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November 1999 No. 14
The European Association of Fisheries Economists




Concerted Action: Economics and the Common Fisheries Policy


The Definition and Allocation of Use Rights in European Fisheries

The second workshop of this CA was held in Brest in May 1999 and focused on the issue of individual rights in fisheries. Keynote presentations on the theory of property rights in fisheries management and on the experience of Individual Transferable Quota (ITQ) systems in different countries were given by Professor Rögnvaldur Hannesson of CFE in Bergen, Norway, and Professor Dan Lane of the University of Ottawa, Canada. The workshop included participants from France, the UK, Spain, Portugal, Norway, Iceland and the Netherlands as well as representatives of the OECD and FAO.


The Proceedings of the workshop are currently in the final stages of preparation and printed copies will shortly be available for distribution. The following review summarises the main points that emerged from the presentations and discussions.


The theoretical background

Discussion of fishing rights often focuses rather narrowly on the specific case of particularly well-defined use rights that are deliberately designed to be more or less freely traded. The example of ITQs is well-known. However, it should be appreciated that the allocation of fishing rights is integral to all fisheries. This is to say that fishing rights exist in all fisheries under all management regimes - the question is how those rights are defined and allocated. There exists a continuum of rights from the loosely-defined rights under open access to (almost) fully exclusive rights such as ITQs.


Exclusive fishing rights most closely approach private property, as we usually understand it. Here property can be defined as the exclusive right to a (potential) income stream and so exclusive fishing rights are in this sense broadly analogous to oil extraction rights or to the ownership of agricultural land. The special features of fisheries give rise to important caveats, however. Firstly, in almost all cases we are confined to considering use (or exploitation) rights rather than actual rights of ownership over the resource. Secondly, it is difficult in many cases to ensure complete exclusivity because of the difficulty of monitoring compliance.


Many economists tend to favour well-defined rights that can be traded because they are more likely to lead to efficient outcomes. Note that efficiency simply means that production is achieved at the lowest (social) cost. The alternative to market allocation is allocation by planners (administrators) which is likely to be less efficient.


Administrative allocation of fishing rights is widespread and is synonymous with regulation. Almost by definition, regulations are designed to block behaviour that is driven by economic incentives (or the profit motive) and so are designed to reduce efficiency. We need to make an important qualification though. Socially efficient market outcomes are possible only insofar as actual prices signal economic costs. Where price signals are absent (or inadequate) they need to be created, either by the creation of exclusive rights, or by regulation.


For example, the introduction of tradable quotas effectively introduces a price (cost) for fish as an input (consider the lease price of a unit of quota) by creating a scarcity value for this input. Regulations to prevent the landing and marketing of juvenile fish, as an example, effectively create a cost for landing undersize fish (as long as the regulation is enforced with an appropriate penalty). Note that the administrative allocation of the rights to land undersize fish cannot be inefficient, because we have decided that the totality of the rights in this case is zero. Rights are often modified (or attenuated) to exclude outcomes that are undesirable: again this is synonymous with regulation. Where a zero outcome is not realistic, there can be a case for the creation of a tradable right to such bads (consider tradable pollution permits).


Many economists also favour, wherever possible, exclusive output rights rather than exclusive input rights. Again, this is because they are more likely to lead to efficient outcomes. In brief, controlling total output leaves all other production decisions to individual firms in the industry. Firms can then produce a given quantity of output at least cost. At the same time, the least cost firms will be prepared to pay more for quota and so quota will tend to move into the hands of the most efficient firms. A problem with input rights is that it is usually very difficult to make them exclusive: this is the problem of defining and measuring capacity and effort. The result is that output is likely to be poorly controlled. If inputs were to be completely specified, technological progress may be constrained. On the other hand, measured inputs are often easier to monitor and control than output. Taking account of management and enforcement costs could make input control more efficient in some cases.


Arguments for and against rights-based management

Most of the discussion at the workshop centred on both general and particular arguments in favour of and against the introduction of private property in fisheries, with particular reference to ITQ-type systems. For simplicity we will now use the term rights in the restrictive sense of use rights that have features of private property i.e. exclusivity and tradability.


Arguments against rights-based systems mainly invoked the possible social consequences of a rationalisation of fishing capacity, in other words the loss of employment in particular regions or in the sector as a whole. Against this must be set, however, the consideration that a rationalisation of capacity is exactly what right-based systems are meant to achieve. It is arguable that it is for fisheries policy to deal with overcapacity, but it is for other areas of policy to deal with regional employment, in other words fisheries policy should not be solely responsible for maintaining employment.


At the same time it was noted that if overall levels of effort are effectively controlled through a rights-based system, it is perfectly possible for government to subsidise the acquisition of fishing rights for particular regional or sectoral groups in order to fulfil wider social/regional objectives. It is also possible to regulate rights markets in order to restrict ownership to fishing vessel owners, for example, or to restrict the degree to which rights can be concentrated, leased etc. Such restrictions are common in ITQ regimes such as the one in Iceland. A number of speakers referred to cultural objections to any form of private ownership in the fishery, particularly in southern European countries. In some countries there were also legal obstacles to individual ownership of fishing rights (notably France).


Additional arguments in favour of rights-based regimes, apart from the narrow efficiency argument, included the fostering of collective responsibility, which might at first sight appear counter-intuitive. It was pointed out that stakeholders with enhanced financial interests in a fishery would have incentives for self-enforcement of rights and other positive manifestations of resource stewardship. The case of the Group system in the Netherlands was cited.


A number of speakers observed that there is a strong natural tendency to trade, and that in many cases where rights-based management has developed it has been the industry itself which has been the guiding force. This was certainly the case in the Netherlands and Iceland, but also in the UK where there is an increasing trade in quota entitlements under a system which was never designed to develop in this way. It was noted that this general observation should be qualified to certain sectors of the industry, usually the larger offshore sector (where in Spain there are also calls for ITQs), although in France rights-based management has developed informally in some small-scale fisheries. While resistance to a market allocation of rights (and lobbying in favour of regulation) can be interpreted as the desire of inefficient firms to maintain the status quo, there was general recognition of the social distributive dimension to the problem. It was also observed that allowing trade in rights to develop by the back door was more likely to lead to relative disadvantage than a properly designed system.


In some fisheries, particularly small-scale fisheries, input rights may be more practicable than output rights, because of the wide species mix and the problems of monitoring. They may also be more culturally acceptable than output rights, perhaps because fishermen retain the possibility of unconstrained output (analogous to the idea of the fisherman as a hunter).


The workshop referred only briefly to the question of rent distribution. The market price of a tradable fishing right may be regarded as a capitalisation of resource rent from the fishery. Those in the fishery who are first granted the rights receive this rent as a capital gain when they sell their rights. Although it is arguable that society, rather than fishing firms, should capture this rent, in many cases governments have not attempted to extract rents from the industry.



Although the issue of tradable use rights in fisheries is clearly a complex issue with many dimensions (and it was noted that the idea of private property is often controversial in other areas of the economy) the fishery management problem can be set out in a fairly fundamental way that should focus thinking on how rights to fish are defined and allocated.


Firstly, we begin with the premise that there is a need to limit the total level of exploitation in the fishery (at least in terms of the total volume of catches). Given this (hopefully uncontroversial) starting point, there is really only a limited range of options for managers:


(a)     do nothing;

(b)     do not ration access, but limit total or individual production (by means of global quotas, for  

          example, or per vessel limits);

(c)      ration access and production (directly or indirectly), and allocate production rights 


(d)      ration access and production, and allocate rights using the market.


If (a) is not a desirable option, and (b) has a well documented history of failure, then we are left with (c) or (d). Both involve the allocation of individual fishing rights, so the question is whether the best allocation will be achieved administratively (i.e. by regulation) or using the market. While theoretically (d) will produce the most efficient outcome in an idealised fishery, at least for output rights, the challenge is to examine fisheries on a case-by-case basis and to consider the obstacles to some form of rights-based approach. These obstacles may be technical, socio-economic, socio-cultural, political or legal. They may be insurmountable in some fisheries, but in many fisheries rights-based management may offer the best prospect of controlling overfishing.


      Aaron Hatcher, CEMARE


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