vrijdag 28 maart 2014

My thoughts on Daniel Bromley's critique (3): Are ITQs private property rights?

In my first post in this series I argued that although open access is just about the worst property rights regime to have in a fishery, it is too simple to blame all overfishing on 'lack of property rights'; rather, we need to go into the details of the institutional setting. In my second post I argued that asking whether private property rights can manage a fishery is a waste of time: marine ecosystems are too complicated to implement any real form of private property.

But wait a minute. Aren't ITQs supposed to be private property? You can find many articles in the scientific literature and the press, whether they're in favour of ITQs or against them, that present ITQs as private property. Daniel Bromley does not agree. In his Fisheries article he lists as one of the deceits of fisheries economics its claim that "ITQs are private property rights." His objection to this idea is that the Magnuson-Stevens act (which is by far the most important fisheries law in the United States) states that ITQs are permits, which can be revoked, limited, or changed by the government without compensation to the owner of the permit.

The reply of some economists is that in practice, even American ITQs are traded between fishers, they are used as collateral for loans, and they are subject to legal disputes over divorce and inheritance, just like houses or cars are. So de jure they might not be private property rights, de facto they certainly are.

In any case, I'm a European, and in Europe we could decide to make ITQs irrevocable rights that have an unlimited life span, and cannot be changed by the government (unless in cases of eminent domain). Would they then be private property rights?

If I were a German I would say: jein. The certificate would be private property: the law can be made such that you can freely trade the certificate, the government cannot take it from you without compensation, you can use it as collatoral, and if you die your kids might fight over it in court. But that's the certificate - not the fish. As I argued in an earlier post: owning an ITQ does not mean that there's a fish with your name on it.

As far as I know the closest equivalent of ITQs (assuming the most extreme case of privatization) would be shares in a corporation (or LLC, PLC, SA, BV, NV, whichever country you happen to live in - I'm no legal expert). In the fishery, the 'company' would be the fish stock; the 'dividend' would be the TAC; the 'shareholders' would be the fishers, who, unlike regular shareholders, are supposed to come and catch their 'dividend' for themselves. I'm no more a business economist than I am a legal expert, so I don't know whether I should consider a corporation private property or common property. If I strictly follow Bromley's terminology I'd guess they are common property, because it is the shareholders who commonly own the asset and have influence - albeit sometimes limited - on the company's management. But I'm glad I'm writing this on a blog and not in a peer-reviewed article (that's what blogs are for, aren't they?).

There are some interesting differences between ITQs and corporate shares, but I'll save that for later.

vrijdag 21 maart 2014

My thoughts on Daniel Bromley's critique (2): Are private property rights a silver bullet for overfishing?

From the diagnosis that missing property rights drive overfishing it's only a small step to prescribing property rights to manage fisheries. In his Fisheries article Daniel Bromley criticizes that idea that, in his terms, "Private ownership is necessary and sufficient for socially beneficial stewardship." He cites an article that investigates the link between catch shares (i.e. ITQs) and stock collapse. The article fits in a sequence of articles that link 'ownership' of a resource to 'stewardship':
Examining specific cases, Beddington et al. (10), Hilborn et al. (11), Grafton et al. (12), and Griffith (13) argue that rights-based fisheries reforms offer promising solutions. Rather than only setting industry-wide quotas, fishermen are allocated individual rights. Referred to as catch shares or dedicated access privileges, these rights can be manifest as individual (and tradable) harvest quotas, cooperatives, or exclusive spatial harvest rights; the idea is to provide - to fishermen, communities, or cooperatives - a secure asset, which confers stewardship incentives.
Source: Costello et al., 2008, Science
The first author of the article, Chris Costello, explains it as follows in laymen's terms:
The difference [between rights-based management and other sorts of fisheries policy instruments] is comparable to renting an apartment versus the house you own. [...] If you own something, you take care of it - you protect your investment or else it loses value. But there's no incentive for stewardship when you don't own the rights to it.
Source: Marine Science Institute, UCSB
The ownership-stewardship link

This link between ownership and stewardship is also made elsewhere in the literature, and it has explicitly been object of research in at least one article that I have seen. The fundamental idea here is that people must have a stake in conservation of natural assets before they support it: if they don't have a stake in it, why would they care? This idea is also part of the rationale behind many PES schemes, or programs like CAMPFIRE.

Bromley's arguments against this idea are twofold. First, if the interest rate is very high, the owner of the asset is better off depleting the asset and investing the proceeds in, say, a savings account. Second, other people besides the owner might also be affected by how the owner manages the asset.

To hell with Orange Roughy and the Eiffel Tower!

The reply to the first argument is that interest rates are rarely so high that it becomes optimal to deplete a resource and put the proceeds on the bank. Some species do indeed grow so slowly that leaving them in the ocean would be like leaving your money on a low-interest bank account - you would earn more by withdrawing your 'money' from that account and investing it somewhere else. Orange Roughy, with an annual growth rate between 4% and 6%, springs to mind. Most species, however, grow much faster than this. You could also argue that in a well-working market, if it is optimal for the owner to deplete a resource and put the value thus generated on the bank, it would be optimal for society.

But this is probably not a well-working market, and that is how we get to the second argument. People might appreciate natural assets, like fish, for more than just their consumptive value. Economists call this existence value: economic value ascribed to things just for their mere existence, like whales or pandas. But even if you don't like this concept (it's debated), you can still argue that living creatures should be preserved for their own sake: call it intrinsic value, or animal rights. All these are considerations why we don't like leaving natural assets at the mercy of a small group of owners. Imagine how Parisians would react if the Eiffel Tower were sold to the highest bidder, who is allowed to sell it on the scrap market if the steel price is high enough.

But should it be private?

The question, however, is whether we need private property rights to induce stewardship. The Costello paper does not say so explicitly. Other authors do refer to ITQs as a way to privatize ocean resources, and that this is a good thing (but I have to admit I still need to read that book). But making fish resources private property, i.e. making fish stocks the property of a single person or company, is a pipe dream anyway. How do we deal with stocks that cross borders? How do we deal with interactions between species through predation or bycatch? Imagine owners of top-of-the-food-chain stocks getting sued by owners of lower species, just like dog owners are liable for what Brutus does to Fifi.

That's why I think the whole question is moot. Private property rights - real private property rights, like owning land, or a dog - are nearly impossible to implement in a fishery. Some form of property rights, be it state property, common property, or private property, is necessary but not sufficient. Although most fish resources fall under some form of property regime, many are still overfished; nevertheless, high-seas fisheries, which are as close to open access as it gets, are managed worst of all. If you want people to support conservation, it surely helps to give them a stake in it. However, unlike Zimbabwean farmers, who have little to expect from biodiversity conservation but crop damage and sleeping sickness (which is why CAMPFIRE was developed), fishers do have a stake in good management of fish stocks - regardless of the property rights regime. So why shouldn't they be good stewards already?

zondag 2 maart 2014

My take-home lessons from Fish In Figures 2014

Mmm... Marine biodiversity
Friday I ended my working week at a shindig in Catch By Simonis (should definitely have a seafood platter there someday!) where LEI presented the latest edition of their annual status report of the Dutch fisheries sector. My take-home lessons:

The beam trawl, which used to be by far the most important fishing gear in the Dutch demersal fishery, is disappearing rapidly. Its users were squeezed between high fuel prices, low fish prices, and public outrage at discards and disturbance of the sea bottom. So Dutch cutter fishers are lining up to use the pulse trawl, which combines bottom trawling with tiny electric pulses. The biggest advantage for the fishers is the lower cost of fuel: about 30% of revenues where the beam trawl burns about 55%. Environmental NGOs, notably Greenpeace, are less convinced, but I don't agree with them. Yes, some species like cod and sharks might be affected (the effects are still under investigation) but it sure beats the effect of the traditional beam trawl on shellfish and other benthic life, let alone its use of fossil fuels. As for the taboo on electric fishing: pulse trawling is nowhere near what this guy tried to do.

A number of possibilities were discussed to raise prices. There is an interest in MSC certification, but people are skeptical about the price premium. This is a genuine concern as the price premium for certified fish has so far been disappointing. The main 'advantage' of certification seems to be that big players in the value chain (restaurant chains, supermarkets) might simply refuse to sell non-certified fish.

Another development is the involvement with fresh fish markets. This fits within a wider trend towards 'local' food (which is usually a bit too much romanticized, me thinks). So far it's very small-scale but I like it. Why is it that the Dutch don't appreciate fresh fish? Johan Baaij, a fisher who is involved in a project called Vers van de Visser (fresh from the fisher), argued that the consumer has no idea where the fish comes from, or who is involved in it. It reminded me about how many people think kibbeling is a fish species.

All in all I got the impression that the fishing sector is more or less where our farmers were, say, 15-20 years ago: financial problems, public unease with bulk production and its impact on the environment, but also a lot of creativity and entrepreneurship, and a readiness to engage with their critics.