen in offshore fisheries having to provide for themselves many of the services now performed by government. I argue that they could do this satisfactorily, probably better than government does. The other is the role of ITQs and property in getting to the setting up and operating of a self-management cooperative.

7.2 Limitations of ITQs

The discussion in previous parts has shown that the introduction of ITQs automatically solves only one set of fishery problems: those arising in a fishery with open access plus a regulatory regime utilising area closures. ITQs help rid over-crowding, racing for quota share, short seasons and low-quality product. But even when they work perfectly, they still leave each fishery in the hunting and gathering stage of economic production. The problem is that this highly individualistic mode of production does not encourage its participants to better pool information, protect stocks, achieve economies of scale in production and try other forms of cooperation.

7.3 Example: a property-basis for self-regulation

7.3.1 The incentives for self-regulation

Someone once said that because the regulations and the TAC are in effect local, undivided, “social goods”, one cannot expect that any non-government, without powers of compulsion, could provide them efficiently. But today “co-management” and “self-governance” are in the air. Since the late 1970s, commissions and think-tanks have been conducting reviews of the possibilities for “deregulating” bits and pieces of the entire economy. Many began to question the size of government's role, even in the fishery. In New Zealand especially, in the late 1980s politicians, knowing little about the subject, automatically included fishery regulation services among the branches to be downsized. One principle advanced was that everything should pay for itself; another that government should not provide free what industries privately needed. States were increasingly leaving farmers to look after themselves; why should fishermen also not look after their own needs?

I take as an example the services of regulation or management. I assume that the owners of the vessels harvesting a particular offshore fishery have successfully joined forming a self-governing organization. The question is whether this organization, which I will call a cooperative, can successfully take over the regulation of the fishery.

Does an ITQ fishery need regulation? The ITQ does solve the distributional question. There is no longer an automatic need to adjust closures to maintain equity and fairness among the fisheries and their gears. To that extent the distributive role is simplified to that for any kind of property: making sure that ownership is enforced, which is to say registered, secure, divisible and transferable, by policing and in the courts. This is no small problem. Even for quota holders, temptations abound to abuse the fish resource. True, under an ITQ regime fishermen have a stronger incentive to make the system work. But the quota institution leaves them torn between enhancing their joint fishery and breaking through their individual quota constraints. Each individual, knowing that his own impact on the joint fishstock is small, will be tempted to free ride on the quota scheme, by exceeding his quota, taking under-sized fish and dumping bycatch species. Overall enforcement and monitoring are still needed.

Can the cooperative provide the ITQ fishery with its TAC? The TAC and the biological regulations are the fruit of an overall stock management plan. How can this be worked out? There is nothing in the theory of an ITQ fishery to produce a management plan (although Ragnar Arnason has shown that the marketability of ITQs can provide the value-maximising basis for picking the best of several management plans). Must the cooperative abdicate from providing its own TACs?

These are larger questions of organization information and transactions costs than I can cover here. To suggest how to look at them, I take perhaps the most difficult function: the setting of the TAC. Would a cooperative be competent to take on the responsibility of setting annually the TAC and other management details? Under a regulatory regime, government experts (“scientists”) make and report observations, helped by fishermen's reports. The scientists interpret these data and apply what they have learned to recommend the season’s TAC. For a cooperative to do as well, it needs good information about the size, growth and composition of the fishstocks. Having this information, it needs a long-run management goal, and a plan, for setting each year’s TAC.

7.3.2 Information

Fishermen are already the source of much, if not most, information used by the government. Their vessels can seek and provide more kinds of data, of better quality, than they have usually been asked for. They have time for this, for under ITQs they need not be frantically busy during the short period when the season is open. As for scientific interpretations of the fishermen’s observations and data, they can be provided by private consultants as well as by government.

As for the TAC decision, fishermen in cooperatives that must live with the results, can make their own decisions based on what they have seen, what the data tell them and their consultants, and what their consultants advise. The cooperative can get the same advice as government, from the same sources, public or private. (If, especially, future government belt-tightening policies require that fishermen pay for the services that government has provided free in the past, they will want to get it from the best sources).

7.3.3 Criteria

Giving the cooperative responsibility to make the TAC decision therefore is less a question of fishermen being informed and advised than it is of their using the “right” criteria in weighing the alternatives. Consider a TAC committee in a government agency compared with a cooperative’s TAC committee of active fisherman. Can we predict how their attitudes and decisions will differ?

In the hands of either party, the TAC policy decision boils down to dividing this year's expected fishstock between the catch this year and, indirectly, the catch in future years. It’s something like the household’s how-much-to save decision, or the farmer’s how-much-to spend on this year’s harvest versus and how much to invest in the land and estate for future harvests. The annual fishstock decision involves an analogous choice between present TAC and stock building for the future.

To a considerable extent, the cooperative committee’s TAC decisions will reflect the members’ private attitudes and preferences. It is difficult to see why these should differ significantly from those of a government committee’s. Both are driven by a concern for the future. Under simple regulation, the fishermen’s behaviour did not reveal much concern about the future of the fishstock. It had not belonged to them, and they lacked the security that would give them faith that they would share in it in the future. But their decision-making behaviour when they hold ITQs, reveals much the same attitudes as those of the government fishery administrators. Indeed property-owning fishermen may be more interested in the future of the fishstock than administrators. For administrators, the penalties in making wrong predictions (and the rewards for being right) are not great. For the property-owning fishermen, the penalties, in the form of a time-stream of smaller catches, and, or, a lower market value of their quotas, would be much tangible and personally felt.

There are two well-known objections to allowing fishermen to make the decisions about the TAC and the gear regulations to go with it. One is that, compared to government regulators, fishermen will be short-sighted. The other is that they will be too little concerned with the survival of low-value bycatch species. I think they are probably mistaken.

The short-sightedness theory comes down to saying that fishermen will give less weight to future harvests (i.e. discount future harvests more heavily) than would be in their own interests or in those of the economy or society as whole. It could be true if property-less fishermen continued to be a race apart, risk-loving people who lived for the moment. But it will not be true if fishermen are property-owning harvesters, as concerned with biology, technology and markets as are farmers. Even with ITQs, we observe that fishermen have long looked after their own vessels, nets and equipment, homes and their port facilities as well as anyone else. And we observe today that in the increasing number of ITQ fisheries, especially those run by cooperatives organizations, that conservation and growth, not liquidation, are their objectives.

As for the theory that a cooperative will neglect other species, there may be something to it. Left to itself, a well-informed fisheries cooperative will be more concerned to protect the habitat and the prey of the species they harvest and to get rid of its predators and competitors than its members acting alone. That is probably an advantage. When in addition society wants to protect species that the cooperative’s members regard as a nuisance, society will have to intervene actively. In my opinion, the cooperative organization may be helpful in this role: certainly it would not make things worse.

7.3.4 Summing up

From a fisherman's point of view, the only reasons for retaining a government to make his regulations and set his TAC is that the government may continue to do it for nothing. Probably, where under ITQs things are going well, money-conscious governments will opt out. So fishermen should ask themselves whether the mix of services they need must all be provided by the government.

Here the complicated question of who should be responsible for regulation has been simplified by focussing attention of only one feature of modern ITQ-regime management: the setting of the TAC. When this particular question is examined for the case of a deep-sea fishery, it appears that fishermen could cooperate to do it themselves. They can hire observers, exploratory vessels, consultants and advisors, perhaps from government (as in New Zealand today) perhaps from private-sector sources (possibly active members of their own fishery). Their new concern for the future value of their property will help to unite them when they set about interpreting the recommendations they receive.

The same is true when we go on to consider other fisheries' services: enforcement in particular, but also those, such as:

i. running an exchange for short- and long-run transactions in quotas
ii. organizing or sponsoring joint-fishing operations and
iii. running docks or a port, and storage or repair facilities.

7.4 Getting there and back to the role of property

How a group of independent fishermen get to self-government depends on where they start, the attitude of the government and the attitude of the industries to whom they sell their catches. In high-seas fishing, cooperation like that sketched above is still a utopian ideal. Internationally there are probably more examples of de facto corporate sole ownerships than of fisherman self-management (on offshore grounds). Why are there so few cooperatives? The purpose of the following sections is to review the explanations and sort them out.

The chief difficulty about an offshore cooperative is how to get there. Fishermen may realize that they might gain a better TAC policy, lower administration costs, lower fishing costs and higher prices through a cooperative. Yet they may oppose cooperation, or, avoid becoming members themselves. There are a number of reasons. Here I list three of the most important:

i. Free riding on the sacrifices made by cooperative members

Some clever fisherman, following their experiences as taxpayers, may favour the formation of a cooperative, yet refuse to join themselves. For example, they may want to enjoy the gains from higher yields in later periods without having suffered the pains of deliberately smaller catches in earlier periods. They want to “free ride” on the sacrifices of others. There is little harm in this, unless the majority of the fishermen try to free-ride. If so, none has the A. Sen “assurance” that I mentioned in Section 2.2 and the cooperative will fail. This problem is related to that of the “prisoners’ dilemma” in game theory.

The remedy for free riding is simple: everyone must become a member and remain a member. This is the remedy used by governments in a system of regulation: everyone must conform to the rules. It is also used by citizens in political jurisdictions: every person can enjoy the public goods provided by the state, but everyone must contribute, especially by paying taxes. No one may free ride nor opt out.

ii. Domination by a majority

Some self-dependent fishermen, in a minority, may object to the TAC and rules made by a majority. This is inevitable in any organization, from cooperatives to business corporations, trade unions and private clubs. Outright tyranny and dishonesty are prevented by government-made voting and reporting rules, and are just as necessary in a fisheries’ cooperative. If these rules are inadequate, the fisherman can try politicking within the cooperative, or, finally, sell his membership and moving to another fishery or occupation.

iii. Losing by joining up

There is a more profound problem: like the first item above it is also loosely related to that of the prisoners’ dilemma in game theory. To put it in its simplest terms, the setting up of a fishermens’ cooperative is like deciding whether to adopt a new joint policy. Each person can see that working together will raise the average incomes of the group, by getting finely-tuned regulations, cutting regulation costs, landing more fish, catching a better quality product, getting higher seasonal prices, and having lower fishing costs. But for each member, an expected increase in the average income will not be enough. What is to prevent his own expected increase being less than the average? Indeed, what is to assure him that he will, individually, actually get any increase? Under the cooperative there will be no government to protect him from losing. Therefore he will behave as game theory and organization theories predict: he will not support the policy. In this example, it means he will refuse to support the formation of a cooperative.

What would change the individual’s mind and win his support? What would relieve him (and each other potential cooperative member) from the reasonable fear that his own harvest and price would fall short of the general improvement? Put this way, the answer is obvious: to win his consent, there is a need to offer a guarantee of a fixed share of the future total TAC. As it happens, almost by coincidence, the system of ITQs does automatically provide the fixed percentage sharing needed to make the fisherman secure within the cooperative. In the original assignment of ITQs, probably using a grandfathering procedure, the government has already, incidentally, imposed agreed historial percentage shares on the harvest from the fishery.

In a nutshell: the fishermen harvesting an isolated offshore stock, having escaped from competitive harvesting to regulation, and then from regulation to ITQs, are now likely to be enthusiastic about moving on to further developments to improve the stock and cut costs. This inevitably requires joint action.

Having ITQs, the fishermen have already achieved the two indispensable features for fisherman cooperation and self regulation. First, they already have compulsory, complete and closed “membership.” No one else is involved. Second, they already have in existence, as individual property rights, a sharing of the catch that is secure and reliable as the equity of shareholders in a business corporation or the rights of tax-paying local property owners in municipal government.

It is not essential that offshore fisherman form a cooperative for mutual regulation and the setting of the TAC. But it is predictable that many of them will want to try. On the whole, they are bound to fail, arguing amount the distribution of the harvest. But they need not fail if they already have the fixed property-like sharing of ITQs, with the extra incentives derived from transferability of being able to cash in on the prospects of ever more valuable catches.

Property Rights as a Means of Economic Organization - R. Arnason

University of Iceland, Department of Economics
Oddi V Sturlug, Reykjavik, IS-101 Iceland
<ragnara@hi.is>

1. INTRODUCTION

This paper is concerned with the role of property rights in economic activity. In particular, the paper focuses on the relationship between property rights and the level of production, productivity and production growth in economies. The basic thesis of the paper is that property rights are absolutely fundamental in this respect and, more generally, to almost everything that people usually regard as economic progress.

A cursory glance at economies around the world suggests that a high level of production and productivity usually go hand-in-hand with extensive, well defined and well enforced property rights. Alternatively, where property rights are poor or missing, the corresponding economic activity is generally severely depressed. Moreover, it is often seen that extensions of the system of property rights is followed by a spurt of economic growth. It follows that a major component of economic policy should be to improve and expand the system of property rights. This, however, often runs into problems of a technical nature; adequate property rights simply cannot be defined and enforced. Or, there may be problems of social nature; people may not be willing to accept an extension of property rights.

Fisheries, as so many other natural resource extraction activities, are among the economic activities where property rights are poorly defined or even nonexistent. This generally results in huge inefficiencies, frequently referred to as the fisheries problem. Since the fisheries problem fundamentally stems from lack of property rights, the obvious solution is to introduce these rights. There are, however, substantial technical as well as social problems with defining and enforcing sufficiently good property rights to solve the fisheries problem.

The paper discusses some of the property rights that have been proposed in fisheries and their relative quality: In Section 2, the appropriate objectives of the economic activity are discussed. The crucial conclusion of that discussion is that the purpose of the production sector is to maximize the net production of goods. Section 3 deals with technical ways to maximize the availability of goods. Two major ways are identified: (a) specialization and (b) accumulation. In Section 4 I argue that property rights are both necessary and sufficient to achieve the objective of maximizing the net availability of goods and are consequently fundamental to economic progress and wellbeing. The relationship between property rights, the market system and externalities is examined in Section 5 and I argue that the fisheries problem is fundamentally caused by the lack of property rights. In Section 6 the constituent parts, or characteristics of property rights, are considered and represented as dimensions along which the quality of given property rights can be measured. A particular measure of the quality of property rights, the Q-measure, is developed. In Section 7, the Q-measure is applied to the property rights based fisheries management systems of Iceland and New Zealand. Finally, in Section 8, the limitations of property rights are discussed.

2. THE ECONOMIC OBJECTIVE

It is as axiomatic that the social objective is to maximize the common good or, in more modern parlance, overall social welfare. This fundamental axiom is not arbitrary. It has deep roots in social philosophy and ethics. It can for instance be justified on the basis of social contract theories in the tradition of Locke, Rousseau, Kant and, more recently, Rawls (see Gough 1957 and Rawls 1971). According to these theories the proper social structure is what free and rational people ignorant of their prospective position in society, but knowing everything else, would agree on. From behind this “veil of ignorance” these people, form a contract - a social contract - specifying the organization of the society in which they and their descendants will live. In a deep sense this social organization is fair and just because this is what a free and rational individual with no particular special interests (“the veil of ignorance” serves to eliminate special interests) would agree on.

What would be the content of this social contract? Obviously two things:

i. Society should be organized in such a way that the supply of desirables should be as high as possible and

ii. The distribution of these desirables to individuals should be reasonably equitable.

The second consideration concerning the distribution of desirables has to do with their availability. From behind the “veil of ignorance” the individuals forming the “social contract” realize of course that the availability of desirables at each point of time may depend on the distribution of these desirables. Thus, with perennial equal sharing, people's willingness to produce might perhaps be undermined. Hence, it might be a good idea to maintain a system of rewards to induce people to exert themselves for the common good. This, of course, calls for a degree of inequality - an unequal distribution of desirables. It is important to realize, however, that this inequality is 'earned'. It is actually a reward for a larger contribution to the common good, just like the payment for labour. Therefore, any requirement regarding the distribution of desirables would first and foremost apply to the initial allocation, which people cannot really control, and not the subsequent accumulation of wealth, which depends largely on individual industry and enterprise.

Modern welfare theory, although built on a different foundation namely utility theory, produces the same result. According to standard results of this theory, more precisely the Pareto criterion (Ng 1980), a necessary condition for welfare maximization is that the net production of desirable things be maximized. It is important to realize that it is net production that counts here, i.e. production where the use of all inputs including labour and natural resources has been subtracted. The other necessary condition for welfare maximization is that this production be shared or distributed appropriately among the population¹.

¹ One way to derive the equality result in standard welfare theory is to assume concave individual utility functions, which is equivalent to assuming risk aversion (see e.g. Varian 1992).

i. maximize the availability of desirables and
ii. effect a fair distribution of these desirables.

The real world, of course, does not contain perfect market systems and all actual market systems are imperfect to a greater or lesser degree. Therefore, in these economies, the GDP can not be regarded as equivalent to the aggregate availability of desirables. Faced with this practically difficulty, it may be reasonable to regard GDP as a first approximation to the availability of desirables, at least in reasonably well functioning market economies. Similarly, the contribution of production sectors to the common good may be measured by the net production of goods in these sectors.

It is sometimes asserted that there is a conflict between the most desirable distribution of goods and their maximum production. Therefore, the argument typically goes, the requirement of maximum net production must be relaxed in the interest of equity or fairness. This argument, while certainly not vacuous, is often given too much weight. One of the most important results in economic welfare theory, the second welfare theorem (Debreau 1959), is that any distribution of benefits that is desired is compatible with maximum production and, indeed, the market system. So, there is no fundamental conflict between the two objectives. Consequently, even in particular cases, there can be little reason to sacrifice economic efficiency for more equitable distribution of the net production. The reason is not that distribution does not matter, rather distributional considerations can, at least in principle, be taken care of by the appropriate initial allocation of endowments².

² This does not permit repeated or continuous reallocations on the basis of emerging inequalities for this would create a huge incentive problem.

The same conclusions apply to every individual production activity making up the production sector as a whole and therefore also to the fisheries sector. This should be organized and operated so as to maximize the net-production of goods. Anything else will reduce the overall availability of goods and therefore economic opportunities to society as a whole. This raises the question of the appropriate organizational framework for the fisheries activity. To this I now turn.

3. HOW TO ACHIEVE THE ECONOMIC OBJECTIVE

Over the past two and a half centuries, economic theory has accumulated a great deal of knowledge about how to increase net production of goods and services. It is now generally acknowledged (Barro and Sala-i-Martin 1995) that the quantity of output from a given quantity of scarce inputs, labour and natural resources is primarily determined by two factors:

i. accumulation of capital (physical, biological, human) and
ii. the degree of specialization.

Figure 1: The production function: increase in capital

Capital in this context not only includes physical capital, it also includes natural capital, i.e. the natural resources of all types that serve as inputs into the production process, and human capital, i.e. the quality and ability of the human labour used in the production process. The accumulation of physical capital occurs through investment in physical capital units. Human capital is accumulated by education, training and by the accumulation of knowledge. Natural resources by their nature cannot be produced. Therefore to increase their contribution to net production it is first important to increase the access to these resources and, consequently, their flow into the production process. Second, for long term economic growth it is important to extract natural resources wisely and, if possible, on a sustainable basis.

Specialization enables producers to (a) focus on what they do best and (b) get better at what they do. Both (a) and (b) increase productivity and hence production (Figure 2). Specialization occurs both on a small scale, i.e. within the firm or a small community, or on a large scale between industries and countries. Specialization, which Adam Smith (1776) called division of labour, is one of the most important reasons for productivity and hence production growth in the world (Barro and Sala-i-Martin 1995).

4. HOW PROPERTY RIGHTS ACHIEVE THE ECONOMIC OBJECTIVE

The preceeding sections have shown that the keys to production and economic growth are:

i. accumulation of capital and
ii. specialization.

Accumulation of capital obviously requires property rights. No one is going to save valuables in the form of physical capital, natural resources or even human capital unless he enjoys adequate property rights over his accumulation. There are two reasons for this. First, accumulation of capital necessarily means sacrifice of current consumption. Hence, to do so one must be reasonably sure of not only retaining possession of the accumulated assets but also gaining from their existence³. Without property rights, this is not possible. Second, even if some people decided to accumulate nevertheless, this accumulation would be seized by others and, in order to avoid a similar fate, quickly consumed. So without property rights there will be (a) no accumulation and (b) what capital there might exist will be quickly seized and squandered.

³ This assumes something less than perfect altruistic individuals

⁴ It may be illuminating in this context to wonder about the most likely organization of a society where trade is not possible. Under these circumstances, it seems that it might be advantageous to organize society in closely knit communities where some specialization can occur on the basis of traditional sharing of the community's production with people attending to their pre-assigned duties according to tradition and social pressure. The family, of course, is an example of this kind of organization

Figure 2: The production function: Shifts due to specialization

It may be illuminating to wonder about the possible extent of specialization without property rights? I have already established that without property rights there can be no trade. Therefore without property rights the only way to benefit from specialization is by the division of labour by command or custom within a larger economic unit. This economic unit which has some parallels with the modern firm, would be some sort of a community. It could e.g. be a village, tribe or even a kingdom. Alternatively, it could be a command economy for instance along the lines of 20^th century socialist economies (although, it may be recalled, these were typically to a considerable extent based on private property rights). However, for this type of organization to work, the community as a whole must be able to uphold its property rights against outsiders. So, in fact, this solution depends on some property rights. To sustain this system, almost inevitably some coercion is required. This certainly implies certain rights by the enforcer which are close to property rights. Finally, this arrangement is probably not economically very efficient if only for the reason that it tends to stifle private initiative and invention.

So, the fundamental conclusion that property rights are necessary for a high supply of goods is established and, indeed, what is generally regarded as economic progress in general.

The importance of this conclusion can hardly be overemphasized. Without property rights, there can be neither trade nor accumulation of capital. Without trade there can be little specialization. Without specialization and accumulation of capital, there can be little production. So, without property rights, human society seems doomed to abject poverty. In fact, with little or no property rights, human society would be primitive indeed, not much different from the more advanced versions of animal societies.

Given that property rights are necessary for economic progress, an interesting question is whether they are also sufficient. More to the point, does the existence of well defined and enforced private property rights inevitably lead to economic progress, i.e. increased supply of desirable goods? The answer to this question appears to be a qualified “yes”. The qualification is for practical reasons. The actual outcome of any property rights system depends not only on the structure and extent of the property rights themselves but also on the operation of certain other social institutions most notably the market system and the property rights enforcement system, i.e. policing and the judicial system. For instance, conceivably, the market system might be dominated by monopolies and the property rights enforcement system riddled with corruption, in which case production would suffer. What seems to be true, however, is that if the system of property rights is complete, i.e. every valuable is subject to private property rights, and if the system is perfectly enforced, then expansion of output to the limit of the technically feasible is a highly probable outcome.

5. PROPERTY RIGHTS AND THE MARKET SYSTEM

5.1 The market system

The market system is known to have certain attractive economic properties (Debreau 1959, Varian 1992). Among other things, if the system is perfect, it will generate full economic efficiency and optimal economic growth. The interesting thing is that this happens without any centralized direction. As Adam Smith (1776) said, it is as if an invisible hand guided every action (privately motivated by self interest) toward the common good.

The market system also exhibits certain fundamental ethical properties, at least as specified by social contract theories and utilitarianism. First, it maximizes the availability of desirables at every point of time. Second, as discussed in Section 2, the market system can sustain any socio-politically preferred distribution of desirables by the judicious initial allocation of resources. I now argue that the existence of property rights is fundamental to the operation of the market system. More precisely, it is both necessary and sufficient for the operation of the market system.

The heart of the market system are trades in the market place. Such trades presuppose property rights over the commodities that are traded. Hence, property rights are necessary for the operation of the market system. If a system of property rights is put in place, the opportunity for individuals to benefit from production specialization and trading will arise. Therefore, assuming only a small degree of individual enterprise, trading will commence and the market system is on its way. The reverse, however, is not true. The existence of markets does not lead to the creation of property rights. The causal relationship is from property rights to markets and trades not vice versa.

So, the property rights system is really more fundamental than markets. Assuming only that people look after their interests, markets will automatically arise if there are property rights. Moreover, the market cannot exist without property rights but the existence of property rights does not depend on the market. In this sense, property rights are more fundamental than the market.

In his path-breaking treatise on the wealth of nations, Adam Smith extolled the ability of the market system to coordinate the immense complexity of individual economic decisions and activities without causing huge problems of shortages and oversupply and to direct all these diverse actions and desires toward the common good. Since the market system owes its existence of private property rights, this praise is appropriately assigned to the system of property rights. The great social coordinator is really the institution of property rights, not the market or market forces! Consequently, our current economic system is perhaps more appropriately referred to as the property rights system or the private property rights system rather than the market system.

5.2 Externalities and property rights

A well known problem of the market system are externalities. The market system is only efficient if there are no externalities (Debreau 1959). What is less well known is the close causal relationship between externalities and property rights. Basically, we may assert that lack of property rights causes externalities. How does this work?

If property rights are missing, people may simply take what they want, at least to the extent this is allowed by social custom⁵. If the resource is scarce, this causes an external effect. The act of “taking” simply leaves less of the resource to others. They are in other words adversely affect by the “taking”. A negative externality is created. With property rights in place “taking” is not permissible. Consequently, with property rights, there can be no externalities. With property rights in place the method of obtaining is buying. If the resource is scarce the purchase price will be positive. This means that the previous owner will be compensated for handing the property right over.

⁵ Actually, if “taking” is not allowed then property rights exist.

All economies are infested with technical externalities. The only difference is the pervasiveness of the externality problem, Generally speaking natural resource based economies are more affected than others. The traditional way to correct for externalities is to impose prices, so called Pigouvian corrective prices (Pigou 1912) on the externality-causing activity. An economy where all externalities have been corrected for in this way is called a Lindahl equilibrium (Dasgupta and Heal 1979). Lindahl equilibrium is a theoretical construct, not really feasible in reality, at least no more than it is possible to calculate all relevant shadow prices for the economy. What is possible, however, is to define the appropriate set of property rights and let the market take care of the prices. Thus, given the appropriate property rights, a full Lindahl equilibrium will be approximated by the market system. This has been the arrangement for a good part of the scarce resources in modern day market economies. For the others technical externalities still remain.

5.3 The fisheries problem, externalities and property rights

The fisheries problem manifests itself as excessive fishing capital and fishing effort, reduced fish stocks and dissipation of economic rents to the point where the fishery is economically hardly worth pursuing. Given the intrinsic productivity and richness of many ocean fisheries, this outcome constitutes a serious economic failure.

The fisheries problem is caused by externalities. Fish stocks are limited. Consequently one fisherman's catch reduces the harvesting opportunities of all other fishermen. This is a typical technical externality. As all other externalities, it arises because of a lack of the appropriate property rights. In this case there are inadequate property rights in the fish stocks from which the harvest is taken.

It follows immediately that the fisheries problem would disappear if only the appropriate property rights could be defined, imposed and enforced. This is the problem. But, it turns out that there are substantial technical and social problems to defining, imposing and enforcing sufficiently good property rights in many fisheries, especially off-shore ocean fisheries. For this reason, fisheries managers have often been forced to resort to rather weak and indirect property rights such as access licences and harvesting quotas. In some cases, however, these indirect (or pseudo) property rights can solve a good part of the fisheries problem.

6. PROPERTY RIGHTS: CONTENT, DIMENSIONS AND QUALITY

6.1 Characteristics of property rights

A property right is not a single variable. As Professor Scott (1988, 1996) has informed us, it really consists of a collection of different of characteristics. The number of distinguishable characteristics that make up a property rights is high. However, according to Scott (1996, 1999) the most crucial property rights characteristics are:

i. security, or quality of title
ii. exclusivity
iii. permanence and
iv. transferability

A property right may be challenged by other individuals, institutes or the government. Security, here refers to the ability of the owner to withstand these challenges and maintain his property right. It is perhaps best thought of as the probability that the owner will be able to hold on to his property right. Probabilities range from zero to one. A security measure of one means that the owner will hold his property with complete certainty. A security measure of zero means that the owner will certainly lose his property.

Exclusivity

This characteristic refers to the ability of the property rights holder to use and manage the resource (his property) in question without outside interference. An individual's personal things such as his clothes, generally have a high degree of exclusivity. A right to the enjoyment of a public park has almost zero exclusivity. An ITQ holder has a right to a specified volume of harvest from a given stock of fish over a certain time period. Given the conventional legal protection, this right as such is virtually 100% exclusive. However, when it comes to the actual harvesting, the question of exclusivity refers to his ability take this harvest in the way he prefers and to prevent others from interfering with this ability. Any government fishing regulations clearly subtract from this ability. The same applies to the actions of other fishermen that may interfere with his ability to harvest his quota in various ways. Thus, an ITQ right generally provides substantially less than complete exclusivity to the relevant asset, i.e. the fish stock and its marine environment. Note that enforceability, i.e. the ability to enforce the exclusive right, is an important aspect of exclusivity.

Permanence

Permanence refers to the time span of the property right. This can range from zero, in which case the property right is worth nothing, to infinite duration. Leases are examples of property rights of a finite duration. By convention, the label “ownership” usually represents a property right in perpetuity or for as long as the owner wants. There is an important difference between an indefinite duration, in which the duration of the property right is not stipulated, and a property right in perpetuity which explicitly stipulates that the property right lasts forever. The duration of a property right may seem related to security; if a property right is lost then, in a sense, it has been terminated. Conceptually, however, the two characteristics are quite distinct. Thus, for instance, a rental agreement may provide a perfectly secure property right for a limited duration.

Transferability

This refers to the ability to transfer the property right to someone else. For any scarce (valuable) resource, this characteristic is economically important because it facilitates the optimal allocation of the resource to competing users as well as uses. An important feature of transferability is divisibility, the ability to subdivide the property right into smaller parts for the purpose of transfer.

Following Scott (1988), it is helpful to visualize these characteristics of property rights as measured along the axes in four-dimensional space (Figure 3). A given property right may exhibit all four characteristics and others to a greater or lesser extent. It is convenient to measure this on a scale from 0 to 1. A measure of zero means that the property right has none of the characteristic. A measure of 1 means that the property right holds the characteristic completely. Given this a picture of perfect property rights would be a rectangle in the space of the four property rights characteristics illustrated in Figure 3. The outcome is illustrated in Figure 4.

Figure 3: Characteristics of property right.

Figure 4: A perfect right.

The map of the property rights characteristics shown in Figure 4 can be referred to as the characteristic footprint of a property right, the characteristic footprint of a perfect property right represents the outer limit for the quality of all property rights. It follows that the corresponding characteristic footprint of any actual property right in the same space of characteristics must be completely contained within this rectangle.

Figure 5 illustrates the characteristic footprint of some actual property right within the characteristic footprint of a perfect property right. The difference between the two areas enclosed by the two maps indicates the relative quality of the actual property right.

6.2 A measure of the quality of property rights: The Q-measure

Given the multi-dimensional nature of property rights, it is useful to construct an aggregate numerical measure of the quality of a property right. Such a measure can serve in at least two ways. First, it can be used to compare the quality of a given property right with some other property rights of interest. Thus, for instance, it may facilitate the comparison of the property rights content of individual quotas across fisheries and nations. Second, an aggregate measure of the quality of property rights may help social managers to judge the economic efficiency of the institutional framework of the activity in question.

Figure 5: The quality map of a property right

For convenience I refer to the measure of the quality of property rights as the Q-measure. What properties should the Q-measure satisfy? First, is should increase with all property rights characteristics. The higher their numerical value (on a scale from 0 to 1) the stronger the property right. Second, it is convenient to restrict its value to the same numerical range as the characteristics, namely the closed interval [0,1], with “0” indicating zero quality property rights and “1” complete property rights. Third, since it appears that a positive level of some property rights characteristics, e.g. security and permanence, is necessary for the property right as a whole to be worth anything, a zero value of any of these characteristics should imply a Q-measure of zero as well. These particular property rights characteristics are essential. Fourth, the Q-measure should be flexible with respect to the individual weights of the various property rights characteristics.

The Q-measure satisfies these requirements:

This Q-measure comprises M characteristics. The first N, (x_i, i = 1,2..., N) are essential property rights characteristics, i.e. those that render the property right worthless if they are zero. The remaining M-N property rights characteristics, i.e. x_j, j = N+1, N+2,..., M, are non-essential. The exponents, a_i, i = 1,2...,M are all positive. So are the weights, w₁ and w_2,j, which moreover sum to unity.

It is easy to check that this Q-measure satisfies all four of the requirements stated above.⁶ It is, moreover, flexible in the sense that it can account for any number of essential and nonessential characteristics.

⁶ Remember that individual characteristics are measured on the interval [0,1].

where S denotes security, E exclusivity, P permanence and T transferability. The first three characteristics are considered essential. Note that the Q-measure is homogenous with respect to these characteristics. , and represent the elasticity of the Q-measure with respect to the these characteristics, respectively. A fairly natural assumption is that of unitary homogeneity, i.e. “constant returns to scale” where the sum, .  w₁ and w₂ are weights. w₁ is actually the maximum value of Q given that there is no transferability. Due to the non-homogeneous entry of transferability, T, in the Q-measure, the elasticity of Q with respect to transferability is somewhat complicated. More precisely, this is given by the expression

An example

The Q-measure, even for our simple case of four property rights characteristics, is far too complicated to be illustrated graphically in a useful manner. However a couple of numerical examples may throw some light on how it works. First, assume that the exponents , and are all equal and exhibit constant returns to scale, i.e. Second let equal unity. Finally, let w₁ = 0.6 and w₂ = 0.4. Table 1 provides an example of the value of the four property rights characteristics for two imaginary property rights. The first is strong in all four characteristics. The other is also strong in security and exclusivity but weak in duration and transferability. For concreteness, we may think of the former as ownership of an apartment and the latter as a rental contract for the same apartment. The numerical details and the corresponding Q- values are given in Table 1.

A diagram illustrating the characteristic footprint of the two property rights is provided in Figure 6.

The first property right is pretty close to a perfect property right and scores well on the Q-measure as shown in Table 1. The lack of transferability (e.g. due to limited divisibility) is the main subtraction from a perfect score. The other property right is obviously fairly poor, primarily because of the lack of duration and transferability. This is reflected in its Q value which according to Table 1 is only 0.43.

Table 1: The Q-measure: an example

Characteristics	Property right 1	Property right 2
Security	1.00	1.00
Exclusivity	1.00	1.00
Permanence	0.95	0.30
Transferability	0.80	0.20
Q	0.90	0.43

7. ESTIMATED Q-VALUES FOR THREE QUOTA SYSTEMS

In this section, the Q-measure developed in Section 5 is used to assess the quality of the fisheries property rights in the quota systems of Iceland (Arnason 1996a, Runolfsson 1999), New-Zealand (Sharp 1996, Major 1999) and Norway (Hannesson 1994, Arnason 1996b).

In Iceland and New Zealand fisheries management is based on fairly complete ITQ systems. Norway, by contrast, operates most of its fisheries on the basis of an individual quota (IQ) system with limited transferability of the quotas. In all three countries, the security of the property right is fairly high. However, in Norway, in certain fisheries, new vessels may be allocated quotas thus subtracting from the quota shares of the existing vessels, which reduces the security of the Norwegian property right. In all three countries the exclusivity of the harvesting right is high, limited only by government fisheries regulations which in the case of Iceland and in particular Norway are more extensive than those in New-Zealand. Permanence of the property right differs greatly between the countries. In New Zealand the quota rights are explicitly in perpetuity. In Iceland they are of indefinite duration but there are non-trivial socio-political threats to the continuation of the system. In Norway individual quota rights are explicitly non-permanent, allocated only annually. However, since quotas are customarily allocated to the previous recipients in more or less the same proportions it may be claimed that the associated property right has gained a degree of permanence. Finally, transferability in New-Zealand is close to perfect (only foreigners are excluded). In Iceland, transferability is only slightly more restricted. In Norway, as noted, there is virtually no transferability of the quotas.

Figure 6: The quality map of two property rights.

A rough numerical estimate of the values of the property rights characteristics for these three countries is provided in Table 2. The corresponding characteristic footprint are illustrated in Figure 7.

According to the Q values⁷ shown in Table 2, the quality of the New Zealand quota property right, Q=0.96, is near perfect. The property rights quality of Iceland’s quota rights, Q=0.86, is considerably lower but still quite high. The property rights quality of Norway’s fishing rights, Q=0.44, is much lower than that of both New Zealand and Iceland. Thus, although by no means negligible, Norway’s IQs must be regarded as possessing comparatively weak property rights.

⁷ The Q-values are calculated on the basis of the same parameter specifications as in the example in Table 1 above. In particular, a=b=g=1/3, d=1, w₁·= 0.6 and w₂ = 0.4.

It is helpful to compare these results with a corresponding assessment of the property rights quality of a typical closed access, common property fishery employing the same methodology. In these, Q would typically be in the range of 0.5 - 0.2 depending on the number of participants⁸. Hence, compared to this, the Norwegian IQ system represents a substantial improvement.

⁸ Thus, for instance, security = 0.95, permanence = 0.9, transferability = 0.0 and exclusivity = 0.005 yields Q=0.1.

Table 2: Estimated quality of quota property rights Iceland, New Zealand and Norway

Characteristics	Iceland	New Zealand	Norway
Security	1.00	1.00	0.90
Exclusivity	0.90	0.95	0.70
Permanence	0.80	1.00	0.50
Transferability	0.90	0.95	0.10
Q	0.86	0.96	0.44

As shown in Table 3, the Q-values are now much reduced. From the perspective of the underlying natural resources, i.e. the fish stocks and their marine habitat, the Icelandic and New-Zealand property rights values are now barely respectable. Indeed, these values might be compared to a typical farming property right on land which (depending on outside pollution and the regulatory framework) would typically have a Q-value in excess of 0.9. Clearly, the quality of the Icelandic and New Zealand ITQ property right is substantially inferior to this. The Norwegian IQ property right also appears quite weak.

Table 3: Estimated quality of quota property rights. Iceland, New Zealand and Norway

Characteristics	Iceland	New Zealand	Norway
Security	1.00	1.00	0.90
Exclusivity	0.50	0.55	0.30
Permanence	0.80	1.00	0.50
Transferability	0.90	0.95	0.10
Q	0.71	0.80	0.33

8. LIMITATIONS ON PROPERTY RIGHTS

8.1 Imperfection of property rights

In reality, property rights are