My thoughts on Daniel Bromley’s critique (3): Are ITQs private property rights?

In my first post in this series I argued that although open access is just about the worst property rights regime to have in a fishery, it is too simple to blame all overfishing on ‘lack of property rights’; rather, we need to go into the details of the institutional setting. In my second post I argued that asking whether private property rights can manage a fishery is a waste of time: marine ecosystems are too complicated to implement any real form of private property.

But wait a minute. Aren’t ITQs supposed to be private property? You can find many articles in the scientific literature and the press, whether they’re in favour of ITQs or against them, that present ITQs as private property. Daniel Bromley does not agree. In his Fisheries article he lists as one of the deceits of fisheries economics its claim that “ITQs are private property rights.” His objection to this idea is that the Magnuson-Stevens act (which is by far the most important fisheries law in the United States) states that ITQs are permits, which can be revoked, limited, or changed by the government without compensation to the owner of the permit.

The reply of some economists is that in practice, even American ITQs are traded between fishers, they are used as collateral for loans, and they are subject to legal disputes over divorce and inheritance, just like houses or cars are. So de jure they might not be private property rights, de facto they certainly are.

In any case, I’m a European, and in Europe we could decide to make ITQs irrevocable rights that have an unlimited life span, and cannot be changed by the government (unless in cases of eminent domain). Would they then be private property rights?

If I were a German I would say: jein. The certificate would be private property: the law can be made such that you can freely trade the certificate, the government cannot take it from you without compensation, you can use it as collatoral, and if you die your kids might fight over it in court. But that’s the certificate – not the fish. As I argued in an earlier post: owning an ITQ does not mean that there’s a fish with your name on it.

As far as I know the closest equivalent of ITQs (assuming the most extreme case of privatization) would be shares in a corporation (or LLC, PLC, SA, BV, NV, whichever country you happen to live in – I’m no legal expert). In the fishery, the ‘company’ would be the fish stock; the ‘dividend’ would be the TAC; the ‘shareholders’ would be the fishers, who, unlike regular shareholders, are supposed to come and catch their ‘dividend’ for themselves. I’m no more a business economist than I am a legal expert, so I don’t know whether I should consider a corporation private property or common property. If I strictly follow Bromley’s terminology I’d guess they are common property, because it is the shareholders who commonly own the asset and have influence – albeit sometimes limited – on the company’s management. But I’m glad I’m writing this on a blog and not in a peer-reviewed article (that’s what blogs are for, aren’t they?).

There are some interesting differences between ITQs and corporate shares, but I’ll save that for later.

My thoughts on Daniel Bromley’s critique (2): Are private property rights a silver bullet for overfishing?

From the diagnosis that missing property rights drive overfishing it’s only a small step to prescribing property rights to manage fisheries. In his Fisheries article Daniel Bromley criticizes that idea that, in his terms, “Private ownership is necessary and sufficient for socially beneficial stewardship.” He cites an article that investigates the link between catch shares (i.e. ITQs) and stock collapse. The article fits in a sequence of articles that link ‘ownership’ of a resource to ‘stewardship’:

Examining specific cases, Beddington et al. (10), Hilborn et al. (11), Grafton et al. (12), and Griffith (13) argue that rights-based fisheries reforms offer promising solutions. Rather than only setting industry-wide quotas, fishermen are allocated individual rights. Referred to as catch shares or dedicated access privileges, these rights can be manifest as individual (and tradable) harvest quotas, cooperatives, or exclusive spatial harvest rights; the idea is to provide – to fishermen, communities, or cooperatives – a secure asset, which confers stewardship incentives.
Source: Costello et al., 2008, Science

The first author of the article, Chris Costello, explains it as follows in laymen’s terms:

The difference [between rights-based management and other sorts of fisheries policy instruments] is comparable to renting an apartment versus the house you own. […] If you own something, you take care of it – you protect your investment or else it loses value. But there’s no incentive for stewardship when you don’t own the rights to it.
Source: Marine Science Institute, UCSB

The ownership-stewardship link

This link between ownership and stewardship is also made elsewhere in the literature, and it has explicitly been object of research in at least one article that I have seen. The fundamental idea here is that people must have a stake in conservation of natural assets before they support it: if they don’t have a stake in it, why would they care? This idea is also part of the rationale behind many PES schemes, or programs like CAMPFIRE.

Bromley’s arguments against this idea are twofold. First, if the interest rate is very high, the owner of the asset is better off depleting the asset and investing the proceeds in, say, a savings account. Second, other people besides the owner might also be affected by how the owner manages the asset.

To hell with Orange Roughy and the Eiffel Tower!

The reply to the first argument is that interest rates are rarely so high that it becomes optimal to deplete a resource and put the proceeds on the bank. Some species do indeed grow so slowly that leaving them in the ocean would be like leaving your money on a low-interest bank account – you would earn more by withdrawing your ‘money’ from that account and investing it somewhere else. Orange Roughy, with an annual growth rate between 4% and 6%, springs to mind. Most species, however, grow much faster than this. You could also argue that in a well-working market, if it is optimal for the owner to deplete a resource and put the value thus generated on the bank, it would be optimal for society.

But this is probably not a well-working market, and that is how we get to the second argument. People might appreciate natural assets, like fish, for more than just their consumptive value. Economists call this existence value: economic value ascribed to things just for their mere existence, like whales or pandas. But even if you don’t like this concept (it’s debated), you can still argue that living creatures should be preserved for their own sake: call it intrinsic value, or animal rights. All these are considerations why we don’t like leaving natural assets at the mercy of a small group of owners. Imagine how Parisians would react if the Eiffel Tower were sold to the highest bidder, who is allowed to sell it on the scrap market if the steel price is high enough.

But should it be private?

The question, however, is whether we need private property rights to induce stewardship. The Costello paper does not say so explicitly. Other authors do refer to ITQs as a way to privatize ocean resources, and that this is a good thing (but I have to admit I still need to read that book). But making fish resources private property, i.e. making fish stocks the property of a single person or company, is a pipe dream anyway. How do we deal with stocks that cross borders? How do we deal with interactions between species through predation or bycatch? Imagine owners of top-of-the-food-chain stocks getting sued by owners of lower species, just like dog owners are liable for what Brutus does to Fifi.

That’s why I think the whole question is moot. Private property rights – real private property rights, like owning land, or a dog – are nearly impossible to implement in a fishery. Some form of property rights, be it state property, common property, or private property, is necessary but not sufficient. Although most fish resources fall under some form of property regime, many are still overfished; nevertheless, high-seas fisheries, which are as close to open access as it gets, are managed worst of all. If you want people to support conservation, it surely helps to give them a stake in it. However, unlike Zimbabwean farmers, who have little to expect from biodiversity conservation but crop damage and sleeping sickness (which is why CAMPFIRE was developed), fishers do have a stake in good management of fish stocks – regardless of the property rights regime. So why shouldn’t they be good stewards already?

ITQs and organisational costs

There is a fair bit of controversy in fisheries science on the merits and caveats of ITQs, catch shares, or whatever you want to call them. I won’t go into the details of that debate here, but the following news caught my attention (H/T Adam Soliman/Ecology Action Center):

California fishers say quota system is all wet
(…) Commercial fishers, industry experts and government officials are among those who say that while fish populations are recovering, too few people in California are benefiting from that rebound in part because there aren’t enough qualified monitors to oversee the program. (…)

Apparently, all fishers under the California catch share system are required to have on-board observers to monitor their catch. This is quite expensive, especially for small-scale fishers. It is one of the great disadvantages of an ITQ system: how do you make sure that fishers do not catch more than their fair share? Monitoring landings, if at all possible, runs the risk of increasing discards. The latest trend in the EU is to install cameras, something which the Californian fishers in the article seem to favour as well.

Monitoring costs are part of the organisational costs of a policy instrument: you need people to do the paperwork, to decide who gets what, to monitor compliance, and so on. These costs usually depend little on the size of the transaction or the parties involved in it. That’s why the fishers complain:

Also, operators of small, family-run boats say the costs of the monitors, which are the same for them as for corporate boats, have created inequality.

I’m not sure what to say about this complaint. I don’t agree small-scale fishers or farmers should be protected for the sake of being a small-scale fisher or farmer; neither am I buying the argument that small-scale fishers are inherently more ‘sustainable’, whatever that means. Small-scale fisheries can offer valuable sources of income in developing countries, where poverty is rife and people have little to fall back on when they lose their job. California is not a developing country; although few Europeans would be impressed with its social security system, you cannot expect the local fishery to provide one. But I do believe that transaction costs usually prevent markets from finding efficient solutions, so a system that requires such heavy monitoring costs is likely to cause substantial losses in efficiency.