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The existence of overfishing, excess capacity, overcapacity and overcapitalization are symptomatic of the same underlying problem - namely the absence of well-defined property or user rights.

A key feature of these rights that can prevent overexploitation is exclusivity of use of the resource (or part of the resource). Instead, fish stocks are common pool resources. In fisheries that are subject to either little or no management, individual fishers are unable to control the activities of other fishers in exploiting this common pool. Attempts to moderate their own use of the resource will only result in benefits flowing to other users. As a result, incentives are created to overuse, rather than conserve, the resource. Fishers have a market incentive to over-invest in capital and other productive inputs in a bid to increase, or at least maintain, their share of the harvest.

Furthermore, the existence of profits in the fishery over and above those that might occur elsewhere in the economy also attract new entrants to the fishery, further increasing the pressure on the resource. The excessive use of capital and labour in a fishery causes biological overfishing to occur, resulting in a decline in sustainable yields as illustrated in Figure 1. With the appearance of overfishing and resulting declines in stock abundance, overcapacity develops in the fishery and the net benefits to the fishing fleet begin to decline.

The problem of excessive levels of fishing effort in the fishery is compounded by technological change. Fitzpatrick (1996) calculated a 270 percent increase in an average fishing technology coefficient between 1965 and 1995, representing, on average, a three percent cumulative annual growth rate. This improvement in technical efficiency resulted in profits being maintained even as stocks diminish, creating further incentives for new entrants to the industry.

The problems associated with unregulated or pure open access fisheries have generally been recognized and relatively few fisheries around the world are subject to no management at all. However, in most fisheries, management has not fully addressed the problem associated with the absence of succinct property rights, and many of the incentives associated with free and open access still exist even if the number of participants is now constrained.

Given that management changes the set of incentives facing fishers, management instruments can be considered either “incentive blocking” or “incentive adjusting”. Incentive blocking measures attempt to restrict the level of activity in some form, whereas incentive adjusting measures attempt to address the property rights issue and allow the market to assist in reducing overcapacity. A brief overview of the main management instruments shown in Table 1 and that fall under each category is given in the Appendix.

Table 1. Management instruments: incentive blocking and incentive adjusting measures

Incentive blocking instruments

Incentive adjusting instruments

· Limited entry
· Buyback programmes
· Gear and vessel restrictions
· Aggregate quotas
· Non-transferable vessel catch limits
· Individual effort quotas (IEQs)

· Individual transferable quotas (ITQs)
· Taxes and royalties
· Group fishing rights (CDQs, etc)
· Territorial use rights (TURFs)

Incentive blocking measures are effectively command-and-control measures that restrict the ability of the market to operate. For example, licence limitation programmes, while preventing new participants from joining the fishery, do not reduce the incentive for fishers to increase their individual catches. In contrast, management by aggregate quota, while limiting the total output of the fishery, does not prevent new entrants and generates incentives for existing participants to attempt to increase their share of the restricted catch. In both cases, the fisheries are effectively open access despite the regulations imposed, and in many cases this results in both excessive fishing effort levels and the regulated reduction of fishing seasons.

These market incentives to invest in additional capacity result in command and control regulations becoming increasingly complex and convoluted to control fishing effort levels in the fishery as stocks recover and profits increase. For example, as noted above, aggregate catch quotas encourage a race-to-fish, and therefore incentives to invest in capital that will ensure that individual fishing firms can maintain or increase their share of the resource. This may result in limits being placed on other effort inputs such as days at sea or number of traps. These, in turn, create incentives to increase the use of other unregulated inputs in the fishery, e.g. larger engines to cover more ground per day. This input substitution results in boats operating at a higher cost than they might in the absence of such regulations. Increased regulation in response to these adaptations encourages fishers to use increasingly inefficient mixes of inputs. The end result in many fisheries around the world is economically inefficient fishing fleets characterized by excessive fishing effort levels, overfished stocks of fish, and complex fishery management programmes.

When self-correcting, market incentives do not exist, overcapacity can appear and exist essentially forever in an open access fishery.

Without exclusive access to the resource provided by property rights, no individual fisher has a financial incentive to reduce capacity because cutting production simply increases the profitability of all the other fishers in the fleet.

4.1 Incentive blocking and incentive adjusting mechanisms: an example

An example that illustrates how overcapacity changes in response to the set of incentives embodied in the management measure is the sablefish fisheries off Canada and Alaska. These fisheries - managed separately in Canadian and Alaskan waters - were subject to both inventive blocking and incentive adjusting mechanisms.

Between 1981 and 1988, the Canadian domestic sablefish and groundfish fishery was managed based on a system of fixed-length fishing seasons linked to a target catch level. In the early 1980s, the fishery was open from February to October for a period of 245 days. The simple control on the season length was not sufficient to control fishing capacity, which continued to expand. By 1987, the fishery was only open for a total of 45 days. Despite this significant reduction in the number of open-days, catches per day increased more than 5-fold over the same period. Catch levels were consistently over the target catch during the period (see Figure 3, Source: Pascoe, Tingley and Mardle, 2002) providing an indication of the fishing pressure on the resource.

Figure 3. Catch and quota up-take history of Canadian domestic sablefish fishery

In 1990, a new management system was introduced in the form of Individual Vessel (catch) Quotas. By 1991 the fishery was open 365 days per year. Quota catches were consistently at, or very close to, the 100 percent TAC limit and IVQs allowed vessels to fish more consistently throughout the season so removing much of the race-for-fish and thus improving the efficiency of operations.

Management of the adjacent Alaskan sablefish fishery (which is essentially the same stock as the Canadian fishery) developed along parallel lines to that of the Canadian fishery. As with the Canadian fishery, the Alaskan fishery was managed using a fixed-length season with an implicit TAC, but was effectively open-access to all participants. The fishery became known as a “derby” fishery due to the decreasing length of the open season as more vessels entered the fishery each year and considerable overcapacity developed. From 1985 to 1990, the number of active sablefish vessels increased from 371 to more than 800 (Hartley and Fina, 2001).

Individual quotas were chosen as the preferred management method for the fishery in December 1991, although were not implemented until 1995, 5 years after the adjacent Canadian fishery. Eligibility for quota entitlements involved participation in the fishery in the three years prior to the announcement of the proposed scheme (i.e. landings of sablefish at least once in 1988, 1989 or 1990) (Pautzke and Oliver, 1997). The number of initial recipients of quota allocations exceeded the number of participants in the 1990 fishery by more than 50 percent (Hartley and Fina, 2001), suggesting that over 1200 vessels received some quota entitlement. However, by 1999, the number of vessels with quota entitlement had declined to 433 (Hartley and Fina, 2001).

In both the Canadian and Alaskan fisheries, increases in capacity prior to the introduction of the property rights based system typify the problems experienced with incentive blocking approaches to management. Failure to address the property rights problem resulted in increased capacity. The restrictions on activity, while limiting total output, exacerbated rather than reduced capacity.

What is unclear from these examples, however, is where the excess capacity in the fishery went following the introduction of the property rights-based system. Given the open access nature of many North American fisheries, it is possible that the problem was largely transferred to other fisheries rather than eliminated.

4.2 Applying capacity-reducing measures: equity, fairness and displacement

Of particular importance in applying these incentive blocking and adjusting regulations to fisheries is the issue of equity, or fairness. This is especially true for the incentive adjusting regulations because they make an explicit reallocation of wealth in the fishery - in contrast to incentive blocking measures which have implicitly allocate wealth. When establishing incentive adjusting programmes, those who receive the access right to harvest from the stocks of fish capture the resource rent that leads to overcapacity in the fishery. This rent can be substantial, and those who are left out of the initial allocation can be negatively affected.

In an effort to address this issue, in most cases where ITQs have been implemented the initial allocation has generally been based on past fishing activity levels (e.g. individual’s catches of the species under quota over the last several years). Even this approach, however, is subject to difficulties as fishers who were less active over the qualification period, who had recently entered the fishery or who had recently replaced their boat with the expectation of higher catch levels were placed at a disadvantage. In some cases, this has resulted in legal challenges and compensation claims. As a result, initial allocation processes more recently have become complex, trying to take these other factors into account.

An alternative to giving away the quota is to auction it. This would allow some of the resource rent to be captured by the owners of the resource (society as a whole). Otherwise, the resource rent gets captured in the quota price, generating a windfall gain for the first generation of quota owners who may subsequently sell their quota. Subsequent quota buyers have to pay this resource rent to the initial quota holders, so do not capture the resource rent themselves.

Capacity reduction in any form results in some fishers having to leave the industry. These excluded fishers will have to find alternative means of generating their income. In communities that are highly fishery dependent, this could mean an increased unemployment for a region or insufficient food supplies to indigenous peoples.

The initial allocation of access rights will determine who benefits from and who bears the costs of incentive adjusting programmes to eliminate overcapacity in a fishery.

Another issue for international fisheries is the existence of overcapacity in shared stocks. Management measures taken to control overcapacity in one jurisdiction can be undermined by another jurisdiction expanding its capacity to harvest from the same stock, such as high-seas fisheries.

It can also be a problem in fisheries managed by regional management authorities. Even though TACs are set for each individual country, the aggregate effect on stock abundance can increase operating costs in countries that are trying to reduce their own capacity. Incentive adjusting management measures for shared stocks need capacity metrics that generate comparable estimates based on common biological and economic reference points.

No single, simple solution to the overcapacity problem in fisheries exists.

Changes in the regulatory institutions that give fishers a market incentive to reduce capacity in the long term are preferred to changes in the regulated, open access fishery management regime that provide only short-term relief from overcapacity. However, specific proposed management regulations must be carefully crafted by fishery managers and tested prior to their adoption to ensure they meet stated goals and objectives, and additional research needs to be completed before the impacts of proposed regulations on fleet capacity levels can be determined.

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