Environmental Economics: New legislation (HR 2772) threatens to ...

Economists have long understood that the cause of fisheries problems is the inability to exclude users [1]. When no one owns the fish in the sea, fishermen lack incentives to restrain themselves in order to sustain the biological health of the resource and ultimately the long-term economic health of the fishing industry. Each fisherman races to catch the fish before the other guy. Not surprisingly, this race leads to overfishing and economic hardship [1, 2].

The centerpiece of U.S. fisheries law is the Magnuson-Stevens Fishery Conservation and Management Act [3].? At its core is a mandate to end overfishing by setting catch limits in federally managed fisheries. Historically, this mandate has focused on the symptom of the problem, namely overfishing, without addressing the cause of the problem [2]. By setting catch limits without addressing the exclusion problem, managers began to control biological overfishing but inadvertently worsened the race to fish. Aggregate catch limits can maintain a biologically healthy stock, while fishermen have incentives to build more and bigger vessels to catch fish before their competitors. Managers respond by shortening season lengths, forcing gluts of product onto the market and the need to sell fish frozen rather than fresh [4]. Most notoriously, this economically wasteful derby in the Pacific halibut fishery of Alaska shrunk the season length to less than three days by 1994 [5]. In 1995, a solution to address the cause of this problem was introduced: an individually transferable quota program that set the total catch based on biological assessment and divided the catch between resource users into shares that could be traded. Individually transferable quotas were used in only a handful of other U.S. fisheries but appeared to be successful in managing larger numbers of fisheries in Iceland and New Zealand. With the new policy, the Pacific halibut fishery was transformed overnight from a source of tremendous economic waste to one of the great success stories in fisheries management with a season lasting 245 days and a steady flow of fresh high-value product to the market [2, 5].

The 2006 reauthorization of Magnuson-Stevens provided a means to use new tools like the halibut program in federal fisheries management [3]. These tools are broadly defined as Limited Access Privilege Programs (LAPPs) and include individual fishing quotas (both tradable like in halibut and non-tradable) and territorial use rights in fisheries (TURFs). In policy circles, individual fishing quotas have now been renamed catch shares. LAPPs address the cause of overfishing and not just the symptoms by solving the exclusion problem, thus aligning the incentives of individual fishermen with the objectives of fisheries management.

A new bill in the house (HR 2772) now threatens to undo recent progress in developing LAPPs [6].The bill?s title is the ?Saving Fishing Jobs Act of 2011,? but the bill will effectively make it illegal to develop new LAPPs that generate economic value. Provisions in the bill are likely to lead to unintended consequences that could exacerbate economic hardship in fishing communities rather than prevent hardships. ?And it could even eliminate fishing jobs rather than save them. Potential vehicles for harm to fisheries in the bill include 1) a problematic definition of eligible fishermen; 2) the way in which ?jobs? are implicitly defined; 3) the termination clause for LAPPs; and 4) the language on fee collection for running LAPPs.

The definition of ?eligible fishermen? is problematic. HR 2772 defines eligible fishermen as permit holders and requires two thirds of them to approve a new LAPP. In some fisheries I have researched, as much as half of the permitted vessels record minimal or no landings in some years. This means that if one of these fisheries were to transition to a catch share program, non-fishing permit holders would in all likelihood receive no initial allocations of quota. Under HR 2772, the non- fishing permit holders would thus oppose the catch share program. In essence, non-fishing permit holders would easily be able to block the ability of the actual fishery participants to approve a LAPP that would generate economic value for the fishery and the fishing community.

Even in fisheries that experience some consolidation after a LAPP is put in place, the issue of jobs is more complicated than just numbers of fishermen holding permits. Many jobs in fishing are seasonal or part-time in nature. By eliminating the race to fish, catch share programs can convert seasonal jobs into year-around jobs that pay better. Suppose there were 10 fishermen each making $10,000 per year by fishing seasonally before a catch share program for a total of $100,000. After the program, suppose there are 5 fishermen making $40,000 per year fishing year around for a total of $200,000 of income. For both economic growth and supporting secondary industries in coastal communities, the smaller number of fishermen working year around is better. These benefits would need to be weighed against the loss of some part-time jobs. HR 2772 does not have any way to address this issue and would force managers to choose part-time jobs over full-time jobs.

The bill includes a rule that would terminate any new LAPP if the number of permit holders is 15% less the year after the program goes into place than the year prior to the program. The clause could inadvertently end a program that successfully reduces redundant capacity, generates economic well being, sustains healthy fish stocks, and is popular with fishermen. In my experience working with individual-level data in fisheries, there is considerable natural attrition in permit holders over time due to changing economic circumstances and retirements of fishermen [7]. The language in HR 2772 does not account for such natural attrition and would falsely attribute all attrition to a LAPP.

Finally, the language on fee collection appears to inflate the cost of a LAPP because it includes the costs of observer coverage. By charging fishermen for observer coverage under a LAPP but funding observer coverage otherwise with taxpayer dollars, the LAPP will appear more expensive to fishermen than it really is. Naturally, fishermen would be more likely to oppose a program in spite of its promise to generate economic benefits for the fishing sector and for society at large. Here, we find ourselves legitimately in a bind. Many argue that fishermen should pay for the privilege of harvesting a public trust resource. But a sudden change to full cost recovery could fall victim to political inertia and inadvertently preserve the inefficient status quo.

It took decades for fisheries management to evolve from treating symptoms to addressing the root cause of overfishing. Now in one piece of legislation we risk undoing much of that progress and hindering further improvements.

References

1. Gordon, H.S., Economic theory of a common property resource: the fishery. Journal of Political Economy, 1954. 75: p. 124-142.

2. Wilen, J.E., Why Fisheries Management Fails: Treating Symptoms Rather than Causes. Bulletin of Marine Science, 2006. 78.

3. Magnuson-Stevens Fishery Conservation and Management Reauthorization Act, P.L. 109-479. 2007.

4. Homans, F.R. and J.E. Wilen, A model of regulated open access resource use. Journal of Environmental Economics and Management, 1997. 32(1): p. 1-21.

5. NRC, Sharing the Fish: Toward a National Policy on Individual Fishing Quotas. 1999, National Academy Press: Washington DC.

6. Saving Fishing Jobs Act of 2011, H.R. 2772. 2011.

7. Smith, M.D., Limited-entry licensing: Insights from a duration model. American Journal of Agricultural Economics, 2004. 86(3): p. 605-618.

Source: http://www.env-econ.net/2011/10/new-legislation-hr-2772-threatens-to-roll-back-progress-in-solving-fisheries-problems.html

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