worthwhile, which also results in overcapitalization. The investment of individuals in more fishing capacity is entirely rational, even though the total catch will not increase.

The primary alternative to a default or competitive allocation process is share-based or rights-based allocation. This approach also can provide incentives for conservation because participants (rightsor share-holders) have a stake in the future of the resources and because some rights can provide incentives for efficiency (output reduction). The promotion of efficiency occurs because in the absence of competition for shares of the resource, economic success is represented by fishing efficiently. These are the main reasons why this committee has encouraged the development and use of share-based allocation systems to replace competitive allocation schemes.

The following paragraphs briefly describe some of the theory and experience of fishery management from an economic viewpoint. For more detailed discussions, the reader is encouraged to read Clark (1990) and OECD (1997) and references therein. The OECD publication in particular contains many recent references and ample examples of fishery management in practice.

In theory, the imposition of conservation measures strong enough to be effective, either through input controls such as gear limitations or seasonal and areal closures, or through output controls such as catch limits (usually total allowable catches or TACs), allows allocation methods to be considered independently of conservation measures. In practice, conservation and allocation methods can become dependent if competitive allocation drives up fishing costs to the point where rent is dissipated or marginal. The management of Pacific halibut before the implementation of ITQs is perhaps the best example of this: the resource was protected for decades, but the race for fish became excessive and dangerous with many adverse social and economic consequences, as described earlier in this chapter.

If the system were well balanced, or theoretically perfect, the above might not be a problem; when rents approached zero, investment would decline to reflect that. But in practice, three important factors cause problems. The first is imperfect information about the current and future size of the fishery resource, which can lead to costs (inputs) that exceed what the resource can sustain. The second factor is natural variability, which can have a similar effect. The third factor is the cost of complying with regulations (for example paying for and using specified gear modifications). The costs of compliance as well as of licenses or other fees can increase the costs of fishing, which can affect profitability, especially if other suppliers of the market do not bear the same costs.

The first two factors are particularly problematic when a fishery develops on a resource that has a high standing stock. In that case, the investment is often made in response to the standing stock, analogous to financial capital, rather than in response to the productivity of the resource, analogous to return on investment. In such cases one observes a so-called ratchet effect (Ludwig et al. 1993) and the

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