Fishing Economy Ramon Franquesa

1. Fishing EconomyRamon Franquesa

2. 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

3. 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

4. Verhoulst function 1804-49 Verhulst'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

5. Stabilization BiomassGrowth of a forest from a seed Maximum load Zero Population

6. Biomass destruction Exhaustion of a living resource stock Initial Situation Biomass Exhaustion Extraction level (logging, hunting, fishing)

7. The Verhulst y Pearl reproductive function Growth Volume Biomass Effects of Changes in r r is the Growth rate

8. MSY Catch Effort E MSY The static equilibrium points of the extraction of biomass Extraction Possibility frontier

9. 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

10. 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

11. The economics of fisheries exploitation. Incentives and possible equilibria (theory) Gordon Sheafer Model: From Kg to €

12. 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

13. Gordon-Scheafer Model Equations • IT: Total IncomeCT: 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

14. Optimal point versus equilibrium

15. 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.

16. Policy measures and effects

17. 1. Limiting the Effort • Effective • Pressure to entry in the business

18. 2. Reduce Production • Effective, but difficult to control • Aging investment

19. 3. Technical limitations • Effective on the most profitable • If not for biological reasons, it becomes less able to compete

20. 4. Permanent withdrawal of vessels • Effective, but less because they come out the worst • Pressure to come

21. 5. Subsidizing capital costs • Retrieves returns in the short, but increases overfishing

22. 6. Subsidizing variable costs • Retrieves returns in the short, but increases overfishing

23. 7. Subsidizing sale prices • Retrieves returns in the short, but increases overfishing

24. A solution is possible • Derive income to the owner of the resource: State tax

25. Skip to Dynamic

26. 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

27. 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

28. 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.

29. 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

30. 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

31. Evolution of the capital of an estate with a sustainable or wasteful consumption The saver gets 50,000 a year, waste out 100 000 In 16 years away the legacy of wasteful During that time he will have consumed twice

32. Expansion and contraction

33. 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

34. 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

35. 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

36. 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)

37. 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.

38. 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.

39. 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

40. 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)

41. Reference • Immediate maximum economic yield; a realistic fisheries economic reference point Jordi Lleonart & Gorka Merino, ICES 2009, Oxford Journals