Mapping marine economics (6): Putting it all together

I promised myself not to write this post. I’m sure not everybody will agree with how I redefine some of the terms commonly used in economics, or perhaps more broadly in philosophy of science. But doing so gives me a framework that I find quite helpful to map a disciplinary field.

So here goes.

In this post I argued that economists working on a particular policy issue (climate change, health, overfishing) do four types of research, similar to the four types of questions a doctor asks when treating a patient:

  1. Assessment: how bad is the problem?
  2. Diagnosis: what causes the problem?
  3. Objective: what is the best possible improvement?
  4. Prescription: how can we realize the objectives?

It is common among economists to distinguish positive economics (what is happening?), also called descriptive economics, from normative economics (what should be happening?), which is also called prescriptive economics. But for some issues it’s not so clear-cut whether they are positive/descriptive or normative/prescriptive. For example, take monetary valuation of ecosystem services. On one hand you could argue that such valuation is positive/descriptive because it merely describes people’s preferences with respect to ecosystem services: the recommendation comes later. On the other hand, by putting a price tag on nature you do make a normative statement: this is more important than that. So you might as well call a valuation study a normative/prescriptive exercise. I think analysis of policy instruments has the same problem. You could label such research positive/descriptive (e.g. “ITQs are more likely to lead to discarding than restrictions on fishing effort”), but also normative/prescriptive (e.g. “if you’re worried about discards, don’t introduce ITQs”). I think it would be easier if you slightly redefine the terms (and this is where the hatemail probably starts):

  • Positive: analyzing without judging, e.g. “if you do x then y will happen”
  • Normative: making a judgement, e.g. “x is better than y”
  • Descriptive: considering the situation ‘as is’, e.g. “we have a problem”
  • Prescriptive: making recommendations, e.g. “you can solve the problem with y”

The nice thing about these definitions is that you can make a quadrant that neatly describes the Assessment, Diagnosis, Objective, and Prescription:

Normative Positive
Descriptive 1. Assessment 2. Diagnosis
Prescriptive 3. Objective 4. Prescription

I know the boundaries between these four quadrants are not perfectly clear-cut either. If you do cost-benefit analysis you may need to do some non-market valuation (Quadrant 1), but you will make recommendations on which policy alternatives are more desirable (Quadrant 3 – or is it 4?). You can only set objectives (Quadrant 3) properly if you know how to achieve them (Quadrant 4). That’s why I prefer to call it a map, rather than a classification. And as such I find it a helpful model to understand how different strands in the literature fit together.

So here it is, my map of the economics of coastal and marine ecosystems, formulated in research questions:

Normative Positive
  • What is the economic value of a coral reef?
  • How much tourism value is being lost by jellyfish outbreaks?
  • What are people willing to pay for whale conservation?
  • How do social norms evolve in common pool resource management?
  • When will countries cooperate in international fisheries management?
  • How do fishers decide how much and when to fish?
  • What is the optimal harvest rate in an uncertain fishery?
  • What is the optimal spatial allocation of shrimp farming and mangrove forest in a coastal zone?
  • What is the optimal management strategy of an invasive species?
  • How do ITQs perform in a mixed fishery?
  • How can we design effective PES schemes?
  • How will a ban on discards affect a fishery?

Or in research methods:

Normative Positive
  • Contingent Valuation
  • Travel Cost Method
  • Choice Experiments
  • Game Theory
  • Field experiments
  • Evolutionary models
  • Optimal Control Theory
  • Numerical optimization models
  • Cost-benefit analysis
  • Applied fisheries models
  • Game Theory
  • CGE models

Mapping marine economics (5): Getting the incentives right

On October 23, 1924, Canada and the United States of America signed their first Halibut Convention. Halibut fishers had long pressed for an international treaty to regulate the fishery, but it had taken a few years before Canada was finally allowed by its former colonial ruler, Great Britain, to sign its own international treaties. It was an important step to prevent overfishing of halibut, because the convention provided for a three-month closed season in winter. After a few years, however, those three months turned out to be insufficient. New fishers had entered the halibut fishery, and many fishers had invested in bigger vessels. So fisheries managers shortened the fishing season to compensate for the increased fishing capacity. What did the fishers do? They bought even bigger boats. Small wonder what the fisheries managers did in response. Around 1990, the Alaskan halibut fishing season comprised no more than a few 24 hour periods, spread over the year. In those few days the fishers caught all the fish they used to catch in nine months. It was a textbook example of what fisheries scientists call a derby fishery.

What went wrong here? No matter the good intentions of the fisheries managers, they overlooked an essential factor in the system they were supposed to manage: human ingenuity. Animals can be inventive (ever seen your cat figure out how to open your fridge?), but humans are champions at this. When fishing days were limited, they bought bigger boats. When boat length was limited, they built wider boats. Human ingenuity has brought us the wheel, the steam engine, the Internet, and the smallpox vaccine, but it has also exaggerated overfishing. So how do we make sure it works only in our benefit?

Enter ITQs (and discards)
In Alaska the policy makers introduced Individual Transferable Quota, or ITQs. ITQs work much like tradable water rights, or tradable pollution permits: the government sets the maximum allowable catch, and ITQ owners have the right to catch (mostly, actually, to land) a share of that maximum. The possibility to trade ITQs allows inefficient fishers to sell their share to more efficient fishers at a price that makes both better off than without the trade. In the Alaska halibut fishery it worked: the derby fishing was over while the catch of halibut remained within limits. ITQs are now all the rage all over the world, as they seem to be the best instrument so far that fisheries scientists have come up with. But that does not mean they are perfect.

The problem is that ITQs limit landings, not catch. Monitoring catch is very difficult unless you send a police officer with every fishing vessel. So instead of monitoring how much fishers catch out at sea, managers monitor how much fish fishers bring to shore, in ports, auctions and so on. But landings are not the same as catch. If you run out of plaice quota while having plenty of sole quota left, you’d be sorely tempted to throw back your catch of plaice and keep your catch of sole. What is being thrown back is called discards. Discards have been in the news lately due to the proposed EU discard ban, for reasons good and bad. Nobody likes throwing away food, and throwing away half the catch of edible fish, as happens in some fisheries, comes across as criminally wasteful. Moreover, discards distort fishery statistics because by definition, they are the difference between catch (which fisheries scientists want to know) and landings (which they actually measure). But let’s not forget that estimates of the survival of discarded fish vary wildly and depend on the type of fishing gear, the species, and how long the fish stays on board before being thrown back into the sea. In other words, not all discarded fish die. Moreover, the quota system is at least as much to blame as the fishers themselves. If you introduce ITQs in a mixed fishery like the Dutch cutter fleet, where fishers catch many different species in one single haul, but you do not consider the ratios in which those species are caught, you are bound to put fishers in a situation where taking your unused quota back to shore seems more of a waste than discarding fish. Perhaps you say it is wrong to discard fish. Well, it is also wrong to steal a bike, but that doesn’t mean you shouldn’t lock yours.

There is no panacea
The bottom line is that fisheries management does not manage fish – it manages people. So to do it properly you need to understand how people think, how they make their decisions, and why. This holds not only for fisheries management, but also for other ecosystems where human activity is a key player, like rangelands. Coastal ecosystems are rarely untouched by humans, because by definition they are located where people are most likely to settle first; they are also important holiday destinations. So to manage mangrove ecosystems you need to consider how, why, when, and where shrimp farmers cut, pollute, or otherwise degrade mangroves. To manage coral reefs you need to understand how, why, when, and where clumsy divers do the most damage.

The research in this domain has provided us with innovative policy instruments like ITQs, TURFs (territorial use rights for fishers), and PES (payments for ecosystem services). What these instruments have in common is that each was once hailed as the answer to all the problems in marine and coastal management, and that each turned out not to be. Every medicine has side effects; there is no panacea. What is needed is the right medicine for the right situation.

So what do I do?
This year I had a paper in Ecological Economics¬†on policy instruments to manage transgenic maize – not exactly a marine topic, but still an example of how applied economic models can give quantitative insights into the effectiveness and efficiency of policy instruments. My contribution to this year’s EAERE is about certification as an instrument to nudge fishers in a more sustainable direction. In BESTTuna we analyze, among others, how instruments like ITQs and Vessel Day Schemes can manage Pacific tuna stocks. I have been involved in the supervision of Diana van Dijk, who investigates the performance of multiannual quota and limits on adjustment of quota in a volatile fishery with costly capital adjustment.

And there is still plenty to do. The debate on ITQs and PES is far from over, and there are plenty of questions on how to consider human behavior in the design of policy instruments. There is a theme session on modelling human behavior coming up at this year’s Annual Science Conference of the International Council for the Exploration of the Sea (ICES), which I organize together with Jan-Jaap Poos of Wageningen IMARES and Olivier Thebaud of CSIRO. One of the more difficult, and therefore more interesting, questions is how we include institutions and social norms in our analyses: can we model it? Or should we leave it to other social sciences that have better, qualitative tools to analyze these issues?

Mapping marine economics (4): Fishers are not alone anymore

One of the major attractions of Scheveningen (if you can pronounce that you’ve successfully adapted to Dutch culture) is a 360 degrees painting by the Dutch painter Hendrik Willem Mesdag. It depicts the North Sea coast near Scheveningen in the nineteenth century, long before its neighbouring city, The Hague, absorbed this coastal fishing village in one big agglomeration. Mesdag created an illusion that worked surprisingly well: there appears to be depth in the painting and you feel like standing on a dune watching over the beach, or looking down on the village with its neat little houses, or the villas where rich city folk spent their free time. What is also striking is the dominance of fishing, together with transport, in the coastal zone. You see some sunbathers, but they are easily outnumbered by fishers and other workers in the fishery, such as the horsemen towing the bomschuiten (flat-bottomed fishing vessels, a bit like the pink).

How different is it nowadays. International trade has mushroomed. We have largely replaced sails and steam engines by combustion engines running on oil and gas, scattering drilling platforms all over the North Sea to get to the stuff. Wind is making a come-back as wind turbines are forming entire forests in the open sea. Meanwhile, fishing has become something to limit rather than promote: in Mesdag’s days the British scientist Thomas Henry Huxley called fishery resources “inexhaustible”, but for numerous stocks we have actually found those limits and are now concerned about crossing them. And we’re not only concerned for edible species, but also for marine life in general: enter marine protected areas.

So many uses, so many users, so little resource
Like the North Sea, many marine and coastal ecosystems have many different uses, many different users, and many different ways to meet the users’ needs. Mangrove forests provide coastal protection, a nursery ground for wild fish, a source of juvenile shrimp for extensive shrimp farming systems, and a fascinating ecosystem to float through for tourists. Likewise, other coastal ecosystems like mudflats and coral reefs provide a variety of goods and services to a variety of users. And none of these biomes are limitless.

Given this variety of uses it is not surprising that policy makers need to make many tradeoffs. How far are we willing to limit fishing for an extra gigawatt of wind energy? How do we trade off port capacity against tourism? Does the income generated by an extra hectare of intensive shrimp aquaculture offset the loss in biodiversity and coastal protection?

All these examples are tradeoffs between uses, but also within one and the same use policy makers have to make difficult choices. What is worse, a small flood every year or a big flood every ten years? How do we rebuild fish stocks if local communities depend so much on fishing that they cannot miss a single year of it?

Note that simply putting a price tag on services may not be enough: the average per hectare value of a mangrove forest may be low when the forest is large, but once we have cut most of it the last few remaining hectares will be much more valuable. Moreover, aggregating monetary values over all stakeholders and over time may give you a single figure (the net present value), but this simplicity obscures problems of poverty and income distribution. So we may need to consider the entire tradeoff.

Tradeoff analyses and bioeconomic modelling
I have done tradeoff analyses of dairy farming and biodiversity conservation in my PhD thesis, and I recently submitted a paper with a former MSc student of ours, Matteo Zavalloni, and fisheries ecologist Paul van Zwieten where we analyze the tradeoff between shrimp aquaculture and mangrove conservation in a coastal area in Viet Nam. Both analyses are spatially explicit, i.e. we analyze not only how much of something can or should be done, but also where. The “where” question is quite important as many uses of marine areas (shipping, fishing, aquaculture) have a spatial dimension.

So this will be one of my major focus points: developing tools to make quantitative tradeoff analyses of coastal and marine ecosystems. I’m very much a bioeconomic modeller. I guess it’s the geek in me: I’ve always been terrible at practical technical stuff (the holes my house’s walls and the crappy paint jobs on my window panes bear witness to that), but I enjoy the patient development of a complicated quantitative model, or an insightful analytical model. I also enjoy the interdisciplinary nature of this work: you need to collaborate intensively with other scientists, mainly ecologists, to do it right.

Mapping marine economics (3): Why do we overfish?

Let’s face it: it’s silly. The UN’s Food and Agricultural Organization estimates that about 30% of global fish stocks could have higher yields if they were fished less intensively. Think about it: spend less fuel, labour and capital on fishing, and catch more fish, not less, as a result – what’s not to like? So why are these stocks overfished?

It’s the diagnostic question: what are the economic drivers of natural resource depletion? In fact, it’s one of the oldest questions in the profession, and the answer is also one of the oldest concepts: the tragedy of the commons. The ecologist Garret Hardin introduced this term in Science in 1968, illustrating it with an example of a pasture commonly owned by several herdsmen. For each herdsman gaining an extra sheep will reap benefits available to that herdsman alone (wool, meat), while the costs are borne by all herdsmen (less grass available for other sheep). The result: too many sheep, too little grass. If the pasture were privately owned by one herdsman, this herdsman would reap all the benefits and suffer all the costs, so he would probably have a smaller herd of sheep than in the commons case.

The argument also applies to the fishery: the benefits of catching one fish go to the fisher catching it, whereas some of the costs (the loss of the offspring this fish could have produced) are borne by all fishers. In fact, fisheries scientists were already aware of this when Hardin published his article. The economist Scott Gordon showed in the Journal of Political Economy in 1954 that an open access fishery will be fished at a much higher rate than optimal.

Note the dates here: the most fundamental insights in this domain were introduced more than 40 years ago. Has nothing happened since? Of course the insights have been refined further, and there is a lot of game theoretic analysis happening that you could interpret as diagnostic research. When do countries cooperate in international fisheries policy – and when don’t they although they should? What is the bargaining position of a single state (say, Mauritania) in establishing the access fee of a long-distance fishing vessel?

But the more intriguing, and growing insight is that many commons, in Hardin’s definition, are actually managed quite well. The political scientist Elinor Ostrom (who sadly passed away this year) has described many examples of common property (water resources, grazing land, and so on) where the single user refrains from increasing his or her individual benefit at the expense of other users. Even worse: there are examples of such resources where the trouble really started when the government intervened, assuming it needed to solve the commons problem!

So what happened here? It seems (and I admit with some embarrassment that it always takes a non-economist to remind economists of this) human behaviour is driven by more than a calculated self-interest. Many common pool resources are shared by people who are friends or relatives of each other, their kids play with the kids of other users, or their older children may marry those of other users. Ostrom’s research showed that many communities of common pool resource users have developed rules of what they consider ‘reasonable’ use. Use more than your fair share, and you will have to explain yourself to your in-laws, your neighbours, and so on. The rules lead to a management that may not be strictly optimal, but it is certainly sustainable, and probably better than the Tragedy described by Hardin. And when governments introduced legislation to govern the use of the resources, this legislation conflicted with the older informal rules, making matters worse rather than better: formal rules have a nasty habit of crowding out informal rules.

So what should marine resource economists do with these new insights? It’s a difficult subject. So far the research into the role of social norms and informal rules has been very descriptive, with very few insights that can be generalized to the majority of cases. I know a few economists who try to understand how these informal rules evolve: surely a society that has developed the wrong informal rules eventually destroys itself. So you can model this evolution in a manner similar to how ecologists apply game theory to the evolution of species. But how much of that research yields insights that we can apply today remains to be seen, and I’m no evolutionary economist.

Therefore, the research I’m doing in this domain will probably remain limited to a few game theoretic analyses. In VECTORS we analyse how fishing treaties between EU member states (and non-EU countries like Norway) may collapse when stocks move northward with their preferred climate zones. (Actually, Adam Walker is doing this with Hans-Peter Weikard.) In BESTTuna we will analyse the bargaining position of Pacific island nations, and their willingness to cooperate in a common tuna fisheries policy. Hopefully this research will tell us more about the possibilities and impossibilities of managing cross-boundary fish resources through international treaties.

Mapping marine economics (2): Economic value of coastal and marine ecosystems

How bad is our current state of coastal and marine resources?

This question may get you browsing the websites of IUCN, Wetlands International, or other NGOs, looking for data on historical trends in coral reefs, endangered fish species, and so on. But whether and how fast coral reefs disappear is only half the answer to this question. Note that the question asks: how bad is it? So when we know the rate at which coral reefs are disappearing, the next question should be: how bad is it that they are disappearing?

It’s what I call the nasty question: why do you want to protect the environment? The question sounds insulting, criminal even, as it seems to ignore a self-evident fact: surely the environment deserves protecting? But ‘protecting the environment’ can mean many things, ranging from eliminating emissions of substances that cause cancer (good) to saving the smallpox virus from extinction (not so good). I wrote in an earlier post that given the choice between tsetse flies and human beings, my sympathy is with the latter. In other situations, however, the choice is not so clear. Conserving sharks may sound like a laudable goal, but how many lethal shark attacks are we willing to accept? There are many such trade-offs in coastal and marine policy: mangrove conservation versus shrimp farming, wind energy versus fishing, port development versus tourism. We can’t escape making explicit in what ways, and to what extent, ecosystems are important to us.

That does not necessarily mean putting a price tag on everything. If you want to argue that coral reefs are sacred, or that whales have a right to exist, and you can convince a majority of voters in your country of that view, go ahead. I may not agree with you personally (I’m more of a humanist), but professionally I have just as little to say about that as my fiddle teacher can fix my car. However, if we are talking about economic importance – how much do ecosystems contribute to human welfare – then I can give you a number of reasons why conserving coastal and marine ecosystems may be a good idea after all:

And so on. (Edward Barbier has written a very nice overview of the goods and services provided by coastal ecosystems. Best of all, it is free!) What economists do in this kind of issues is estimating how much coral reefs, mangrove forests, marine fisheries systems, and so on, contribute to human welfare – and yes, we try to express that contribution in dollars, euros, or other currency. This is done for two reasons. The most-cited reason is that if we don’t make these estimates, policy makers may assume the economic value of such ecosystems to be zero. Although I see the merit in showing the importance of coastal ecosystems in a way that makes it possible to compare this value to the value of, say, laptop computers or refrigerators, I still see a danger that such ‘raising awareness science’ degrades into advocacy. In my view, the most legitimate reason to express the value of ecosystem goods and services in monetary terms is that big public projects, like development of ports or aquacultural areas, need to be appraised by the best information available. That means that a cost-benefit analysis of such projects should consider not only the costs of building the port and the income generated by using it, but also the effect it will have on, say, the damage suffered when the next tsunami comes along.

A lot of work has been done in this respect, and a lot of work still remains, as Barbier’s article demonstrates. But I’m not going to do it. I have done valuation studies in the past, and occasionally I supervise students doing valuation surveys. But if you want to really make your mark in this domain you need to do nothing else, and I’m too much of a modelling person to focus on surveys and the statistics that go with them.

Mapping marine economics (1): A planet walks into a doctor’s office

Somewhere in the near future the wise men and women in Wageningen University’s tenure track Advisory Committee will decide whether I’m doing a good enough job to keep it. One of the things they may possibly ask is what my research will focus on in the coming, say, 15 years. So I’ve been thinking a lot lately about questions like “what on Earth am I doing?” and “where the Hell am I going?”

If you go to the doctor with a problem, the doctor will generally do four things. First, he will assess the seriousness of your problem. Second, he will try to identify the cause of your problem. Third, he will decide on the objective to be pursued by any therapy he may prescribe. Fourth, he will prescribe a therapy, which may be a pill, an operation, or something else. Economics of coastal and marine ecosystems is not much different:

  1. Economists assess how well or how badly coastal and marine ecosystems are doing, and how important they are to us. Should we worry about, say, disappearing mangrove forests? Who should be worried? (Ecologists hate these questions, but somebody has to ask them.) To answer these questions, economists try to put a price on ecosystem services, develop environmental indicators, or correct GDP for environmental degradation.
  2. Economists also investigate the fundamental reasons why we deplete, pollute, or overexploit ecosystems. If we all know how important fishery resources are to us, why are some stocks so terribly overfished? So economists develop theories of open access resources, of enforcement problems, corruption, and other forms of market failure or government failure.
  3. A lot of economic research is done to set the right policy objectives. How do we trade off the profits of a large-scale distant-water fishery against the interests of small-scale local fishers in a developing country? How do we trade off our own welfare against that of future generations? So economists have developed many applied optimisation models, and concepts such as Maximum Economic Yield.
  4. Lastly, economists also investigate how we can attain our policy objectives. Should we introduce restrictions on days-at-sea or Individual Transferable Quota to keep catches at an efficient level? Should we freely distribute fish quota, or auction them off? If we pay land owners not to cut a mangrove forest, will it really save that forest or will they simply cut another forest?

In future posts I’ll share my thoughts on each of these four issues.