Fishing EconomyRamon Franquesa

Fishing is an Economic Activity

The society exploited the Fisheries to obtain goods as minimal cost as possible, as in other activities

The estimation of the Profit is the same: Profit = Incomes - Cost, but:

• Is based in a Natural Renewable Resource• Under an intensive use this Resource can be

extinguished• This resource can produce Rent• This Rent incentive additional activity

The biological dynamic is under the economic dinamic

• Unlike the industrial production can not increase indefinitely inputs: the capacity of fish reproduction is limited

• It is known from s. XVII quite well the biological behavior.

• Natural resources can not be detached from biology economy, but has been ignored until the mid-century XX

Verhoulst function 1804-49Verhulst's Law states that at some point the growth rate per capita of a population is directly and immediately limited by its own density, through the process of intra-specific competition

2. BK

rBr

dt

dB

Stabilization BiomassGrowth of a forest from a seed

Zero Population

Maximumload

Biomass destruction Exhaustion of a living resource stock

Exhaustion

Initial Situation

Biomass

Extraction level (logging, hunting, fishing)

The Verhulst y Pearl reproductive function

Growth Volume

Biomass

Effects of Changes in r

2. BK

rBr

dt

dB

r is the Growth rate

The static equilibrium points of the extraction of biomass

Effort

Cat

ch

MSY

EMSY

Extraction Possibility frontier 

From the biology to the economy

• The Biology measures Biomass in (kilos), the economy, cash

• The biological curve extraction border, is the border economic curve of production (Potential Gross Income), simply multiply the weight by its market price

• We must select a currency (€). But remember that the processes subject to inflation and is not universal

From the biology to the economy

• For the economy the objective is not to maximize the product (the amount of biomass removed) but profit.

• If Profit = Revenue - Costs, then we must also consider the costs.

• We consider that the costs are proportional to the effort: the more ships or more days, more expensive is fishing.

• We can assume an economic cost curve of production (costs) linear, simply by multiplying the effort, the unit cost in the market (money that does a boat or go fishing one day.)

• We must select a currency (€) but remember that the processes subject to inflation and is not universal

The economics of fisheries exploitation. Incentives and possible equilibria (theory)

Gordon Sheafer Model: From Kg to €

ESFUERZO

VALOR

Beneficio

Costes Totales

Ingresos Totales

The economic equilibrium

• A company with revenues and costs, in theoretical economics is considered to be in balance the benefit should be zero

• The costs are considered within the cost, the normal business benefit and is called opportunity cost plus a risk premium

• If the benefit is negative, the company abandoned the activity and if higher, the sector attracts investment and joint until it approaches zero

Gordon-Scheafer Model Equations

• IT: Total Income CT: Total Costs• pe: price per unit of fishing effort pc: price per unit of the catch• a,b: structural parameters of the equation . E: Fishing effort

• a) Open Acces Equilibrium, in the figure. CT=IT• pe.E = pc.(a.E.(b-E))• pe.E = E.(pc.a.(b-E))• pe = pc.a.(b-E)• • b) Biological maximum sustainable or Maximum Sustainable Income, in the figure. IT'=0• IT = pc.a.E.(b-E)• IT = E.pc.a.b - pc.a.E2• (E.pc.a.b - pc.a.E2)' = 0• pc.a.b - 2.pc.a.E = 0• pc.a. (b - 2.E) = 0

• c) Equilibrium under controlled access or property assigned, in the figure.• CT' = IT'• pc.a.(b-2.E) = pe

Optimal point versus equilibrium

MSY - π Biological Optimal

No equilibrium

Some Rent

ß Economic Optimal

Equilibrium with regulated acces

Maximal Rent

α Not optimal Equilibrium in

Open acces

Rent Disappear

The Rent problem

• In certain conditions can produce income overfishing

• These rents are not assigned to one initially, but they are often appropriated by fishermen or fish traders.

Policy measures and effects

1. Limiting the Effort

• Effective

• Pressure to entry in the business

$

Esfuerzo

CT1

CT 0

IT

2. Reduce Production

• Effective, but difficult to control

• Aging investment

$

Esfuerzo

CT

ITTAC

1

ITo

3. Technical limitations

• Effective on the most profitable• If not for biological reasons, it becomes less

able to compete

$

Esfuerzo

CT1

CT 0IT

IT

1

o

01

4. Permanent withdrawal of vessels

• Effective, but less because they come out the worst

• Pressure to come

5. Subsidizing capital costs

• Retrieves returns in the short, but increases overfishing

$

Esfuerzo

CT

1CT

0

IT

6. Subsidizing variable costs

• Retrieves returns in the short, but increases overfishing

$

Esfuerzo

CT

1CT

0

IT

7. Subsidizing sale prices

• Retrieves returns in the short, but increases overfishing

$

Esfuerzo

CT1

IT

IT1

o

*1

0

A solution is possible

• Derive income to the owner of the resource: State

ESFUERZO

VALOR

Beneficio

Costes Totales

Ingresos Totales

tax

Skip to Dynamic

• So far we have seen final equilibrium situations

• But the path from one point to another is more complicated than was initially sensed

• Surprisingly, it is possible to catch more than mark the boundary of possibilities

Effects of economic growth: visualization by a model (MECON)

• One thing are the points of balance and other ways to balance

• In practical life is this way longer in balance

• Given the speed of technological change would normally be permanently out of balance

MECON demostration

The perverse incentives

• If you put your hand in the fire, it hurts us and the retired -> Pain is a right incentive to help them survive

• If we take an addictive and destructive drug, we feel pleasure and encouragement to consume more -> are incorrect stimuli that lead us into a spiral of self-destruction.

Incentives for increasing fisheries exploitation

• Are diverse (cultural, political, economic, etc.) Only consider the economic.

• A virgin estoc time offers the possibility of exceeding the boundary of the Verhulst equation

• The reason is that the thrust of biomass is not reduced automatically, operating a single operation

Example: Heir wasteful

• He receives an inheritance of € 1 million• Suppose it is possible to obtain a 5%

interest, so that the saver can charge € 50,000 a year, permanently leaving the Capital and therefore "eternal" that income

• But it may also conduct "wasteful" and reach out € 100,000 per year in the short term

Evolution of the capital of an estate with a sustainable or wasteful consumption

Year Saver Wasteful

1 1000000 1000000

2 1000000 950000

3 1000000 897500

4 1000000 842375

5 1000000 784494

6 1000000 723718

7 1000000 659904

8 1000000 592900

9 1000000 522545

10 1000000 448672

11 1000000 371105

12 1000000 289661

13 1000000 204144

14 1000000 114351

15 1000000 20068

16 1000000 -78928

In 16 years away the legacy of wasteful

During that time he will have consumed twice

The saver gets 50,000 a year, waste out 100 000

Expansion and contraction

ESFUERZO

VALOR

Beneficio

Costes Totales

Ingresos Totales

Expansion

While biomass is greater than the equilibrium:

• It extracts more fish than will ultimately be possible

• The yield is higher• The investments are recovered in less

time• Wages are higher• The incentive to invest is high

Contraction

• While biomass is below the equilibrium:It draws less fish than will ultimately be possible:– The yield is lower than normal– The investments do not recover– Wages and employment fall

Added problems

• The administration period is much shorter than the biological

• The period of execution of the investment is long: can you order a boat at a time of high expectations and time receive a decline of biomass

• The incentive to over-exploit the resource is high to keep profits and wages

The management options

• Free access (theoretical concept that does not happen in practice)

• Territorial Use Rights in Fisheries (TURF)

• Technical Limits (TL)

• Market Rights (MR): – Effort (licenses)– Catch (ITQ)

Territorial Use Rights in Fisheries (TURF). Their efficiency depend as

• The character of the resources. Efficient if sedentary, no efficient if resources are migratory.

• The number of users. If number is reduced more efficient is the system.

• The spatial distribution of the fishing grounds• The Unemployment rate. If the Unemployment is high, the

social pressure to fish can be difficult to avoid. Without employment alternatives appears difficulties to assure the effectiveness of the system.

• The degree of association (cooperative, association, guild, etc.)

• The pace of technological progress.

Technical Limits (TL)

• Comprises: Protected areas, mesh dimensions, temporary closures, gears exclusion, etc.

• Introduced when TURF not running well. • Their efficiency depend as

– The capacity of control – The economic incentives– The pace of technological progress.

Potential & limits of each option

• TURF is adequated only in littoral fisheries

• TL: expensive, but efficient in short term. Not solve the existence of economic incentives to overexploitation

• MR: efficient, but:– Tendencies to privatization of public resource– Social inequality– Coherent with Common Market, but without

subsidies

The role of the Administration• Solutions need a intelligent combination of tree options• From the local level to Europe• Preserve the public property of resources: the fishermen

can manage or pay the use of the resources, not are the owners of the resources

• Introduce the pay for use, to reduce the economic pressure and to contribute to maintain the cost of control

• Any solution must be periodically reviewed (adaptive management)

Reference

• Immediate maximum economic yield; a realistic fisheries economic reference point

Jordi Lleonart & Gorka Merino, ICES 2009, Oxford Journals