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1 Fisheries Policy Division, FAO, Viale Terme di Caracalla 00100 Rome, Italy.

2 Department of Economics, University of British Columbia, Vancouver, B.C. V6T 1Z1, Canada.

Abstract: The existence of excess fishing capacity in world fisheries is a matter of growing concern and the result of a wide-ranging phenomenon of overcapitalization. Excess fishing capacity is affecting the sustainability of many fisheries, undermining many of the conservation and management efforts undertaken and leading to significant economic waste. The paper addresses the underlying economics of overcapitalization in fisheries, with reference to the conditions of access and with emphasis on two essential and related characteristics of fleet capital: its malleability, or lack thereof, and its relative mobility. Major fisheries management methods are also reviewed, with emphasis on their impact on fishing capacity and their possible use in the direct or indirect control of fleet capacity. The management of fishing capacity raises other issues, such as: the effect of subsidies, the framework of fishing capacity management, and considerations related to the distribution of wealth and to high seas fisheries.


In her keynote address to the World Conference on Fisheries, Brisbane 1996, Pamela Mace (1997) reviewed the state of world fisheries. With regard to marine capture fishery resources, she drew upon the work of Serge Garcia and Christopher Newton (1997), and pointed to the fact that 70 per cent of the world’s marine capture fisheries are overexploited, fully exploited, or are recovering. Regardless how one chooses to interpret the term “fully exploited”, there are substantial grounds for expressing deep concern about the state of world capture fishery resources.

The key problem afflicting marine capture fishery resources, she continued, is overcapacity (overcapitalization; including in this definition “human” capital) (Mace, ibid.). Over the two decades, 1970-1990, world industrial fisheries harvesting capacity grew at a rate eight times greater than the rate of growth of landings from world capture fisheries. One clear indication that something is seriously wrong with the state of harvesting capacity in world fisheries is the fact that the world fishing fleet has continued to expand while accruing significant annual losses for quite some years. Losses of this magnitude are sustainable only because of extensive government subsidy programmes. While the estimates of the magnitude of these subsidies differ greatly, it is revealing that the lowest estimate puts the subsidies at not less than US$ 8-10 billion per annum (Milazzo, 1996).

The deep concern about overcapitalization/excess capacity in world fisheries is echoed in the recent FAO publication, The State of World Fisheries and Aquaculture: 1996 (FAO, 1997a). That document maintains that overcapacity in world fishing fleets is a significant contributor to the overexploitation of world fishery resources and imposes heavy economic losses upon society (FAO, 1997a, p.19). The concern is also explicitly expressed in the FAO Technical Guidelines for Responsible Fisheries No. 4: Fisheries Management (FAO, 1997b). Guideline 1.4 (ii) states: “It is - in the interests of the users and the resource to maintain potential fishing capacity at a level commensurate with the long-term stock productivity” (FAO, 1997b, p.13).

The problem of overcapitalization/excess capacity in fisheries is, perforce, an inherently economic one. Upon engaging in their work, the authors became increasingly dissatisfied with the existing state of the economics of fisheries overcapitalization - the underlying nature and causes of overcapitalization. There appeared to be considerable confusion in the literature, including definitions that were not wholly consistent with one another. This was, at first, at bit surprising, since the concept of overcapitalization/excess capacity is well understood in other branches of economics, e.g. industrial organization. Upon further investigation, the surprise vanished as it became realised that overcapitalization in fisheries is in fact considerably more complex than that encountered in standard industrial organization economics.

The authors felt it incumbent upon themselves to address first the question of the economics of overcapitalization in fisheries. If the underlying economics is not properly understood, then it becomes difficult to attempt to measure and identify empirically overcapacity in fisheries, or to talk sensibly about measures to control and reduce such overcapacity.


2.1 The issue
2.2 Overcapitalization and excess capacity in standard economics
2.3 Overcapitalization and regulated open access fisheries
2.4 Overcapitalization and the pure open access fishery

2.1 The issue

We commence with a definition of fleet capacity in fisheries. The capacity of a firm, or industry, is normally defined as the ability of the firm/industry to bring forth a flow of goods and/or services per period of time. We shall define the “capacity” of a vessel, or a fleet, as its ability, or power, to generate fishing effort per period of time. In so doing, we make some attempt to allow for the fact that a given fleet may operate in more than one fishery.

More specifically, with regards to fleet capacity, we can, following Smith and Hanna (1990), say that such capacity has four components, these being:

1. Number of vessels
2. Size of each vessel
3. Technical efficiency of vessel operation
4. Potential fishing time of each vessel, per specified period of time, e.g. year or season.
The issue of overcapitalization/excess capacity in fisheries is normally associated with the problem of open access. We shall find it useful, for the purposes of having a starting point, to make a distinction between “pure” open access, and “regulated” open access (Wilen, 1985; Homans and Wilen, 1997). We shall define a “pure” open access fishery to be one in which the property rights are ill defined, or non-existent, and in which there is an absence of regulations governing the exploitation of the resource. The Donut Hole pollock fishery, prior to 1992, provides an example.

A “regulated” open access fishery, on the other hand, we shall define as a fishery with ill defined property rights, in which the authorities rigidly control the global harvest in order to conserve the resource, but in which they do not exert effective control over vessel participation in the fishery. The present Alaska pollock fishery provides an example.

In the case of the “regulated” open access fishery, we shall assume that the authorities, the resource managers, have succeeded in stabilising the resource at what they deem to be the target level. The issue of overcapitalization is then easy to address, because one essentially just has to ask whether the fleet is, or is not, excessively large, with respect to the season by season harvest permitted by the authorities. Under “pure” open access, we confront a situation in which the resource has in the past been subject to overexploitation. In this case, the issue of overcapitalization is necessarily intertwined with that of resource restoration.

A useful starting point, before attempting to define overcapitalization/excess capacity in either class of fisheries, is to see how the concept is dealt with in standard economics. The concept is used extensively in the field of industrial organization, and is dealt with specifically under the heading of the theory of the firm.

2.2 Overcapitalization and excess capacity in standard economics

In the theory of the firm, one thinks of there being for the individual firm a stock of capital, i.e. plant, that would be optimal for its given level of output. With a plant of “optimal” size, the firm would be minimizing its costs.

The optimal stock of capital for the firm will vary over time, due to changing demand and cost conditions. Hence, one can think of there being a time path of the optimal stock of capital for the firm. At any particular point in time, the actual plant which the firm may have can readily be greater or smaller than the optimal one. Consider Figure 1, where we denote the firm’s capital by Z, and the optimal stock of capital through time by Z**(t) (see: Arrow, 1968).

Normally, the firm can adjust its plant size only gradually, so that the gap between the actual and optimal size may persist over an extended period of time. The fact that the plant size (stock of capital) can be changed only slowly can be expressed in technical terms by saying that the firm’s capital lacks “malleability”. Perfectly “malleable” capital is capital that one can dispose of without fear of capital loss at a moment’s notice. The other extreme, perfectly non-malleable capital, is capital that, once acquired, cannot be disposed of, other than by destroying it. The concept, which will figure prominently in the discussion of overcapitalization in fisheries, is directly analogous to the concept of liquidity in finance.

In any event, to measure the gap between the actual and the optimal levels of a firm’s stock of capital, economists make use of a concept called capacity utilisation. This is measured in terms of the firm’s actual output and the level of output for which the given plant would be the optimal one. Call the levels of output Y and Y* respectively. The capacity utilisation coefficient, CU is simply: CU = Y/Y*. If CU < 1, then we would say that the firm is experiencing excess capacity, or alternatively, that it is overcapitalized. The economic consequence is that the firm is producing its given level of output at greater than minimum cost because its plant is larger than the optimal size. Obviously, we can have the reverse, namely CU > 1, in which case the firm is operating with deficient capacity, and hence is undercapitalized.

Figure 1. Time Path of Firm’s Optimal Stock of Capital

Return to Figure 1, and consider two alternative situations at time t = T, A and B. At A, the actual level of capital is Z(T), a case of “overcapitalization”, with CU < 1. The point B, with the actual level of capital Z’(T), represents the reverse, i.e. a case of “undercapitalization”, with CU > 1.

Excess capacity, or its reverse, is a “short run” concept, in that, if conditions were to remain unchanged, the firm would, in time, adjust its plant to the optimal size. As noted, the adjustment can, in fact, take a long time, and in practice, firms, and the industries of which they are a part, can experience extended periods of excess (deficient) capacity (see Morrison, 1985).

In passing, we should also observe that the measurement of capacity utilisation for major industries is taken very seriously. The measurements for such industries are used, for example, as one of the indicators of the state of the economy (Morrison, 1985).

In its study of the economic aspects of the management of marine living resources, the OECD Fisheries Committee defines excess harvesting capacity as follows: “harvesting capacity in excess of the minimum amount required to harvest the desired quantity of fish at the least cost” (OECD, 1996). This definition is entirely consistent with the above definition of excess capacity taken from standard economics. We shall find that the same basic principles from firm theory regarding overcapitalization (and the reverse) apply to fisheries.

Having said that, we must also note that there are at least three fundamental differences between the case of the firm discussed in standard economics and the problem which we face in fisheries. In the case of the aforementioned firm, we are faced with one stock of capital, and one only, although admittedly the one stock may contain complex components. We do not enjoy that degree of simplicity in fisheries.

It is now a commonplace among economists dealing with natural resources to describe these resources as “natural” capital. As with human-made capital, these resources can be regarded as assets that are capable of yielding society a stream of economic benefits through time, with the one difference being that the “natural” capital assets come to us initially as an endowment from nature.

Certainly the concept has been applied to fisheries, where one views the biomass as a form of “natural” capital, which, if properly maintained, i.e. conserved, is capable of yielding a stream of economic benefits to society indefinitely, and in which one can invest, positively or negatively. Indeed, the FAO Technical Guidelines For Responsible Fishing #4 does just that (FAO, 1997b; Guideline 1.5). See as well, OECD (1996).

What all of this means in terms of the economics of fisheries, is that we have to think in terms, not of one stock of capital, but at least two, the “natural” capital, and the capital in form of the fleet. Of fundamental importance is the fact that the two stocks of capital interact with one another.

There is a second key difference arising from mobility. Capital in the standard theory of the firm is treated as stationary. What we might now term “conventional” capital in fisheries is, more often than not, highly mobile, which means that a stock of “conventional” capital may be interacting with several different stocks of “natural” capital. Moreover, a given biomass may be subject to exploitation by several fleets, i.e. by several different gear types.

The third difference is a reflection of the open access problem afflicting most capture fisheries. In our example from the theory of the firm, the optimal stock of capital, Z**(t), is the stock of capital that is deemed to be optimal by the firm. It is also the firm, of course, that is undertaking the investment in the capital. Therefore, if the firm’s actual stock of capital is greater than, or less than, Z**(t), one can rest assured that the firm will strive to correct the situation. In the case of fisheries, on the other hand, when we come to talk of the optimal stock of “conventional” capital, it is the stock of capital that is perceived as optimal by the resource managers, as opposed to those who are actually doing the investing in such capital, the fishermen. Under conditions of open access, it is invariably the case that the fishermen, collectively, will have an incentive to invest in capital to an extent that far exceeds the resource managers’ perceived optimum. This is, in fact, just another way of restating the open access problem.

Finally, we should also note that the stock of “conventional” capital should properly be expanded beyond the fleet to include capital in the processing sector and “human” capital in the form of fishermen’s skills.

Now let us turn and consider overcapitalization in the case of regulated open access fisheries.

2.3 Overcapitalization and regulated open access fisheries

Under a regulated open access fishery, the authorities restrict the total harvest without attempting to control the total fleet size. This is exemplified by the OECD’s discussion of TAC-only resource management. By definition, property rights in such a fishery are ill defined, or non-existent. We do assume, however, that the authorities have succeeded in stabilizing the resource at what they deem to be the appropriate level.

Under these circumstances, the fishermen will regard the limited harvest as a common pool. Consider first the consequences in the special case in which the fleet is specialised to the extent that it can operate effectively only in the one fishery. We can argue that the common pool nature of the limited harvest will result in the complete dissipation of resource rent through unequivocal overcapitalization.

The argument runs as follows. Suppose that the fishery under TAC control was operating with minimum fleet size, taking into account resource fluctuations through time, and that significant resource rent was forthcoming. Since the limited harvest is a common pool, the fishermen have every incentive to compete for shares of the limited harvest. This results in the well-known phenomena of “the race for the fish” and “capital stuffing”. New vessels will enter the fleet. Existing fishermen will invest in better vessels and more gear. Typically, the fishing season will become shorter and shorter, as a result. Fishermen will have an incentive to invest in vessels and equipment so long as the expected present value of operating profits from the vessel (plus equipment) exceeds the cost of the capital. It will be perfectly rational for a fisherman to invest in such capital, in spite of the fact that the additional capacity will make a net addition to the total harvest of zero (if the authorities are successful in their TAC policy). So long as the vessel capital is not perfectly malleable (which it virtually never is), the harvesting capacity will increase beyond that which will be required to take the TAC.

Economic waste, from society’s point of view, can be expected to emerge as a consequence of two factors. First, there may be “crowding” resulting in destruction of gear as fishermen impede one another’s operations. Secondly, there will be wasted fixed costs as a reflection of the redundant vessel capital in the fishery. One can also predict that the economic rent will be fully dissipated by the process. (Munro and Scott, 1985; OECD, 1996; Vestergaard and Frost, 1994; Wilen, 1985; Homans and Wilen; 1997).

To repeat, the economic waste is from society’s point of view. From the point of view of the fishermen, the investment in “excess” capital is entirely rational. Thus, in contrast to our discussion of excess capacity in the theory of the firm, the excess capacity/overcapitalization now being confronted is not a short run phenomenon. Such is the pathology of the regulated open access fishery that the excess capacity can be expected to be of indefinite duration.

As well as predicting that excess capacity will lead to full dissipation of resource rent from the fishery, one can also predict the following. The rent dissipation will cause the industry dependent upon the fishery to be vulnerable to adverse resource and economic shocks. Hence, it can be anticipated that, periodically, pressure will be imposed upon government to provide subsidies to relieve the economic distress. Further, the excess capacity can be expected to serve as a threat to efforts to conserve the resource. The weak economic state of the fishery will give vessel owners an incentive to press for liberal TACs, or the equivalent thereof. Moreover, the larger than necessary fleet size will exacerbate the authorities’ monitoring, control and surveillance problem (Dupont, 1996).

Measuring excess capacity in these circumstances should be relatively straightforward. The OECD’s definition of excess capacity, and that of standard economics, can be applied without modification. One should, without undue difficulty, be able to calculate an industry CU. In this case, we could express CU as: CU = Y/Y’, where Y is the fleet harvest desired by the resource managers, and Y’ is the potential harvest of the fleet, given the existing stock size. Thus, typically, in the situation described, we could expect to find that: TAC = Y, while Y’ > Y. Hence, we would have CU < 1, indicating clear evidence of excess capacity.

The reason that measuring capacity is relatively simple in this special case is because:

· One of the stocks (in this case the biomass) is effectively held constant, hence we are confronting a one stock problem. There may, of course, be technical problems in coming up with precise measures of capacity. However, the problems should not be significantly different from those to be encountered in measuring capacity in other industries.

· Fleet mobility is assumed away.

Suppose now that the fleet operates between two fisheries, and two fisheries only, both of which are regulated open access fisheries, as we have defined them. In this case, one can show that both fisheries should tend towards full rent dissipation. Clearly in this case, it makes no sense to consider fleet capacity in the context of one fishery, alone. Rather it is appropriate to consider the fleet as the equivalent of a multi-product industry (Kirkley and Strand, 1988; Squires, 1987; Segerson and Squires, 1990). It should be possible to generalise the case of two fisheries to an n fisheries case, where n > 2.

Let us complicate matters a bit more by supposing that we have the following situation, in which there are three fisheries, all of which are can be characterised as regulated open access, A, B and C. Suppose that there are two fleets operating in fishery A, and that one of the fleets also operates in fishery B, while the other operates in fishery C. Our previous argument would lead us to conclude that each fleet should be treated as if it were a multi-product industry, and that each “industry” should then be assessed to determine whether or not it was subject to overcapacity.

There is one obvious conclusion which follows from this consideration of n fisheries. If an attempt is made to reduce fleet capacity in one fishery, the consequence may be simply to intensify pressure in a companion fishery.

2.4 Overcapitalization and the pure open access fishery

If our starting point is the pure open access fishery, then there are neither well-defined property rights, nor is the exploitation of the resource subject to any controls. The standard argument is that, in such a fishery, each fisherman will have an incentive to act as if the yield on the resource, the “natural” capital is zero (e.g. Clark, 1992). Hence, the sensible strategy for the fisherman is to not hesitate to join in the mining of the resource. The standard economic theory of the fishery, in turn, predicts that the resource will be mined down to the point that the economic rent from the resource is fully dissipated.

Now suppose that the hitherto unmanaged resource is placed under management, because the resource overexploitation (from society’s point of view) has become so blatant. What is seen as overexploitation of the resource is seen, as well, to be accompanied by overcapitalization.

Figure 2. Gordon-Schaefer Model I

The problem is now how to define overcapitalization, given that overcapitalization in this case is apparently linked inextricably with resource overexploitation. There are two definitions to be found in the literature that appear relevant to the pure open access case. The first is the OECD definition, already encountered. This definition, as we shall see, can be readily adapted to the case at hand.

There is a second definition commonly associated with the famous Gordon - Schaefer economic model of the fishery (Scott Gordon, economist; Benjamin Schaefer, biologist) (Gordon, 1954), which proves to be much less useful. It continues to be widely used, however (see for example: Vestergaard and Frost, 1994), so it should be considered, and considered in detail. Consider Figure 2 below.

The TR in Figure 2 refers to sustainable total revenue from the fishery, and is sustainable yield multiplied by the price of harvested fish, assumed to remain constant. TC is the total cost of Effort, assuming that the unit cost of Effort is a constant. TR - TC constitutes resource rent. E(MEY) is the level of E at which sustainable resource rent is maximised (MEY denotes Maximum Economic Yield, a term which does in fact make sense only if the rate at which society discounts future returns is zero). The optimal level of E from an economic standpoint, so the argument goes, is where resource rent is maximised, i.e. at E = E(MEY). In a pure open access fishery, on the other hand, the fishery will expand to the point at which resource rent is fully dissipated, at E = E(¥), which Gordon characterised as Bionomic Equilibrium (Gordon, 1954.). Fleet overcapacity is deemed to exist whenever E > E(MEY). Hence, under conditions of pure open access, we shall have fleet overcapacity equal to: E(¥) - E(MEY) (Vestergaard and Frost, 1994).

We accompany, for reference purposes, Figure 2 with the following figure, Figure 3, which restates the Gordon - Schaefer model in diagrammatic terms. In Figure 3, sustainable yield/revenue and costs are plotted against the biomass, rather than fishing effort (see, for example: Munro and Scott, 1985, Figure 14.4).

TR is total revenue; while TC’ is to be interpreted as the minimum cost of harvesting the sustainable yield. The biomass levels, x(MEY) and x(¥) are the biomass levels corresponding to Maximum Economic Yield and Bionomic Equilibrium respectively.

The Gordon - Schaefer model, particularly when seen from the perspective of Figure 3, is very useful for illustrating the resource exploitation consequences of pure open access. From society’s point of view, the move towards Bionomic Equilibrium represents excessive disinvestment in the resource. Conversely, moving from Bionomic Equilibrium to MEY requires a committed programme of resource investment, a programme which, depending upon circumstances, could prove to be long and painful.

Unfortunately, the Gordon-Schaefer model is not particularly useful in analysing the concomitant overcapitalization problem, for the following reason. The model has a key underlying implicit assumption, namely that the “conventional” capital (which can include human, as well as fleet, capital) is perfectly malleable (Clark, Clarke and Munro, 1979; Clark, 1985). In the model, all inputs employed in the harvesting of the resource, including “conventional” capital, are treated as flows. It is legitimate to do this, if and only if, the “conventional” capital is deemed to be perfectly malleable (Clark, Clarke and Munro, ibid.).

The implication of the assumption is that one can turn the “conventional” capital on and off like a tap. If one took the model seriously, one would, commencing at Bionomic Equilibrium, turn the “conventional” capital off entirely, thereby reducing fishing effort to zero, let the stock grow to the desired level, restart fishing effort with appropriate controls on harvests, and that would be that. There would be no worry about redundant capital emerging, because in these circumstances, no sane fisherman would retain redundant vessel capital. As Colin Clark has remarked, completely malleable capital is not really capital at all (Clark, 1985).

Figure 3. Gordon-Schaefer Model II

Thus, in the Gordon-Schaefer model, overcapitalization/excess capacity does not exist, in other than a trivial sense. The problem has been assumed away.

Since we have now had to confront the issue of “malleability” of vessel capital, and of “conventional” capital in general, head on, let us digress briefly and try to provide a couple of examples, directly relevant to fisheries. The first arises from a recent article by John Caddy on the age structure of fishing fleets (Caddy, 1993). In the article, the author examines the expected life of vessels of different types and categories. Thus, he distinguishes between industrial trawlers, which may have an expected life in excess of 20 years, and vessels in artisanal tropical fisheries, which may have life expectancies of 5 to 10 years. Assuming in both cases that the vessels have little or no use outside of fisheries, one can say, from a world perspective at least, that the industrial trawlers are decidedly non-malleable, while the vessels from the tropical artisanal fisheries have a reasonably high degree of malleability. The author notes that the term ratchet effect was coined to describe the fact that, with industrial fleets, it is easy to increase their size through investment, but very difficult to reduce once they are there (Caddy, 1993). This is essentially another way of describing the lack of malleability of such fleet capital. This example applies to physical capital, but if one also considers the human capital involved, the reverse situation is often observed, with most artisanal tropical fisheries actually showing a lack of malleability in the form of a strong asymmetry between people’s ability to enter and exit the fishing sector.

The second example relates to an actual fisheries management experience, and emphasizes the significance of perspective when discussing “conventional” capital and its malleability, or lack thereof. The example focuses upon the famous Northern Cod resource off Atlantic Canada.

When Canada implemented Extended Fisheries Jurisdiction (EFJ) in 1977, 95 percent of the Northern Cod resource became subject to Canadian control and management. This was Canada’s great prize under EFJ. Canada took the view that the resource had been seriously overexploited prior to EFJ. Hence a resource investment programme was called for, which was expected to extend over a ten year period In 1977, there did not exist a Canadian directed offshore Northern Cod fishery. The directed offshore fishery was all but exclusively a distant water fishing nation one. Canada was able to bring about the required reduction in fishing effort largely by evicting (over time) the DWFN fleets from its EEZ (Gordon and Munro, 1996). From the Canadian perspective, the DWFN fleet capital was highly malleable. Canada did not, with respect to this fishery, have a serious capacity problem.

Over time, the DWFN fleets were replaced by Canadian fleets and onshore processing capacity. By the late 1980s, the Canadian government realised that its Northern Cod resource management programme had gone badly wrong. The resource was in fact seriously overexploited, and the resource stock rebuilding programme would have to recommence.

The “conventional” capital, both physical and human, committed to the fishery, offshore and inshore, was now highly non-malleable from the Canadian perspective. Initially, the Canadian government refused to reduce the Northern Cod TAC to the extent called for by the scientists, because of the horrendous adjustment problems which such TAC reductions, combined with the aforementioned non-malleable capital, would entail. Eventually, the resource situation became so severe that the government was compelled, in 1992, to implement an outright harvest moratorium (Gordon and Munro, ibid.). The moratorium remains in place, and the adjustment problem is still very much with the Canadian government at the time of writing.

If the widely used Gordon-Schaefer model is of little value in addressing the many real world cases, when the “conventional” capital is anything but perfectly malleable, what is to be done? There does exist a set of fisheries economics articles which do allow for the possibility of “conventional” capital being non-malleable. While the articles do not address the issue of overcapitalization directly, they can provide useful insights and may suggest directions for future research (Clark, Clarke and Munro, 1979; McKelvey, 1985; McKelvey, 1987. See as well: Clark, 1985; 1992; Munro and Scott, 1985). In all cases, the examples are confined to cases of single fisheries, but it should prove possible to say something about cases involving two or more fisheries.

Now consider Figure 4, which is adapted from Clark, Clarke and Munro (1979).

Figure 4. Gordon-Schaefer Model and Non-Malleable Capital

The model, from which Figure 4 arises, is the same as the Gordon - Schaefer model, except that the assumption that vessel capital is necessarily perfectly malleable is relaxed (as is the assumption that the “social rate of discount” is necessarily equal to zero). Hence, the model can address head on the realistic case in which two stocks of capital - “natural” and “conventional” - must be dealt with simultaneously. Capital, K, by the way, is a measure of capacity (E £ K), in line with the definition of our working definition of capacity.

Now let x = x¥ denote the biomass level associated with Bionomic Equilibrium, and let x = x* denote the “optimal” level of biomass, as seen from society’s point of view. The biomass level x* may, or may not, coincide with MSE (it will not, if the social rate of discount exceeds zero). The level of capital K* denotes the minimum level of capital, or capacity, required to harvest at x* on a sustained yield basis. Similarly, K¥ denotes the minimum level of K required to harvest at x¥ on a sustained yield basis. The solid diagonal line represents the minimum levels of K required to harvest on a sustained yield basis at all biomass levels lying between x = x* and x = x¥ Given the underlying Schaefer model, it is easy to show that the minimum capacity level required to harvest on a sustained yield basis is a decreasing function of x.

Next suppose that, since the fishery is a pure open access one, we find that we are at Bionomic Equilibrium, x = x¥; K = K¥. When resource management is introduced, the resource managers announce their goal to be that of achieving the “optimum”: x = x*; K = K*. Once the optimum is achieved, it will then be possible to say that fleet capacity is commensurate with the long term productivity of the resource.

As a rough, approximate example, consider the following from Garcia and Newton (1997). In the paper, they focus, inter alia, upon relatively high valued “selected” species (excluding low valued species and small pelagics). The evidence is that the “selected” species are exploited beyond the MSY level, and that the vessel capacity directed towards exploiting these resources exceeds what would be required to exploit them at the MSY level by about 30%. Suppose that efficient exploitation of these resources at the MSY level is in fact the goal. Return to Figure 4, and let x¥, K¥ represent the current situation with respect to the “selected” species, and let x*, and K* represent the desired MSY goal.

Before proceeding further, let us digress for a moment and ask the following rather key question. If the “conventional” capital is non-malleable, why would any investor acquire such capital, given that he(she) knows that the resource is likely to be subject to “overexploitation”, and driven down to some level like x¥? The answer is the same as we have encountered before, namely that it will pay the investor to acquire the capital so long as the present value of the expected operating profits (plus scrap value) is at least as great as the cost of acquiring the capital.

In the case of “pure” open access fisheries, as we have already noted, the fishermen are given every incentive to act as if the return on the “natural” capital is negligible. It can be shown that, in these circumstances, it is entirely rational for the fishermen, collectively, to invest in “conventional” capital up to level K¥, as shown in Fig. 4. Indeed, it is quite possible that rational investment on the part of the fishermen would lead, temporarily, to the level of “conventional” capital exceeding K¥ (McKelvey, 1987). Once again, society’s, or the resource manager’s, perception of what constitutes the optimal level of “conventional” capital is quite different from that of the actual investors.

Now return to Figure 4, and our starting point at Bionomic Equilibrium. It is not enough to say where we are, and then to specify the goal that we would eventually like to achieve. We must also specify and describe the process-of-adjustment phase. The adjustment problem, with which we are now confronted, involves the simultaneous “investment” in the natural capital, the resource, and disinvestment in the “conventional” capital. The nature of the optimal adjustment depends critically upon the “malleability”, or lack thereof, of the “conventional” capital. If the latter is highly malleable, then it makes sense to go for a radical programme, in which there is rapid investment in the resource and rapid disinvestment in the “conventional” capital.

On the other hand, if the “conventional” capital is decidedly non-malleable, with the consequence that the required adjustment is likely to prove to be painful and costly, then, on hard-nosed economic grounds alone, a much slower adjustment phase is called for (see: Clark, Clarke, and Munro, ibid.). The resource managers may deeply regret the past investment decisions, but what has been done in the past cannot, in these circumstances, be easily and quickly undone.

We illustrate this as follows. We consider a case in which the “conventional” capital is non-malleable to the following extent. There is a positive re-sale, or scrap, value for the vessels, but this value is considerably less than the replacement value of the vessels. The rate of depreciation of the vessel capital is positive.

Figure 5. Time Path - Optimal Level of “Conventional” Capital Non-Maleable Capital Case.

(Source: Clark, Clarke and Munro, 1979)
The appropriate policy is to commence the resource restoration programme by selling off some, but not all, of the vessel capital. The remaining vessels, the “conventional” capital, should then be fully employed, but there should be no re-investment in the “conventional” capital until the goal of x* has been achieved (Clark, Clarke and Munro, 1979). Thus, after the initial disposition of vessels, the remaining fleet capacity will steadily diminish, due to depreciation, and the resource will steadily grow. Consider now Figure 5, which shows the optimal stock of “conventional” capital, commencing at t = 0, the point at which the management programme commences. Since the capital stock levels shown are “optimal”, there is along the path no redundancy, such as that described in the previous section.

We denote the optimal stock of capital through time as K**(t).The time path is constructed on the assumption that the optimal harvest policy is maintained throughout. It is also assumed that all other prices and costs remain constant over time. Given these assumptions, at some point in time, t = t, the stock level, x = x*, will be achieved. Once that occurs, then the level of “conventional” capital is increased to K* and maintained there indefinitely, i.e. from t = t onwards, we have K**(t) = K* (Clark, Clarke and Munro, ibid.).

Now let us return to the OECD definition of overcapitalization. That definition is not meant to apply only at long run equilibrium. Rather, it is meant to apply to the adjustment phase as well. It is to be interpreted as meaning that, if at any time t, the actual level of capital exceeds the optimal level, then overcapitalization exists. (Jon Sutinen, personal communication). Denote the actual amount of capital at time t as K(t). Thus, overcapitalization exists at time t, if K(t) > K**(t).

For purposes of comparison we add Figure 6, which shows the optimal time path of K, assuming that K is perfectly malleable. The optimal stock level would be achieved at some time earlier than t = t, say at t = g. In any event, the “conventional” capital disinvestment programme called for is draconian, to say the least. Reduce K to 0, until the stock level, x = x*, has been achieved at t = g, and then reinvest to bring K up to K*.

Return to the less drastic case presented in Figure 5. Suppose for the sake of argument, that we are at time t = q > t, and that we are at R, such that the actual level of K at that time K(q) >> K*. What are the consequences? Either the resource managers are exercising iron control over harvesting, with the result that redundancy described under regulated open access is being encountered, or such iron control is not being exercised. If the iron control is not being exercised, then the “excess” capacity will result in resource exploitation that will drive the resource below x*, and the resource management programme will be driven off course. (En passant, the time path of the optimal capital stock level will shift as a result).

At any point in time, it should be possible to make use of the capacity utilisation coefficient, referred to earlier, i.e. CU = Y/Y’, as a measure of excess capacity. Once again, Y is the fleet harvest desired by the resource managers, and Y’ is the potential harvest of the fleet, given the existing resource stock at that particular point in time. For practical reasons, the ratio may be expressed in a related manner in terms of actual and desired potential fishing effort.

Figure 6. Optimal Level of “Conventional” Capital: Perfectly Malleable

Return to Figure 1, in which we described the time path of the optimal stock level of the firm. The capital stock level Z(T) is directly comparable to K(q) in Figure 5, i.e. it represents overcapitalization. In the case of the firm, there is one possible consequence of overcapitalization, namely excessive costs. In the case of fisheries there are really three: excessive costs; overexploitation; or some combination of the two. This because we are having to deal, not with one stock, but rather with two stocks that are interacting with one another.

We must now ask whether this rather esoteric appearing theory can, in fact, be related to any resource rebuilding programmes, actual or proposed. The answer is that it can. We take two examples, the first being an investigation of alternative stock rebuilding programmes for the Georges Bank cod stock, off New England, as set forth in an article by Andrew Rosenberg and Solange Brault (1991).

As a consequence of severe overexploitation in the past, a resource rebuilding programme was called for with respect to Georges Bank cod, involving a 50 per cent reduction in fishing mortality. The authors examine several stock rebuilding scenarios, which differ according to the rate at which the reduction in fishing mortality is effected. Three alternative scenarios are considered, each involving a step by step reduction in fishing mortality. In scenario 1, the 50 per cent reduction in fishing mortality is effected over a 2 year period; in scenario 2, the reduction in fishing mortality is effected over 5 years; while in scenario 3, the desired reduction in fishing mortality is effected over a 10 year period. The authors then examine the scenarios in terms of changing harvest yields and the growth of the resource stock through time.

Scenario 1 - quick reduction in fishing mortality - leads to a sharp drop in yields in the short run, and a relatively rapid rebuilding of the resource stock. Scenarios 2 and 3 do, as expected, lead to less drastic reduction in yields in the short run, and to a much more gradual rebuilding of the resource stock (Rosenberg and Brault, 1991).

The authors state that the resource managers may wish to reject the rapid reduction in fishing mortality approach on the grounds that the approach will prove to be unduly disruptive to the fishing industry, as a consequence of the initial sharp drop in yields (Rosenberg and Brault, ibid., pp. 179-181). But the existence of a threat of disruption to the fishing industry implies, in turn, the presence of non-malleable “conventional” and/or human capital.

Return once again to Figure 5. Recall that the underlying biological model is the Schaefer model, from which we have:

¦ = qE
where ¦ is the rate of fishing mortality, q is the catchability coefficient, and E, of course, is the rate of fishing effort. Along the curve, K**(t), it is assumed that E = K. Hence, the decline in K**(t) over the period t = 0 to t = t implies a decline in the rate of fishing mortality. In Figure 5, we have, after the initial sell-off of vessel capital, a steady, continuous reduction in K**(t), and hence in fishing mortality (until t = t), rather than a step by step reduction as in the Rosenberg and Brault article. The principle is the same in both cases, however. The threat of unacceptable disruption to the fishing industry may call for a gradual, rather than rapid, approach to resource stock restoration.

All of this suggests a slightly different way of defining the optimal stock of “conventional” (and human) capital during and after the resource restoration phase. The optimal stock can be defined (making the usual allowances for resource fluctuations) as the minimum stock of such capital required to effect the desired rate of fishing mortality at each given point in time.

The second example illustrates the reverse case, a Figure 6 type situation. It involves the Norwegian Spring Spawning Herring stock, also referred to as the Atlanto-Scandian Herring stock. Historically, this stock was among the larger and more valuable stocks of the North Atlantic. When in a healthy state, the stock migrates between Norway and Iceland. When depressed, it is confined to Norwegian waters (Bjorndal et. al., 1997).

During the 1950’s and 1960’s, the resource was subject to increasingly heavy exploitation. By the late 1960’s, the stock had reached a perilously low level, and, being in a depressed state, was confined to Norwegian waters. The Norwegians then declared what was to all intents and purposes, an outright harvest moratorium, reducing the fleet close to zero. Harvests from the resource, which were just under 2 million tonnes in the mid-1960s, were down to 7 thousand tonnes by the early 1970s. The moratorium remained in effect for 20 years (Bjorndal et. al., ibid).

The moratorium was feasible politically because the vessels harvesting the herring stock could readily be diverted to other fisheries, e.g. North Sea herring, mackerel and capelin (T. Bjorndal, personal communication). Thus from the perspective of the Norwegian Spring Spawning Herring fishery, the fleet capital was highly malleable.

Note that we stress the malleability of the capital from the perspective of the aforementioned herring fishery. We are not able to comment on the consequences of the fleet diversion for other fisheries.

If the fleet is not restricted to one fishery, but can in fact operate in two or more, then, as in the case of regulated open access, one should, in attempting to measure capacity take an industry approach, i.e. not attempt to measure capacity in terms of a single fishery. What this modification to our assumptions now does is to force us to recognise is that attempts to resolve the adjustment problem in one fishery can easily lead to the exacerbation of problems being faced in other fisheries. Think of Canada’s experience with the Northern Cod fishery in the late 1970s. The vessels evicted from the Canadian zone did not disappear. We can give a name to this process.

In the Great Depression of the 1930s, it was common for countries to attempt to alleviate their unemployment problem by manipulating tariffs and exchange rates in order to reduce imports and increase exports. To the extent that these policies succeeded in a given country, it aggravated the unemployment problem in one or more of the country’s trading partners. Such policies came to be known as “Beggar My Neighbour” policies. We might term policies that reduces fleet capacity in a fishery, hitherto subject to overexploitation, but with the consequence that fleet capacity is enhanced in other fisheries, also subject to overexploitation, as “Beggar My Neighbour’s Fisheries” policies. Note the obvious in passing, namely that these policies have international, as well as national, implications and ramifications.

The discussion about fleets possibly operating in many fisheries and about one country’s attempts to relieve its overcapacity problem aggravating that of another, compels us to make a comment about perspective, and the ease with which capital can be removed from fisheries. The degree of malleability of “conventional” capital clearly depends upon perspective, as the Canadian example illustrates. From a world, as opposed to a country, perspective, the malleability of “conventional” capital has to be measured, not in terms of individual fisheries, but rather in terms of fishing activities. Thus the broader the perspective, the less malleable will the capital appear to be. Fishing vessels in excess of 100 GRT apparently have an average life expectancy of 20 to 25 years. New vessels in this category, will, from a world perspective, almost certainly be seen to constitute highly non-malleable capital.

Finally, a word about subsidies. It hardly needs to be stated that subsidies will aggravate problems of overexploitation and the building up of fleet capacity that may have to be reduced painfully in the future. The situation described also gives us some insights to the motivation behind at least some subsidy programmes. Consider a situation in which the resource managers are faced with gross overexploitation accompanied by fleets, and possibly crews, highly non-malleable in nature. It can easily be shown that it may well be far cheaper for the authorities (politically and economically) to encourage the fleet, through subsidisation programmes, to move off to different fisheries, preferably outside of national waters.


3.1 Introduction
3.2 Some general comments
3.3 Incentive blocking management measures
3.4 Incentive adjusting measures
3.5 Ancillary measures
3.6 Conclusions

3.1 Introduction

Part 3 will draw very heavily upon the OECD document, referred to at several points in Part 2, namely the Synthesis Report For the Study on the Economic Aspects of the Management of Marine Living Resources. With the exception of taxes, this report discusses virtually all of the management measures pertaining to fisheries. Since the report is concerned with the economic aspects of fisheries management, the discussion of these measures must necessarily consider how these measures affect capacity. The report is extremely thorough. It reviews the literature fully and draws upon evidence supplied by the 24 OECD members. In the discussion of each measure, the theory of the impact of the measure is put forth. Then the theory is confronted with the evidence arising from the country reports. We could not possibly do better, and it would be foolish of us to try.

What we are called upon to do is to examine the evidence and conclusions put forth by the OECD report, and then extract the material relevant to the issue of excess capacity. Thus, for example, in discussing ITQs, we shall ask what evidence the report provides us on the impact of ITQs upon capacity, while ignoring such issues as the distributional consequences of ITQs. To this discussion, we shall add commentaries on the effects of supplementing particular measures with decommissioning programmes (“buy backs”, or the equivalent thereof). Buy backs are not considered in any detail in the OECD report.

Prior to examining the specific measures, however, we offer some general comments, which arise, in part, from our discussion in Part B of the nature of “conventional” capital in fisheries.

3.2 Some general comments

In Part 2, we gave considerable emphasis to the “malleability”, or lack thereof, of “conventional” capital in fisheries, and to the mobility of much of the fleet capital. This leads us to make two interrelated observations. The first is that, when viewing from a national standpoint the problem of fisheries management in general, and overcapitalization in particular, it is not sufficient to examine the problem on a strict fishery by fishery basis. From the national standpoint, the “malleability” of capital in fisheries under pressure is really a question of how difficult or, more to the point, how costly it is to shift capital from those fisheries. We would suggest that the degree of difficulty will depend upon the level of development of the fisheries sector. If the fisheries sector is at a low level of development, it should not be unduly difficult, with the aid of controls and financial inducements, to shift “conventional” capital out of fisheries that are under pressure to those fisheries which are still lightly exploited. The degree of “malleability” of such capital will appear to be high. On the other hand, if the fisheries sector is at a high level of development, most fisheries will likely be under pressure, and there will be no easy escape from the adjustment problem that removing capital from fisheries under pressure entails. It goes without saying, of course, that if one commences with a fisheries sector at a low level of development, it is of the utmost importance to avoid the trap of allowing sectoral development to proceed in such a manner that one is ultimately confronted with overexploitation and overcapitalization all round.

The second observation is concerned with the situation in which the nation does succeed in removing “conventional” capital from its fisheries sector at large, through the use of buy backs, or other forms of control. We must, given the non-malleability of much of this capital, enquire into its disposition.

Suppose, for example, that vessels physically capable of operating with reasonable efficiency for, say 20 years, are removed from a particular fishery. It is likely that, if sold outside of the country, the vessels will fetch a price far below their replacement cost. Nonetheless, the sale price may still be well above the value of the vessels as scrap. Obviously, regardless of whether the current owner is private, or public (because the vessels have been purchased by the government under a buy back scheme), there will be an incentive to sell the vessels. It can be easily demonstrated that it should be possible to sell these vessels to operators actual, or potential, in open access fisheries, even though the fisheries have already achieved Bionomic Equilibrium. The consequences, in terms of making a bad situation worse, are too obvious to have to be spelled out (McKelvey, 1984; 1987).

On the other hand, if the potential buyers of the vessels are in fisheries that are effectively managed, then there is no problem. The potential buyers will have the opportunity of benefiting from the past mistakes and mismanagement of others. If one’s fishery is, and remains, well managed, it is not possible to lose by being offered inexpensive inputs.

We now turn to the actual management measures, as discussed in the OECD report, and examine them in terms of their usefulness in the control and reduction of capacity. The OECD report approaches its analysis of each management measure by assuming that the relevant fishery is in Bionomic Equilibrium (OECD, 1996). Thus, in terms of Figure 4, one can think of the fishery commencing at: K = K¥; x = x¥.

We shall deviate somewhat from the order used by the OECD document. The OECD makes the common distinction between output controls and input controls. To this it adds technical measures. We shall focus on the fact that many of the economic and resource ills associated with open access fisheries are a consequence of the perverse incentive system confronting fishermen in such fisheries. We shall, therefore, make a division in the management measures between those which attempt to prevent the fishermen from responding to the perverse incentives, which we shall call “incentive blocking” management measures, and those which attempt to change the incentive system itself, which we shall call “incentive adjusting” measures. An example of the former would be licence limitation schemes, while an example of the latter would be taxes. To these, we shall add ancillary measures.

In using the term “incentive blocking” measures, we do not do so pejoratively. We do not judge any of the measures on an a priori basis.

3.3 Incentive blocking management measures

3.3.1 TACs-only
3.3.2 License limitation schemes
3.3.3 Vessel catch limits
3.3.4 Individual effort quotas
3.3.5 Gear and vessel restrictions

3.3.1 TACs-only

The purpose of TACs obviously is to block fishermen in their attempt to overexploit the resource. The OECD argues that, if TACs are introduced to a hitherto pure open access fishery, the TAC, if it is going to do any good, must be set below the original harvest level. The OECD predicts that the reduced harvest level, arising from a TACs-only policy, can be expected to force out some of the marginal vessels, because they will not be covering all of their fixed costs. Hence, the initial impact will be to reduce capacity.

This may, or may not, be the case. If the vessel capital is highly non-malleable, it is quite possible that the typical vessel will not be covering its fixed costs in any case (McKelvey, 1985). In such a situation, it is not clear why the imposition of a TAC will lead to an exiting of vessels from the fishery.

In any event, the resultant growth in the stock over time, possibly accompanied by an increase in prices for the harvested fish, will enhance the profits of the surviving fishermen. This fact, plus the anticipation of increased future resource rents, will lead to increasingly intense competition for shares of the limited harvest. This in turn will lead to the influx of more fishermen into the fishery and greater investment in existing vessels and gear - “race for the fish” and “capital stuffing”. As the OECD expresses it, the “race for the fish” comes into full flower under this policy. If there is an initial decline in capacity, it will be more than offset, and redundant “conventional” capital, in the processing as well as the harvesting sector, is the inevitable result.

Indeed one can go further, and predict that the amount of “conventional” capital in the fishery will end up by being greater than it was when the TAC was first implemented (Clark, 1985). The evidence presented by the OECD is overwhelming in its support of these predictions.

In terms of Figure 5 (and 6), the initial impact of the TACs-only measure may be to drive the stock of “conventional” capital in the right direction. The measure, however, is directed towards the rebuilding of the resource only. Consequently, it is virtually certain that the stock of “conventional” capital will be built up to a level far in excess of the optimal level. The excess will lead to economic waste, and can be expected to stand as a threat to the resource investment programme. Thus, we can conclude, without hesitation or fear of contradiction, that, as far as capacity control is concerned, the TACs-only policy is an unmitigated disaster.

3.3.2 License limitation schemes

We follow the TACs-only policy with license limitation schemes, because these schemes are seldom used alone, but are normally combined with other measures, commonly TACs.

The purpose of limited license programmes is to impose a maximum on the number and/or capacity of fishing units operating in a fishery (OECD, 1996). The licenses, which may be transferable, or non-transferable, are issued (given or sold) to either the fishing unit or to the fisherman (or company). The number of fishermen and/or capacity is restricted by restricting the number of licenses.

From our perspective, the key attribute of the license limitation scheme is to curb the build up of excess capacity. Thus, when combined with a policy of implementing TACs, the license limitation scheme will serve, it is hoped, to curb the build up of excess capital that is the inevitable result of a TACs-only policy.

According to the OECD, license limitation schemes are normally implemented by issuing licenses to fishing units that have some claim of legitimacy in the fishery, either by virtue of their history of participation in the fishery and/or by having invested substantially in the fishery’s development. Following this, a moratorium is then declared on the issuance of further new licenses. Thus a maximum is imposed.

Commonly, the number of fishing units in the fishery is already deemed to be excessive at the time that the licenses are issued, i.e. there is already manifest evidence of excessive capacity. Hence, the scheme must be accompanied by a plan to reduce the licenses, and hence capacity, over time. There are, according to the OECD, three approaches which have been adopted. The simplest is attrition, which of course, will only be feasible if licenses are non-transferable. While simple, that approach is often seen as excessively slow.

The second approach is to implement a buy back scheme, in which the authorities purchase licenses plus vessels, which are thus removed from the fishery. The third approach, used when the licenses are transferable, is to surround the conditions of transfer and sale with regulations which will ensure that capacity is reduced following the transfer.

An example of the second and third approach, used in combination with one another, is provided by Canada’s Pacific salmon fishery. This fishery, which historically constituted the heart of the British Columbia fishing industry, has been plagued with the type of excess capacity which we described under the heading of regulated open access. In 1996, the Canadian Department of Fisheries and Oceans announced its Pacific Salmon Revitalisation Strategy, which had as its expressed intent the reduction of the British Columbia Pacific salmon fleet by 50 per cent over a five year period (ARA Consulting Group Inc., 1996).

Pacific salmon is harvested off British Columbia by three major gear types: seiners, gillnets and trolls, and combinations, e.g. gillnet and troll combined. The vessels had fished at will along the entire British Columbia coast. Under the Strategy, popularly known as the Mifflen Plan, after the Department’s Minister, vessel owners were restricted to one gear type. Secondly, the British Columbia coast was then divided into areas for the different gear types, e.g. two areas for seiners. A vessel license holder was then required to select one area, with his(her) license being good for one area only.

Next, the Mifflen Plan contained buy back provisions. It was announced that Can.$80 million had been set aside to purchase vessels, and licenses, and to retire them from the fishery. The buy back was then administered as a so-called “reverse” auction. Under this system, license holders would submit “bids”, i.e. sale prices, for their licenses plus vessels to a single buyer, the Department of Fisheries and Oceans. The term “reverse” auction arises from the fact that a standard auction features a single seller receiving bids from would be buyers.

Thirdly, the Mifflen Plan permitted license holders to purchase licenses from other holders. In so doing, the purchaser would be enabled to fish in additional areas, or with other gear. This provision, popularly known as “stacking”, would work as follows: Consider the owner of a seiner, initially required to choose between one of two areas. He(she) opts for Area 1, and then purchases a license from the owner of a seiner operating in Area 2. The purchaser is thus enabled to operate in both areas. Capacity is reduced (apparently) because the seller’s seiner is removed from the fleet, with the “stacking” of the two licenses on to one vessel.

It is far too early to judge the success, or lack thereof, of the Mifflen Plan. The following comments can be made, however. During the first six months of the Plan, the seiner fleet was reduced, in numbers, by roughly 22 per cent as a result of the buyback and “stacking”. The comparable figures for the gillnet fleet and the troll fleet, were roughly 28 per cent in each case (ARA Consulting Inc., 1996). To what extent true capacity was reduced over this period is unknown. The second comment is that, although the Department of Fisheries and Oceans held extensive consultations with the industry (and relevant union), the Plan proved, and has proven, to be highly controversial. The “stacking”, or intra-industry buy back provision, is the most controversial aspect of the Plan.

Return to Figure 5. A truly effective license limitation/buy back scheme, combined with effective TAC measures should be able to drive the system along the “optimal path”. That is to say, the combination could ensure that, over time, resource investment would have the effect of raising the level of the biomass, x, from x¥ to x*, while ensuring that, throughout the resource management programme, K was kept equal to K**(t).

The generally perceived problem with limited entry plus buy back schemes, when combined with TACs, however, is that the perverse incentives, which led to “capital stuffing” and the “race for the fish” in the first place, remain unchanged. Therefore, the fishermen have a powerful incentive to circumvent the regulations. Gates et. al. (1997) warn that a buy back scheme introduced when the perverse incentives remain unaltered can easily result in a short-term reduction in capacity being quickly reversed. As the prospects for the future profitability of the fishery improve, hitherto inactive harvesting capacity may become activated (Gates et. al., ibid.) Thus, for example, an active, efficient vessel owner may sell off his/her licence and use the proceeds to purchase the licence of a hitherto inactive and/or inefficient vessel owner. This substitution of human capital will have consequences that are obvious. In addition, active vessel owners, who do not sell out, may be encouraged to engage in “capital stuffing”.

In both cases, we are having to confront the fact that fishing capacity consists, not of just one input, but rather of a bundle of inputs (see, for example, Dupont, 1996). It is seldom, if ever, the case that the authorities are able to control effectively all inputs.

Thus, the issue focuses to a considerable degree on the flexibility of fisheries harvesting technology. If the technology is very inflexible, approaching what economists refer to as fixed factor proportions, then the fact that the authorities cannot control all inputs may matter little. In such cases, it will be sufficient if the authorities exercise control over a few key inputs (Dupont, 1996: OECD, 1996).

If there is a substantial amount of flexibility, and consequently input substitutability is feasible, the fishermen will naturally substitute uncontrolled inputs for controlled ones. To return to the example of the British Columbia Pacific salmon fishery, the Canadian government introduced a major limited entry programme into the fishery in 1969, which was combined, at least initially, with a buy back programme. This represented what was almost certainly the first large experiment with limited entry programmes in the world. When the programme was assessed a decade later, there was clear evidence that the number of vessels in the salmon fleet had declined significantly. It was also estimated, however, that the fleet capacity, as we have defined it, may have actually increased by 50 per cent since the inception of the programme, so successful had the fishermen been in substituting uncontrolled, for controlled, inputs (Dupont, 1996).

An example of how a limited entry and buy back (official and industry-induced) scheme can experience difficulties is shown by the EU fleet decommissioning scheme, as applied in the United Kingdom (Smith, 1997). The EU has agreed that there should be a targeted decommissioning of vessels among member coastal states, with each member being called upon to put its own scheme into place. There is a common measure of vessel capacity. The common measure the Vessel Capacity Unit (VCU) is expressed as follows:

The number of VCUs in a given vessel is equal to: (Length x Breadth) + 0.45 x P, where P is the engine power of the vessel, measured in kilowatt hours. There are two obvious difficulties with the measure and its application. First the measure does not include tonnage (LxB is an area, not a volume, measure). Secondly, it is possible to trade off area against power of engine. These weaknesses make it possible to frustrate, with some ease, attempts to reduce capacity.

In the United Kingdom, the government has attempted to reduce vessel capacity, through two means, the first being a buy back scheme, which interestingly does call for the actual breaking up of the purchased vessels. The second is through regulations pertaining to the aggregation of licenses (“stacking”). When a license is sold, and the vessel is scrapped, the vessel’s VCUs accompany the license, thus adding to the new owner’s allowed capacity. However, when the transfer/sale of VCUs takes place, the VCUs are to decrease by 10 per cent. Thus the aggregation of licenses should lead to a gradual attrition of vessel capacity in the relevant UK fleets. The U.K. government, to its dismay, has found that the horsepower and tonnage of the fleet has in fact been increasing, in spite of having spent some £25 million on buy backs (Smith, 1997).

Consider the following example (from Smith, 1997), which illustrates how the scheme can easily be subverted. Consider a vessel having the following dimensions: 20m x 5m x 1m, with a 185 kilowatt engine. The vessel has 60 tons and, using the above formula, has 183 VCUs. The vessel is scrapped and the license is sold, along with the VCUs. Under the 10 per cent rule, the new owner in fact receives an additional 165 VCUs.

The new owner has a vessel, with the following dimensions: 30m x 7.5m x 1.5m, giving it a tonnage of 200. The VCUs attributable to length and breadth are 125. One option which the recipient has is to scrap his existing vessel, and then combine the VCUs in a new vessel. Let us suppose that he does that, and that the new vessel has the same size engine as his original vessel. He will in effect use all of his additional VCUs to build a vessel larger than his original one. In so doing, he can allocate 225 + 165 VCUs to the size of his new vessel. He could, for example, build a vessel having the following dimensions: 40m x 10m x 2m. The new vessel is 480 tons in size.

The two vessels removed from the water had a combined tonnage of 60 + 200 = 260 tons. The new vessel has a tonnage almost 85 per cent greater than the two old ones combined, in spite of the 10 per cent rule. Given that the incentives of the fisherman are those which we have described under limited entry, he will find the opportunity to increase his effective capacity irresistible. In any event, the looseness of the VCU system enables the fishermen to undermine the UK’s attempt to reduce fleet capacity.

The OECD obtained evidence on 38 fisheries among its members in which limited entry schemes were used. Generally speaking, the evidence is discouraging. The limited entry schemes did not appear to be particularly effective in mitigating capital stuffing, and the race for the fish, i.e. in dealing with the regulated open access excess capacity problem. The results suggest that input substitution possibilities are high and/or that the limited entry schemes were poorly designed.

In addition to the OECD survey, we have an extensive survey of limited entry programmes that was undertaken a few years earlier by Ralph Townsend (Townsend, 1990). He is somewhat less discouraging than the OECD, in terms of the efficacy of such programmes. He points out that the success of a limited entry scheme will be dependent upon its restrictiveness and upon the degree of complexity of the fishery. The more restrictive the scheme, of course, the more costly it is to administer. An additional point which he makes strongly is that, even where the scheme successfully suppresses capital stuffing, it does nothing to curb the fishermen’s incentive to deplete the stock. Hence, the threat to resource conservation remains as a constant (Townsend, ibid.).

If the limited entry (plus buy back) scheme is not really effective over the long run, and if one wants to be really pessimistic, then one should reflect upon the fact that there is not clear evidence that all coastal states are like the U.K., in scrapping the vessels removed through buy backs. If the vessels removed through buy backs find their way through “fire sales” to mismanaged fisheries in other parts of the world, and if the capacity removed by buy backs is in fact being quickly replaced in the relevant fisheries due to the lack of efficacy of the limited entry scheme, then we may be getting the worst of both worlds. In other words, the net impact of these schemes could be to increase world capacity, rather than to reduce it.

There are three comments that must be made, however. The first is that the OECD evidence is heavily dominated by that from developed countries. Developing countries do not appear to have been much more successful in implementing such schemes, but may be in a better position to do so. There is some empirical evidence that in many developing countries the fishing technology used in industrial fisheries (as opposed to artisanal) is more inflexible than that to be found in developed countries, or made so by prevailing conditions limiting access to technology and capital. Many developing countries also have the advantage of having gained experience in limited entry through the management of rather malleable foreign fleets. While extending such schemes to their national fleet early in the development process, some countries have successfully strengthened control of its expansion as foreign vessels were progressively replaced.

The second comment pertains to the possibility of a well designed limited entry scheme being more than just an incentive blocking one. If the number of fishing vessel owners in a limited entry scheme is large, e.g. the UK, then one would expect the fishermen to act like competitors, with all that that implies. If on the other hand, the numbers are “small”, then the possibility exists that the vessel owners would begin to coalesce. In other words, in these circumstances, the competitive game situation, which characterises so many limited entry schemes, would be replaced by a cooperative game one. Should that occur, one could anticipate that the vessel owners themselves would engage in intra-industry buy backs, in order to enhance their joint profits from the fisheries. That still leaves the question, of course, as to what would happen to the vessels removed from the fishery, or fisheries.

The third comment is that we have to this point considered limited license schemes only in combination with TACs. They could prove to more effective when combined with other measures. The OECD report points out that limited license schemes, when combined with vessel catch limits, to be discussed, take on many of the attributes of individual harvest quotas. Since we shall report that the evidence supports the claim that IQs are effective as a means of controlling capacity, this fact is significant.

Finally, while recognizing the inherent difficulty of effectively controlling vessel capacity, one may wonder if the relatively poor performance of most limited entry schemes is not predominantly due to the lack of real commitment to effective control. There is indeed ample evidence that most schemes have been implemented until recently against a sectoral policy background of laissez-faire and of prompt compromise on socially or politically sensitive aspects of any schemes. In North America, for example, the large number of underutilized or inactive permits attests to rather generous initial allocations and is now making it quite complex to implement license retirement programmes. In more general terms, many limited entry programmes were actually initiated against a policy framework of intensive subsidization for vessel construction and improvement. One may also point out that limited entry schemes have in the past seldom been implemented in partnership with the industry, a sine qua non condition for success in our opinion. This is not to say that industry participation was not sought, but that is was often reduced to influencing schemes so as to actually reduce their most binding measures.

This design of more appropriate limited entry schemes remains an important issue for the control of fishing capacity, not only because there are reasons to doubt the general efficacy of incentive changing schemes, such as ITQs, but also because limited entry is likely to remain more readily applicable for many fisheries as well as for most developing countries (if only because monitoring, control and surveillance (MCS) is a lot more affordable and practical if applied to vessel capacity than if applied to catches).

3.3.3 Vessel catch limits

Vessel catch limits restrict the amount that a vessel can land, either on a per-trip basis, or on a per period of time basis, e.g. per day, week, or month. The former do not restrict the number of trips that a vessel can take; the latter do not restrict the number of days, weeks, months that a vessels can operate. The restrictions on the harvests are expected to increase the resource. There may, or may not, be a significant exodus of vessels from the fishery at the beginning of the programme.

According to the OECD report, it is expected that vessel catch limits will mitigate the race for the fish and capital stuffing, and thus mitigate the tendency towards overcapacity. Vessel catch limits are often used in combination with other control measures. The extent to which vessel catch limits do mitigate the tendency towards excess capacity will depend to some considerable degree upon the other measures with which they are combined. The OECD report expresses doubts about the efficacy of vessel catch limits in this regard, if combined with TACs. On the other hand, as has been pointed out, if they are combined with limited license schemes, they then take on many of the attributes of IQs. The OECD report also points out that vessel catch limits, when combined with effort quotas, also mimic IQ s in their effects.

It is interesting that, in both instances, measures which individually are incentive blocking in nature, when combined, act to some degree like incentive-altering measures. The OECD report does complain that the combinations are less efficient than true IQs, particularly the transferable variety. Be that as it may, given that the efficacy of IQs is not without limits, particularly in developing countries, the “second best” combinations remain worthy of serious consideration.

The OECD evidence on vessel catch limits is somewhat sketchy. The evidence does confirm the OECD view that such limits, when combined with TACs, do little to mitigate the overcapitalization associated with regulated open access.

3.3.4 Individual effort quotas

Individual effort quotas limit the amount of fishing effort which a fisherman - producer - can apply per year, where, according to the OECD, effort is defined in terms of the amount of time a given unit spends fishing, if the gear is mobile, or the number of units applied, if the gear is fixed. The OECD argues that the quotas must be combined with restrictions on the number of participants, if the measure is to have any chance of success.

The effect of this measure on true capacity depends upon whether the link between effort, as defined for purposes of implementation of the measure, and catch, is inflexible. Return to our definition of vessel/fleet capacity and note that the measure ignores productivity. If the link is flexible, then participants will attempt to increase catch by increasing productivity of their units or their time at sea. The tendency will be particularly strong if TACs are combined with the effort quotas.

By and in the large, the evidence forthcoming from the OECD report on the effect of individual effort quotas on capacity is not particularly clear. Overall, the evidence suggests (weakly) that the effort quotas do little to stem capital stuffing or the race for the fish. On the other hand, recall our comments on combining such quotas with vessel catch limits and limited entry schemes.

3.3.5 Gear and vessel restrictions

These are measures designed to reduce and constrain the productivity of individual fishing units. It is expected that such measures will mitigate the tendency towards overcapitalization. The evidence produced by the OECD report is weakly supportive.

There is, however, one nagging question which must be addressed. One approach to measuring excess capacity in a regulated open access situation is in terms of cost. That is to say, excess capacity is measured by comparing the actual cost of harvesting with the costs that would prevail if the amount of capital employed was optimal. If this approach is taken, then it is difficult to see how a measure designed to increase costs artificially will improve the perceived excess capacity problem.

3.4 Incentive adjusting measures

3.4.1 Taxes
3.4.2 Individual harvest quotas
3.4.3 Co-management and community-based fisheries management

The incentive adjusting measures, as the term suggests, are designed to change the incentive structure facing the fishermen (and companies), such that their tendencies towards overexploitation and overcapitalization are eliminated, or are at least mitigated. The measures fall into two broad categories, taxes, and those designed to create full, or partial, property rights for fishermen. The use of taxes, in passing, is the traditional policy prescription that economists have put forward for countering socially undesirable incentives.

3.4.1 Taxes

Taxes constitute the one measure of fisheries management which the OECD report did not choose to consider. We take the view that taxes are indeed worthy of consideration and that they have significant implications for the control of capacity.

There are two ways in which one can view taxes as a measure for managing fisheries. First, one can say that the outcome of open access fisheries is a case of “market failure”, in which the market sends the wrong signals to the fishermen. Taxes are seen as a means of correcting the market signals. Alternatively, one can argue that the aforementioned “market failure” is a result of ill defined property rights to the resources. If we are concerned with resources within the EEZ, the resources are in fact the property of the state. If the state introduces thorough-going taxes on fisheries, which absorb most, if not all, of the rent, then the state will be fulfilling its role as landlord (sealord?), and the property rights problem, and its resultant consequences, will be solved.

The theory of the operation of taxes in fisheries is, on the surface at least, simple and straightforward. Return to Figure 4. The theory states that the authorities should set taxes on landings, or effort, such that perceived Bionomic Equilibrium for the fleet will be x*, with the consequence that, if the resource stock is driven below x*, the vessel owners will not cover their full costs. Even if there is a high degree of non-malleability in the fleet capital, with the result that vessel owners are prepared to operate for a time without covering full costs, the system will converge in time to x*, i.e. x* will be the long run equilibrium (McKelvey, 1985).

Now turn to Figures 5 and 6. If Figure 6 is most representative of the situation - “conventional” capital is highly malleable - then a “brutal” tax programme is called for, in which taxes are immediately set, such that only when the resource has been restored to x* will vessel owners cover their full costs. If, on the other hand, Figure 5 is more representative, then a more gradual tax programme is appropriate, in which the taxes are initially imposed at a low level, and in which there are then successive turns of the tax screw.

Once the system is stabilised at x*, there should be no further capacity problems. There is no reason why there should be redundant capital emerging. There is no artificially restricted harvest for which the fishermen are competing, as under a TAC policy. The fleet should converge to a level which is roughly the minimum required to harvest at x* on a sustained yield basis.

The objections to the use of taxes have, in the past, been two fold. First, in order to apply taxes precisely, one has to be prepared to adjust them continuously, due to continual shifts in resource and economic conditions. Furthermore, as fishing firms (producers) are far from identical, one would require a separate tax for each firm in order to achieve the optimum outcome. This is obviously impossible, both politically and in terms of the amount of information required by the authorities (Arnason, 1990). The second objection is that control through the use of taxes is politically unacceptable. Fishermen would never tolerate such a system (Munro and Scott, 1985). Hence taxes, as a means of control in fisheries, constitute a theoretical plaything for academic economists. Indeed, it is undoubtedly because taxes are so little used in OECD fisheries management regimes, that the tax management measure was ignored by the OECD report.

The response to the first criticism is that perfection is not sought. Rather what is sought is a measure which is better than the alternatives. One must, after all, not allow the best to become the enemy of the good. For example, the OECD report does, as will be seen, place a great deal of emphasis on the efficacy of ITQs. The argument will be made that a well working system of ITQs can go a long way towards controlling excess capacity. Yet there are many fisheries, particularly in tropical developing countries, in which ITQs are simply not feasible. If taxes, albeit imperfectly applied, constitute an alternative, then that alternative has to be considered, and considered seriously.

The response to the second criticism is that there are now examples where taxes, or the equivalent thereof, have been applied, and applied with some success. A fully documented case, a report on which was published in 1995, concerns Mauritania (Cunningham et. al., 1995). Since this example may have relevance to other developing countries, it is worth considering in detail.

Mauritania has roughly 750 km of coast line and a highly productive EEZ of 200,000 square km. Its fisheries have developed since the establishment of its EEZ in 1978. Fisheries have now come to play a key role in the country’s economy, accounting for 24 per cent of its fiscal revenues, and 67 per cent of its foreign exchange earnings. The fishing industry is overwhelmingly export oriented. Of the exports, approximately 60 per cent are accounted for by cephalopods. These harvests, plus harvests of demersal species, must be landed in Mauritania. In 1984, the Société Mauritanienne de Commercialisation de Poisson (Mauritanian Fish Marketing Company) was established to purchase and market such fish. The SMCP was given monopsony power, in that all fish which had, by law, to be landed in Mauritania could be sold only to the SMCP. The state owned company was originally set up as a means of enhancing Mauritania’s marketing power in the export markets and to prevent transfer pricing by joint ventures. In essence, the authorities stumbled across the fact that the company was also an extremely useful device for extracting resource rent from the fisheries. The difference between the export price and the ex-vessel price, plus allowances for shipping, handling, administration etc., was the equivalent of a resource tax. As the authors note, the “tax” served, not only as means of extracting resource rent, but also as a means of managing the fishery. (Cunningham et. al., ibid.).

Cunningham et. al. maintain that the system worked extremely well. Just how well, was shown in 1991 when the government allowed the monopsony power of the SMCP to be undermined. The results were disastrous. In 1993, the monopsony power of the SMCP was restored, although there are now moves towards privatising the company at the insistence of the World Bank. The authors have grave reservations about the move (Cunningham et. al., ibid.).

The current economics of fisheries management would strongly suggest that the aforementioned monopsony could go a very long way in addressing the standard economic management problems in capture fisheries management (Clark and Munro, 1980). That does not explain, however, how it was possible both politically and administratively to establish such a successful system. The authors give four reasons for the success of the SMCP:

· The importance of fisheries to the economy meant that there was an acceptance politically of the need for the government to extract resource rent from the fisheries.

· The nature of the SMCP, as an institution, made it feasible to impose resource taxes, in a way in which it would not have been, had standard taxes been imposed on landings or effort.

· Ease of enforcement, in that there are few landing points and limited market opportunities for the fish.

· There are no other coastal activities that are in competition with fisheries, hence there were no inter-sectoral difficulties which had to be addressed. (Cunningham et al., ibid.).

There are obviously political, but also historical reasons, why taxation has seldom been used in fisheries management as a corrective tool to reduce or constrain growth in fishing effort. Indeed, effort and capacity management has seldom been emphasized in healthy fisheries but rather late in the expansion process with respect to already mature or over-capitalized open access fisheries.

A noticeable exception concerns offshore (‘industrial’) fishing in developing countries. In those countries, taxation was applied first to foreign vessels seeking access to newly created EEZs. Early in the process, taxation was primarily perceived as government revenues, with access rights being initially negotiated with respect to broader geopolitical consideration. As countries assumed their new fishery management responsibilities, taxation has increasingly been perceived as a rent creation and extraction mechanism, and countries have learned to take increasing advantage of a rather competitive industry to extract increasing rent. At present, many of these countries have also developed fleets of their own, first under joint-venture agreements, and then as fully-owned national companies. In most countries, the industry is increasingly composed of vessels and companies having different status: national, joint venture, foreign. Rent extraction mechanisms have been adjusted accordingly, with national companies generally receiving preferential treatment. However, the prevalence of joint-venture and related partnership agreements has rendered this categorisation difficult and been the source of many problems (Gréboval, 1997). As a result, taxation in the form of rent extraction has continued to be applied to most of the industry, generally in the context of limited entry and independently of the status of vessels and companies concerned.

This situation is particularly typical of Africa, where rent extraction through taxation is the norm not only for foreign vessels but for national fishing companies as well, independently of vessel flags. For foreign vessels, the rate of extraction is generally close to 15% of ex-vessel value; for national fishing companies it varies from 15% in Namibia to about 7% in Mozambique and Tanzania, and to about 5% in Madagascar. This may not represent too significant a percentage in terms of total resource rent and in terms of reducing incentives to fleet growth. However, the mechanism exists and is being used increasingly for management purposes as a complement to license limitation. In Madagascar, for example, rent extraction through licence rights is essentially applied to nationals and is used partially to co-finance research and management programmes. Most important is that it gives a strong incentive to all parties to effectively control catch and effort expansion when required (the government extracts much needed funds in exchange for the relative protection of existing companies against uncontrolled capacity expansion).

If taxation has not fared well in the political arena of most developed countries, the adoption of property-rights and ITQ schemes has constituted a new opportunity for rent extraction through taxation. Taxation under open access (regulated or not) had indeed been difficult to justify as it amounts to short-term rent extraction without any guarantee of sustainability in rent formation, and therefore without any potential benefits to the industry. Typically, under open access, any resource rent left to the industry would progressively be dissipated and taxation would then become politically incorrect. Under property rights, such guarantee of sustainability exists, especially under ITQs. In this context, taxation is no longer a method of rent extraction but of rent allocation. The main view is that ITQs are leasehold user rights of national wealth and that governments should therefore charge appropriate rental charge. The way such a charge could be imposed has been discussed by authors such as Grafton (1995). The overall efficiency of this approach has also been challenged, especially if aimed at total reallocation of resource rent to government (Johnson, 1995). Taxation indeed raises several issues with regard to rent reallocation: status of rights; basis for rental charges; impact on behaviour by industry and regulators; impact on resource use.

Another tendency which is particularly acute in Australia and New Zealand is to equate the extraction or reallocation of resource rent with management cost recovery. This means that rent-related taxation is no longer perceived by the industry and government as part of a leasing agreement but as a cost-sharing arrangement for management. It has two consequences in our opinion: the tendency for the industry to pressure government to reduce management cost, and the evolution of ITQs from a form of lease arrangement towards the implicit transfer of property of the resource itself.

3.4.2 Individual harvest quotas

The OECD defines individual harvest quotas (IQs) as quotas that give an individual producer, or fishing unit, the right to catch a specified quantity and species of fish in a specific location during a specific period of time. The resource management authorities continue to set the overall TAC.

The IQ can be expressed as a fixed quantity, or as a percentage of whatever the TAC may happen to be. The OECD report points out that most IQ systems now take the latter form. IQ s are now deemed to be property, and if transferable (ITQs), may be bought, sold, leased and exchanged like other forms of property.

With respect to capacity, the chief feature of IQs, is seen to be that, by guaranteeing a share of the harvest to each fishing unit, the incentive to race for the fish is eliminated. Hence the overcapitalization associated with regulated open access, if not eliminated, is at least greatly mitigated. If the IQs are transferable, this is seen to enhance the capacity limiting aspects of the system. High cost producers will be encouraged to sell out to low cost producers, thereby helping to eliminate some of the excess capital in the fishery.

Quentin Grafton (1996) provides evidence that ITQs can indeed lead to significant reductions in capacity. Thus, for example, after ITQs were introduced to the Australian southern bluefin tuna fishery, the number of quota holders declined by 55 per cent over a four year period. He observes, as well, that the speed of fleet adjustment proves to be very sensitive to earning opportunities for vessels outside of the ITQ fishery. But this, of course, is just capital malleability under another name (Grafton, ibid.).

The point has also been made that, with an ITQ system, buy back programmes, which have had such a dubious record under strict limited entry schemes, may in fact become a useful ancillary instrument (Davidse, 1995). Buy back schemes under strict limited entry, have tended to founder for two reasons. First, since the incentives remain unchanged, capacity tends to flow back in to the fishery after the extraction of capacity through the buy backs. Secondly, as the buy backs proceed, the anticipated future rent from the fishery will drive up the price of the vessel licenses. Consequently, the buy back programme becomes prohibitively expensive for the authorities (Davidse, ibid.). Under an ITQ scheme, on the other hand, the incentives have been corrected. Furthermore, the capitalised expected future resource rent is captured in the value of the ITQ, rather than in the value of the vessel license. Thus, a buy back programme may be used to encourage and facilitate the transfer of ITQs from high to low cost producers and the removal of vessels from the fishery (Davidse, ibid.).

The evidence provided by the OECD report strongly supports the claim that IQs, and particularly ITQs, do serve to mitigate the race for the fish and the accompanying capital stuffing. Thus, if one accepts the findings of the OECD report, then one must conclude that IQ s do constitute a major tool for the control of capacity.

One may be able to take this a bit further. The IQ s and ITQs, as described, reduce the incentive of the fishermen to race for the fish. They do not, however, appear to give the fishermen any great incentive to view the resource as a long term asset, and hence do not reduce their tendency towards overexploitation. However, there is now an argument to the effect that, given the way IQ schemes appear to be evolving, they may in fact cause fishermen to view the resources as long term assets.

The argument runs as follows. IQs schemes are increasingly becoming ITQs. Moreover, there is also a tendency towards increasingly long term ITQs, e.g. in New Zealand, where they are permanent in term. Combining these facts with the fact that the ITQs are now normally expressed as percentages of the TAC, the ITQs are beginning, more and more, to take on the characteristics of corporate shares. Hence, we could anticipate that ITQ holders would begin to coalesce and to act like de facto collective owners of the resource (Munro, 1997). It is observed in New Zealand that, in some ITQ fisheries, the ITQ holders are forming themselves into so-called “Quota Holding Companies”. It is further observed that ITQ holders are being called upon to shoulder a greater share of the resource management costs, a move which can be expected to elicit a demand on the part of ITQ holders for an increasing role in the management of the resource. Hence, what is being envisaged is the evolution of ITQ fisheries towards corporate fisheries, in which the ITQ holders would have the incentive to view the resources as long-term assets (Munro, ibid.).

Consider the implications of these conjectures, if they prove to be correct. As we have now emphasised, overcapitalization in fisheries carries with it the dual threat of economic waste through redundancy and of overexploitation of the resource, as gauged in terms of current resource management plans. Return to Figure 5. If the ITQ holders, collectively come to regard the resource as a long term asset, then they will have an incentive: (1) to avoid the economic waste associated with redundancy; and (2) to maintain the resource level at the target level of x*. Both incentives will arise from the desire to maximise the ITQ holders’ collective economic return from the resource through time.

There, are, however, several caveats which have to be put forward. First, saying that the ITQ holders will be eager to stabilise the resource at x* (Figure 5), assumes that the ITQ holders discount future returns from the fishery at the same rate as does the government (society at large). If the ITQ holders discount the returns at a higher rate, then overexploitation of the resource, from society’s point of view, remains a distinct possibility, although admittedly to a much lesser degree than it does when the perverse incentives remain unadjusted.

Secondly, ITQs, which are still essentially in an experimental stage, may have limited applicability, a point made earlier. Daniel Pauly, in a review of ITQ schemes, insists that we must remain skeptical of their applicability in tropical inshore fisheries, which he describes as species rich and data poor. He concludes, rather acidly, that ITQ schemes are unlikely to be able to tolerate warm water (Pauly, 1996). Finally, we have to repeat the point which has now been made over and over, namely that, if a “corporate” type of fishery does succeed in eliminating excess capacity from given fisheries, we must ask what becomes of the excess capacity.

3.4.3 Co-management and community-based fisheries management

As the OECD report points out, the definition of co-management is not precise (OECD, 1996). It implies that the authorities are sharing some of the resource management powers with user groups. This can vary from very limited sharing of powers to community-based fisheries management systems, such as those found in Japan, in which most of the management powers have in fact been granted to the community. For such community based management schemes to have a reasonable chance of success, it is necessary, according to Pinkerton and Weinstein (1995), that there be:

· a minimum degree of exclusivity with respect to the resource.

· a high degree of dependence of community members upon the resource.

· an ability of the community members to assert management rights on an informal, if not formal, basis.

A well developed community-based fisheries management scheme, e.g. that of Japan, implies the vesting of property rights to the resource on a collective basis upon the members of the community. Such schemes thus take on many of the attributes of advanced ITQ schemes - “corporate” fisheries (Munro, 1997). One should expect the same consequences for the control of capacity. That is to say, one would anticipate that, in order to maximise the benefits (however defined) from the fishery, the community would attempt both to conserve the resource and to minimise the economic waste arising from redundancy.

The evidence on community-based fisheries management is limited. What there is does indeed suggest that effective community-based fisheries management schemes must be considered as another effective tool for the control of excess fleet and processing capacity (OECD, ibid.; Pinkerton and Weinstein, ibid.).

This approach appears to be quite suited to the management of inshore and coastal fisheries whenever their exploitation is based on strong community organizations. A large part of the inshore and coastal fisheries of developing countries are exploited by fisherfolk communities with some structure of traditional local authority. Many of these communities have in recent years organized themselves into more modern and decentralized organizations which are starting to play an increasing role in fisheries management, e.g. in Senegal or India. Such organizations also exist in OECD countries. This is the case, for example, of the port-based French Prud’homies and Spanish Confradias of the Mediterranean: centuries old organizations which still regulate fishing activity. More recently established fishermen associations have also come to play an active role in management, this is the case for example of the management of ‘sectoral quota allocations’ by British producer organizations.

Co-management and community management amount to a transfer of responsibilities from the government. If indeed professional or community organizations are seen to be playing a more active role in fisheries management, very few governments are yet ready to proceed with the institutional changes required for effective decentralisation, in the sense of an actual transfer of some management responsibilities to autonomous organizations. It is therefore difficult to assess the efficacy of decentralized methods. Obviously, the better fishermen organize themselves at local, regional and national levels, the easier it would be for government to consider some form of decentralisation. A coordinated planning and training effort would nevertheless appear to be called for to strengthen user-group’s active involvement in management and there again, few governments have systematically followed such policy.

The fisheries management methods reviewed so far in Section 3 deal mostly with the control of catch-effort-capacity in the context of the central management of individual fishing units. To a large extent, these methods have been developed and applied without reference to the institutional and organisational aspects of eventual industry or community involvement in management (other than through the work of consultative mechanisms and lobbies). Co-management and community management constitute a clear departure from that approach in that they start with some degree of group empowerment. Of course, some of the management methods reviewed so far would have to be applied subsequently, but in a very different environment. The government may choose to retain some degree of control over harvest or harvesting capacity. If it is the case, one of the main differences is that any global quota or limit imposed by the government authority would be managed by a group of producers or a community, rather than by complex administrative rules or by market forces. The incentive structure facing the group of fishermen concerned is clearly different when it is empowered with some user rights. When few fishermen are involved, this incentive structure may actually be close to that of an ITQ fishery. In the case of ITQs, one indeed notes a tendency for the beneficiaries to coalesce once the system has been established, at least in the sense of organizing and adopting a group behaviour which is close to the behaviour that one would have expected from a fisherman organization if the rights had been given to it to start with (oligolopy behaviour?). Significant differences exist nevertheless as co-management and community management are more readily applicable to a wider range of fisheries and beneficiaries, especially whenever management is undertaken not only in reference to financial returns but to wider community considerations.

3.5 Ancillary measures

For the sake of completeness, we include ancillary measures, or what the OECD report refers to as technical measures. These can be dealt with summarily.

Specifically, we consider size and selectivity restrictions, along with time and area closures. The former, such as mesh size regulations, are, according to the OECD report, very similar to gear restrictions in their effect. While expected to have beneficial effects upon the resource, they are expected, if combined with TACs, to do little towards mitigating the “race for fish” and capital stuffing.

As the names suggest, time and area closures, prohibit fishing at specified times and in specified areas. These measures can produce significant benefits for the resource, but, once again, there is little or no evidence that they have significant benefits in terms of control of capacity (OECD, ibid.). In significantly overexploited fisheries for which the control of capacity is being achieved through other means, ancillary measures may nevertheless play a key role in adjusting stock size to higher levels.

3.6 Conclusions

In reviewing the resource management measures, as they pertain to the capacity problem, we come to much the same conclusion that the OECD report did with respect to resource management measures in general. Those measures which look most promising are those designed to change the incentive system confronting fishermen. Incentive blocking measures have, by and large, produced disappointing results. This is exemplified by the use of limited entry programmes combined with TACs. The combination represents the single most important incentive blocking scheme designed and applied to address the capacity problem. The evidence produced by the OECD gives us little confidence in the effectiveness of this scheme as implemented so far.

One difference between our assessment, and that of the OECD, is that we are insistent upon including taxes, or their equivalent, among the incentive adjusting measures. We do so in recognition of the fact that there is evidence that taxes can be effectively applied in some countries, especially if some kind of exclusivity is recognized. While incentive adjusting methods appear more promising for the control of capacity, there is also evidence that these schemes, are not readily applicable to many fisheries or countries. This is obviously the case for rent extraction through taxation. But there is also ample evidence that schemes such as ITQs are not readily applicable to many fisheries and infeasible in most developing countries.

Another difference is the recognition that some form of decentralisation, in the form of empowering well structured producer or community organizations, may provide the required incentive for effective control of capacity in some fisheries. This is the case of inshore-coastal fisheries and of the small-scale artisanal fisheries of many developing countries in particular. This observation points to the need for national fishery authorities to put increased emphasis on institutional and organizational aspects of fisheries management, especially with respect to controlling fishing capacity.


4.1 Subsidies
4.2 Defining a proper framework for the management of fishing capacity
4.3 Considerations relative to the distribution of wealth
4.4 Transboundary and high seas fishery resources

In this part, we discuss four selected issues of direct relevance to the overcapitalization problem or the control of fishing capacity in general. These are subsidies, the framework of fishing capacity management, the distribution of wealth, and transboundary resources. The first was touched upon in passing; the others have, up to this point, been ignored.

4.1 Subsidies

The question of subsidies was raised very briefly under the heading of the economics of overcapitalization. The obvious points were made that subsides can aggravate the problem of overcapitalization, and that the evidence indicates that they do just that, probably on a massive scale. We now want to return to consider subsidies in light of our discussion of the economics of overcapitalization and possible methods of control. In so doing, we shall draw heavily on a recent, and thorough, study of subsidies in fisheries carried out by Matteo Milazzo, National Marine Fisheries Service (U.S.A.) (1996). In the study, the author provides a general discussion and an analysis, along with several case studies.

The key question to be asked is the motivation behind subsidy programmes. The answers are not obvious. In our discussion of resource management, we did, upon referring to resource managers, do so with the clear implication that the resource managers were and are the relevant governments. And yet the providers of the subsidies, which so aggravate the problems of overexploitation and overcapitalization, are the same governments.

We shall, in fact, not come up with really satisfactory answers to the question of motivation. In November 1996, an international symposium on the interrelationship between fisheries management practices and international trade was held in Wellington, New Zealand (PECC Task Force on Fisheries Development and Cooperation, 1996). Subsidies in fisheries figured prominently in the discussion at the symposium. One of the key conclusions arising from the symposium was that motivation behind, and the impact of, such subsidies is poorly understood (PECC Task Force on Fisheries Development and Cooperation, ibid.).

What the Milazzo study suggests first is that a part of the problem arises from the fact that a “government” has many parts and many interests. Hence, it should not be surprising that governmental goals are often inconsistent. Thus governments in several developed countries have, as a part of their policies, the provision of support for ailing shipbuilding industries. The construction of fishing vessels is important for most of these ailing industries. Thus, while a government may be attempting to reduce its fishing fleets with one set of policies, it may, with another directed at shipbuilding, be indirectly supporting the maintenance of the fleets, if not their growth (Milazzo, ibid.).

Secondly, the Milazzo study suggests that fishing industry subsidy programmes have been particularly significant in distant water fishing nations (DWFNs, hereafter). Many DWFNs, e.g. Japan, the EU, were confronted with a severe adjustment problem by EFJ. Their fleets were denied access to many fisheries, which the fleets, heretofore, had regarded as traditional. From the perspective of the DWFNs, the displaced fleets (and crews) constituted capital that was distinctly non-malleable with respect to fishing activities. As we suggested earlier, it is more than possible that the least costly course of action for the respective governments, economically and politically, was to subsidize the fleets in their search for alternative activities, through the gaining of access to other EEZs (e.g. of developing coastal states) and by exploiting hitherto lightly fished resources in the remaining high seas.

It should be noted in passing, that the DWFNs would have no incentive to conserve the high seas resources they were now seeking to exploit. These fisheries were, after all, virtually text book examples of pure open access fisheries. Hence, the build up of capital in these fisheries was, from the point of view of the DWFNs, entirely rational. Furthermore, to the extent that they did gain access to new EEZs, and to the extent that these access arrangements were short-term and uncertain, they would, as well, have no incentive to work towards the conservation of the intra-EEZ resources.

Outside of supporting attempts to gain access to new fisheries, the governments supporting DWFN fleets would, in light of the severe adjustment problems that they were confronting with these fleets, be under strong pressure to cushion the blow through subsidies. The Milazzo study does, for example, observe that the main effect of the Japanese subsidy programme, which is substantial, has been to cause the decline in the Japanese fishing fleet to be less precipitous than would otherwise have been the case.

DWFNs are not the only fishing nations to make extensive use of subsidies in their fisheries. One can think of several states that are strictly coastal states which have employed subsidies extensively. Here the motivation is murkier. In good part, it may be a reaction to past mis-management that has left fisheries in conditions of economic distress, which the authorities feel they must alleviate. In any event, it is a question that demands a substantial amount of additional research.

4.2 Defining a proper framework for the management of fishing capacity

In most countries, fisheries management has taken place over the last decades against a broader policy background which was seldom conducive to efficacy and generally dominated by laissez faire and uncontrolled subsidization. The management of capacity would obviously require a more compatible and coherent policy framework. This leads to a rather obvious need for the issue to be addressed first at the sectoral level. It is at this level and sometimes at the multisectoral level that a more coherent framework has to be developed, both with respect to institutional and organizational matters, and with respect to investment-related policies (viz.: pricing, access, mode of production, etc). Interestingly enough, a sectoral approach has been more prevalent in developing countries than in OECD countries, where fisheries management has too often been approached on a piecemeal fishery by fishery basis and as a relatively independent subset of fisheries administration at large. Strengthened sectoral emphasis for the purpose of managing capacity would require industry-wide monitoring and analysis (e.g. modes of production and interactions; investment and fleet dynamics; group dynamics by ports and industries; mobility and malleability; dynamics of producer/community organizations; etc.). These sectoral aspects are seldom addressed by the systems in place in most countries and should be considered a basic complementary requirement. From a more operational point of view, it is also argued in this section, that the management of capacity would require not only a sectoral approach, but also the definition of an intermediate framework between the sector (or industry) and the fishery.

The control and management of fishing capacity is still generally addressed, at least implicitly, in relation to the most commonly used management framework: that of a fishery, usually defined in bio-economic terms as the range of activities related to the exploitation of a single stock or of a group of stocks subjected to joint harvesting. This stems from the fact that it is indeed in this framework that fisheries management has been addressed at both research and policy levels. By focusing on the smallest disjoint resource set (although accounting for strong natural interactions like predator-prey and co-occurrence leading to joint harvesting), a fishery approach has the obvious advantage of more readily allowing for the analysis of bio-economic evolution and stock-effort interactions. It also reflects the fact that generalized overfishing is a relatively new phenomenon. Until one reaches the state of rather intensive exploitation, fisheries management can indeed be addressed mostly as an effort allocation problem aimed at preventing localized misallocation or misuse. The management of capacity, linked to the control of fleet size, can be seen as a prerequisite to complementary effort-oriented management schemes. It should obviously be addressed as early as possible in the development process and in a broader framework.

As already emphasized, this framework should account for the fact that fishing capacity relates to vessels which are generally operating in more than one fishery, or to vessels which could readily do so at limited cost. From a national perspective, one can distinguish at both ends of the spectrum the fishing sector as a whole (fishing industry) and a range of fisheries, as defined previously. The fact that some fleets and stocks may transbound national boundaries would obviously constitute an added difficulty. As an intermediate set between the industry and the fishery, one may find it appropriate to use the concept of capacity management units (CMU), defined as the smallest (relatively) disjoint set of interacting fleets and stocks. As such, a CMU would be composed of several fisheries. The delimitation of CMUs raises numerous problems, some of which are discussed below.

Statistical and complementary analyses of fleet and stock interactions would allow for a segmentation of the industry in several CMUs. The contours of any CMU should reflect not only the prevailing allocation pattern, but also the range of possible short-term reallocation. Possible reallocation of capacity among fisheries may refer to space in terms of alternative fishing areas or to target species/stocks in terms of gear and related harvesting technology. The range of possibilities would be determined by the practical and technical difficulty of transferring existing capacity among fisheries, as well as by related cost. At national level, this segmentation may initially lead to the identification of only a few CMUs, eventually showing prevailing or possible subdivisions (by sub-groups of stocks, fleets, or areas). It could constitute nevertheless a good basis on which to assess and start managing fishing capacity. It can be noted that the concept may be applied to stocks and fleets which transbound national boundaries.

A CMU approach is quite commonly used, at least implicitly, in managing tropical fisheries. This stems from the prevalence of multispecific fisheries; but also from the duality of fleets (artisanal/small-scale and industrial); their relatively high mobility in space and across fisheries, and a relative lack of means to enforce a specific capacity allocation pattern.

The situation of Guinea-Conakry, quite typical of Africa as a whole, is used below as an example (Gréboval, 1997). The artisanal sector is prevalent, with a high level of mobility across fisheries resulting partially from the limited life span of fishing units (less than 5 years for canoes and 1.5 years for gear), and a growing geographical mobility. The industrial sector is limited and mostly composed of foreign vessels which are quite malleable. Five CMU have been delimited based on stock/fleet interactions: tuna (industrial), offshore pelagics (industrial), coastal pelagics (artisanal), demersals (Scianidae; artisanal); and other demersals (mixed exploitation). All are managed in reference to fishing capacity by allowing a certain capacity limit, expressed quite simply at the moment in terms of GRTs. Account is taken of transboundary interactions in the case of tuna and offshore pelagics. In the case of the mixed exploitation of demersal stocks, quite a number of inter-related artisanal and industrial fisheries are concerned (various targeted species of fish, cephalopods and shrimps). Allowable capacity is assessed for the demersal system as a whole, even if restrictions are presently imposed only on the industrial fleet under the form of trawling capacity levels allowed to target either fish, shrimps or cephalopods. If fisheries management in Guinea is still quite tentative, the management framework is linked to the control of capacity, at least for the industrial sector.

For management purposes, one would need, within a CMU, to relate the control of a relatively mobile and often heterogeneous fleet to a desired level of extraction from various fisheries and stocks, thus accounting simultaneously for sustainability and economic efficiency requirements in a multi-fisheries framework. This makes the management of capacity a rather complex endeavour which would require assessments at both CMU level (actual and desired capacity) and fishery level (actual and desired effort).

Quite obviously, the smaller the contour of the CMU, the easier it should be to determine an appropriate level of capacity. The contours could be reduced through appropriate legislation reducing targeting flexibility and mobility in space. Such a quartering strategy should obviously account for economic efficiency. Reducing the scope of possible capacity allocation may induce gains in management efficiency but could also have significant drawbacks, especially in relation to seasonal and cyclic fisheries. From an economic and management viewpoint, allowing for reallocation among such fisheries would reduce capacity requirements and allow for a more rational exploitation if seasons and cycles do not coincide.

In more general terms, the management of capacity would also require a certain departure from the way fishing is monitored, with a far greater emphasis being put on monitoring fleet characteristics and on assessing their dynamics. It is indeed difficult to assess and manage fleet-stock interactions when so little is known about fleets, noting in passing that most countries do not even have proper records of their own fleet and do not conduct regular assessments of its evolution.

4.3 Considerations relative to the distribution of wealth

Over time, and since the extension of national jurisdictions in the 70’s in particular, fishing capacity has grown significantly as world demand increased and as most countries undertook, often with broad government support, to fill the gap between their actual take and their estimated ‘national’ resource potential. This process not only led many countries to overextend their fishing capacity, but has also changed the nature of exploitation in many fisheries, especially in the inshore sector. First one notes a marked and rapid evolution from community-based and relatively small-scale operations towards more business-like ventures based on more capital-intensive technologies, larger units, higher capital mobility and increasing horizontal and vertical integration. A much-related evolution has been a marked transition in inshore management regimes from de facto community-based property rights to open access and then regulated open access. Indeed, some decades ago, the exploitation of most coastal fisheries was often subject to some degree of community-based regulations with a strong sense of community ownership and, to a lesser extent, of management responsibility. In other words, the modes of production and the nature of the activity have evolved and so has the context of fisheries management (Christy, 1996).

Over the last three decades the nature of fisheries products have also changed dramatically, from locally-traded fresh or simply-processed products to internationally-traded commodities. Today, world fish trade accounts for about 50% of the estimated value of fish production, with developed countries absorbing about 85% of imports in value terms and having become significant net importers. This evolution has had as much impact on the modes of production as have the changes which have occurred in fisheries management regime. In this changing environment, access to foreign markets is becoming a key issue for most producers, especially in developing countries. This has typically given a definite advantage to larger scale operations and led to significant horizontal concentration and vertical integration. In developing countries, the small-scale sector has adjusted with mixed success to the new trade patterns. In some countries and in relation to the relative dynamism of processors and traders, growing export possibilities have constituted a definite opportunity for this sector to develop and modernize. In others, the small-scale sector has been marginalized or relegated to supplying the less lucrative local market. In general, the globalisation of the market has strengthened the role of processors and traders vis à vis independent fishermen. One further observes that increased dependency on global markets is occurring in a context of relatively stagnant world supply and raising prices, even if aquaculture production continues to rise.

Under relatively unregulated and regulated open access, market-driven competition has in time resulted in significant improvements in technology, increasing vessel size, and much higher capital intensity in general. Typically this has led in many countries to growing competition between small-scale (artisanal) and industrial vessels and between semi-industrial (inshore) vessels and larger deep-sea vessels or factory ships. In general, more capital intensive and larger units have been more profitable and have inflicted more direct and indirect costs on smaller-scale operations than the other way around: (through stock effects, lessened marketing possibilities or lower market price, destruction of fixed gear, etc.). In many instances and in developing countries in particular, industrial fishing has been shown to be more profitable from a financial point of view but quite often far less efficient in economic (value added) terms. Balancing alternative modes of production is therefore rightly seen in these countries as a major economic policy issue.

Under regulated open access, a number of regulations have been introduced to address this issue. First and foremost is the creation of reserved inshore areas for communities, small-scale, or recreational fishermen. This kind of regulation is quite common in most countries and was relatively easy to introduce early in the process of fisheries management: it made good sense to all from a socio-economic, political, and conservation viewpoint. However, inshore areas are generally highly productive, therefore creating a significant incentive for larger vessels to disrespect this regulation. This has been a recurrent problem, especially in less-developed countries where MCS capabilities are often quite insufficient and where larger vessels usually mean ‘big business’ with no community-linkages, but significant political connections. In these countries balancing modes of production is therefore not only an economic but also a social and political issue which would be directly relevant to any capacity management effort (Baland and Plateau, 1996). In developed countries, modes of production are less dramatically differentiated. But one still observes a marked difference between inshore-commercial, inshore-recreational and offshore fishing modes. Market forces and lobbying by alternative users have rather exacerbated this allocation problem under regulated open access.

In general, incentive-blocking schemes have rather reinforced the tendency for overinvestment in the form of excessive vessel size and technology. TACs, for example, have increased requirements for vessel capacity and mobility across fisheries as well as for processing plant capacity. Limited entry has also resulted in a rather frantic race for capital stuffing. By and large these methods have significantly distorted individual investment patterns and contributed to higher capital intensity. Although not directly concerned with wealth allocation (a main reason for their popularity?) these methods have rather exacerbated a prevailing tendency for larger vessels and more capital-intensive technologies.

Under incentive-adjusting schemes, distribution aspects have been discussed more systematically. The fear of big business has been quite often referred to in connection with the likely outcome of market mechanisms (transferable licences, ITQs). Indeed, property rights have the potential to radically alter the nature of participation in fisheries, raising fear that big business will take over fisheries - even in the USA (Greer, 1995). As for other sectors of the economy and for agriculture in particular, it is indeed quite logical to expect market forces to lead to a certain degree of concentration and to the market-driven elimination of financially less efficient small-scale or community operations. As shown in the countries that have undertaken extensive transferable licence schemes and ITQ programmes, some concentration and reallocation among user groups have indeed occurred under these schemes. Even if clauses are introduced to limit concentration-integration or to reserve part of the quotas to specific users (communities) or to specific modes of production (small-scale), the efficiency of such clauses remains largely to be demonstrated in a broader context than the one provided by relatively few countries. It may only be assumed that ‘group-based’ property rights regimes could lead to a better control of such evolution in the sense that broader considerations could be internalized.

In addressing the control and reduction of capacity at large, one cannot avoid addressing wealth distribution issues, even if it is recognized that in most countries the structure of the industry is also adjusting to inherent changes in the nature of fish products and markets. For the sector as a whole and for each CMU in particular, it will require increased knowledge of major user groups and an assessment of their role and performances. This should lead to an indicative policy framework for the participation of various user groups, the protection of some, and for the management of user interactions: very much as done in most countries for the agricultural sector. The lack of such reference creates obvious difficulties when designing schemes aimed at regulating investment flows or facilitating disinvesment (what vessels to retire?). It would also prove difficult to engage in any individual and group quota schemes without such reference and background information.

In designing and implementing capacity management schemes, wealth distribution aspects would also need to be assessed in relation to the likely distortions which may be induced (e.g. in ownership patterns, labor and social relations in the communities, vessel size and technology, post-harvest capacity requirements). Given market distortions (like capital subsidies) and the impact of many management schemes on capitalistic intensity, it may prove useful to conduct more systematic analysis of vessel/fleet performance (financial and socio-economic). Such studies may help determine the eventual need to cap vessel size, as recommended by many conservation groups. The relation between vessel size/gear and capacity management would also need to be further assessed from the point of view of mobility across fisheries and malleability (the smaller the more malleable and the easier to manage?). The management of fishing capacity further requires better knowledge of the labor market (its malleability or lack thereof) and of the professional organizations and fishermen communities which are concerned and should preferably be actively involved.

It is also through a deeper knowledge of the industry, its communities and their social organization that key allocation issues may be addressed in connection to alternative jurisdiction over access to the resource: in terms of who de facto ‘owns’ access rights to stocks or space; of how and under what conditions ‘owners’ can exercise, delegate, dispose or be deprived of their ‘rights’; and of how to deal with externalities associated with multiple use.

4.4 Transboundary and high seas fishery resources

The relationship between overcapitalization and transboundary fishery resources is addressed in the next chapter by Christopher Newton. The discussion of this issue will therefore be very brief.

With regards to transboundary fishery resources, a distinction is now commonly made between “shared” fishery resources and straddling stocks plus highly migratory stocks, a distinction which is decidedly not mutually exclusive. “Shared” fishery resources are those which are shared between two or more coastal states. The other category consists of those fishery resources which are to be found both within the coastal state EEZ and the adjacent high seas.

The question of the management of the latter set of resources was addressed by the U.N. Conference on Straddling Fish Stocks and Highly Migratory Fish Stocks, which concluded its deliberations in December 1995 and brought forth an Agreement (U.N., 1995). Under the terms of the Agreement, coastal states and distant water fishing nations exploiting a particular straddling or highly migratory fish stock are to come together to establish a regional fisheries management organization, or arrangement, for the purpose of managing the resource on a cooperative basis (U.N., 1995, Part III). Establishing effective regional fisheries management organizations can, for various reasons, be expected to be more difficult than the establishment of comparable organizations for the management of “shared” fishery resources (Kaitala and Munro, 1997). Having said that, however, the nature of the management of straddling/highly migratory fish stocks should not be inherently different from the management of “shared” fishery resources (Kaitala and Munro, ibid.).

What one can say, without hesitation, with respect to both classes of transboundary fishery resources is the following. It is now recognized that, if nations that are jointly engaged in the exploitation of a fishery resource refuse to cooperate, the outcome will be similar to a domestic fishery operating under conditions of “pure” open access. What one encounters essentially is a competitive game between and among the exploiters that takes the form of the famous competitive game known as the “Prisoners’ Dilemma”. Those engaged in the joint exploitation of the resource are driven inexorably to adopt measures that each recognizes as destructive (Levhari and Mirman 1980; Kaitala and Munro, 1997). The consequences for capacity are obvious. After the fact, there will appear to have been overcapitalization, as well as overexploitation. All of the issues that we discussed under the heading of “pure” open access will re-emerge under a new guise. Indeed, if cooperation proves to be infeasible, the overcapitalization problem will, in turn, almost certainly prove to be intractable.

It may in fact be possible to go further than this. An argument is now being advanced that nations engaged in the competitive exploitation of a “shared” resource, or straddling/highly migratory fish stock, will have an incentive to engage in the equivalent of a trade war in which one country subsidizes its industry engaged in trade, in order to steal advantages from the other. In the case of fisheries, the incentive would be for a country engaged in the competitive exploitation of a transboundary resource to subsidize its fleet, in order to seize a greater share of the temporary profits from the fishery, at the expense of its competitors (Ruseski, 1997). If the argument is valid (and it is appealing intuitively), then this suggests that we may have discovered a new and powerful motivation underlying the subsidy programmes that exacerbate the world overcapitalization problem.

On the other hand, if the joint exploiters of the transboundary resource are able to cooperate effectively, then, by definition, it will be possible for them to agree upon resource target levels and optimal harvest programmes through time. From this it follows that they should be able to determine optimal levels of “conventional” capital, and should be in a position to address the issue of methods of dealing with overcapitalization.

For those remaining fishery resources which are exclusively high seas, and which are subject to no international agreements, the overcapitalization problem is truly intractable. Fisheries based upon such resources do, after all, constitute the purest form of open access fisheries.


The authors are grateful for comments and suggestions received from Pamela Mace and Dale Squires, National Marine Fisheries Service, USA; James Kirkley, Virginia Institute of Marine Sciences, College of William and Mary, USA; and Rolf Willman and Andrew Smith, Fisheries Department, FAO, Rome.


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