Fishing technology and rent dissipating

Anders Skonhoft

Dep. of Economics NTNU

1.Introduction

• FAO statistics: – 9% of the world fish stocks are depleted– 18% overexploited– 47% fully exploited– 21% moderately exploited

Average for the world. Much more dramatic in traditional fishing grounds (e.g. EU coastal waters)

• Reasons– Institutional structure

• Both within nations• External factors (straddling stocks, migration, etc.)

– Valuable fish stocks• More valuable stock: always higher exploitation

pressure

– Highly efficient fishing technology

• More efficient fishing technology

– Individual beneficiary (at least in the short term)

– Collectively disaster; depressed fish stocks as well as depressed profitability for the industry as a whole ???

– Short-term vs. long-term

– Institutional structure of pivotal importance

• In general: More efficient production, new products: The well-known riving forces behind increased material welfare.

• Pioneering studies: Solow(1956), Abramovitz (1956): 75% of productivity growth due to technological improvement (TFP growth)

• Confirmed by numerous later studies with much better data

• Also sector studies, i.e., agriculture.– Much of the same picture, see, e.g., Hayami and Ruttan 1985

• In what follows:– Technological change/efficiency improvement in a fishery.– Stylized model/reasoning within the institutional structure of

‘unregulated common property type’.In many fisheries (not at least in developing countries, and in large inland fisheries) still the prevailing management scheme

– What happens when fishing technology becomes more efficient? Stock, harvest, rent…

– What type of remedies??• Changing institutional structure?• Input control?

2.Some evidence

• Post-war period rapid progress in fishing technology– Larger boats– Better equipped– New synthetic materials– New finding equipment and techniques– Etc, etc…

• Dramatic reduction in number of fishermen (in Norway and elsewhere)

• Capital stock fluctuating…• Catch fluctuating

• Total factor productivity growth (TFP) Norway:

0.8% per year (1961-2004) (Hannesson 2006)

Correcting for lower fish stocks: Higher

• But large problems with these calculations!!

• But the broad picture clear

3.Technological change and the regulated fishery

• Basic insight from the Gordon-Schaefer model (sole owner equilibrium fishery), or PV-rent maximizing (social planner model) of more efficient harvesting technology:

– More effort use– Smaller stock (but no problems….Xmsy, or..)– Larger rent

• So everything works well!! • More efficient technology is an unmixed bless

Gordon-Schäfer model

Stock

TC

TR

Xmey

4. The unregulated fishery

• Many fisheries still exploited in an unregulated manner (remember: few regulations (at least quota setting) in any fisheries until the beginning of the 1980’s)

• ‘Open-access’ model has served as a benchmark for many years (e.g., Gordon 1954, Homans and Wilen 1997).

• Stylized model: Total rent dissipating. Means: zero-rent for an efficient as well as an inefficient technology. New capacity (vessels) flows in and out.

• Here a more general approach: The fishermen are exploiting a fish stock in a myopic profit maximizing manner.

• Myopic exploitation (…short sighted and neglecting the future…) and no value is imposed on the stock (zero shadow price)

• Widely used exploitation scheme. Baland and Platteau (1996): ‘unregulated common property’. See also e.g., Bromley (1991).

• Not only in fisheries; grazing exploitation (i.e., Saami reindeer herding), wildlife exploitation, etc.

• Important feature: The number of fishermen (or capacity) fixed; local common, no entry), but lack of norms, regulations, etc.

• Model:– Population growth

– Catch function

q ‘catchability coefficent’. Technology parameter (‘TFP’)

– The fishermen aims to maximisze short-run profit

1 ( )t t t tX X F X nh

th qe X

( )t th h X

• h: Contingent upon cost/price ratio, scale properties…and harvesting efficiency (q)

• Non-linear first order difference equation. Possible oscillations and unstability, but harvesting stabilizes (cf. May 1976).

• Possible expansion path:

• Fish stock expansion paths

t

0 10 20 30 40 50

Xt

500

1000

1500

2000

2500

3000

3500

Benchmarkq Lowq High

• Rent (profitability) expansion paths

t

0 10 20 30 40 50

t

800

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

Benchmarkq Lowq High

• What is going on here?

– More efficient technology means smaller fish stock in the short-term as well as the long-term

– More efficient technology yields highest rent in the short-term, but lowest in the long-term

– The dynamic system will for realistic parameter values (intrinsic growth rate of the fish, etc.) settle down an equilibrium where total harvest=natural growth

• Long-term equilibrium results:

– Stock size, harvest,… and rent depending on harvesting efficiency (q)

• Equilibrium rent and efficiency

Efficiency q

Rent

• Improved technology/efficiency mixed bless!! It may increase as well dissipate the rent.

• Remarkable result. Remember improved

efficiency is assumed to be cost free (‘manna from heaven’).

• The myopic nature of the fishery drives the result, but also externalities. The theory of the second best (Lipsey and Lancaster 1956)

• Rent, efficiency and number of harvesters

n2

n1

n2>n1

Efficiency q

Rent

• Rent, efficiency and value of harvest

p2

p1

p2>p1

Efficiency q

Rent

5. Conclusion

• Simple model with stylized institutional structure

• But holds in many instances. – Fisheries in developing countries – Open seas fisheries– Quasi-regulated fisheries (quota cheating, etc.)

• Myopic exploitation instead of long-term considerations

• Then new technology mixed bless!

• New technology a possible disaster in the long-term.