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THE CANADIAN

SALMON FISHERY

CURRENT POLICY / STATE OF


AFFAIRS
1995 - Size of license holders also most
constant whereas fishing power increased
because of Capital Stuffing
Policy
Buy-back program to reduce total fleet by 27
percent
Capital Stuffing continued because technological
innovation had increased the capacity

Area Licensing
Resulted in Stacking of licenses
Congestion externalities continued

CURRENT POLICY / STATE OF


AFFAIRS

Cost-Benefit Analysis Negative NPV Net social


losses in terms of current consumption
Rent Dissipation
Access to a valuablepublic goodwith no restrictions
under competition its valuewill dissipate at the margin
after being consumed by an additional person, until all
rent is completely dissipated

Depletion of Salmon Stocks Supply


Information Asymmetry Number of Salmon vary
greatly from area to area and species to species
Incorrect volume and escapement estimates
True location of the fish

CAPITAL STUFFING
Increased use of capital in fisheries
managed by limited entry
The destructive forces of open access are
transformed from attracting too many firms
to attracting too much capital per firm
Incentives of limited entry:
The cost-of-capital effect, the innovation effect,
ending the cross- substitution effect, or the
consumption effect
Ref: Townsend, On Capital Stuffing in Regulated
Fisheries, Land Economics, Vol. 61, No. 2 (May, 1985),
pp. 195-197

CAPITAL STUFFING

Restricted entry more stable & higher incomeinvestment is less risky- cost of capital is lower- incentive
to increase their use of capital
Marginally greater incentives for innovation under limited
entry - Under competition, the gains from innovation are
shared with a larger pool of firms - lower costs that arise
from innovation will tend to attract more firms encourage greater capital use by increasing the size of the
firm
Increase in utility function of the fisherman-consumer Additional investment (for ex- ample, in radar, sonar,
direction-finding equipment and the like) is an investment
in human comfort and safety - Income tax system
subsidizes this consumption

POLICY GOALS
Economically Efficient Use
Extent of rent dissipation
Ease of enforcement of regulations
Degree of flexibility
Preservation of the fishery
Number of Viable Runs
Equitable Distribution of costs and benefits
among stakeholders
Current license holders
Aboriginal fisheries
Taxpayers
Political Feasibility

POLICY ALTERNATIVES

Harvesting Royalties and License Auction


Royalty tax = 10 %
10 year rolling license auction
50% buy back
Small boat fisheries continues
Financial assistance to aboriginals for buying
licenses
Ban on earlier licenses

River Specific Exclusive Ownership


Right to catch all salmon entering each river
system to be allocated to a single owner for 25
years except Fraser River where cooperative will be
established
Low cost fishing methods fish traps and weirs
instead of small boats - Elimination of small boat

POLICY ALTERNATIVES
Individual Transferable Quota Scheme
Fixed quotas as per %age shares of Salmon total
annual catch (TAC)
Certainty
Risk associated with fluctuations in harvest

Prediction of TAC and its variability to be


determined by Biologists
Transferable quotas to incumbents or potential
new entrants
Tax of 5% on amount of quota rather than amount
of fish caught
Copied lock, stock and barrel from New Zealand

1. ECONOMICALLY EFFICIENT
Curren HarvestingUSE
RiverIndividual

Impact
on Rent
Dissipati
on

t Policy Royalties
and
License
Auction

Specific
Auctioned
Monopolies

Transferable Quota
Scheme

Poor
Large
Negativ
e NPV
Capital
stuffing
outweig
hs
benefits
of buybacks

Excellent
Lowest cost
fish catching
regime; long
term property
rights

Good However, it
depends upon studies
conducted abroad.

GoodPreserve
more
potential
rent;
Eliminate
incentives of
CS b/c
partial
reduction in
fishing
costs;
Encourage
gradual
transfer of
licenses to
fishers

Certain researchers
disagree (Boyce 1992,
Costello & Deacon,
2007, Valcu &
Weninger, 2013) as
congestion
externalities continue

2. PRESERVATION OF FISHERIES

Impact on
Number of
Viable
Runs

Current
Policy

Harvesting
Royalties
and License
Auction

RiverSpecific
Auctioned
Monopolies

Individual
Transferable
Quota
Scheme

Very poor
high risks

Poor
Endangers
specific fish
stocksRoyalty tax
A price
mechanism
which runs
the risk of
costs
because of
information
asymmetry
Lack of
quotas and
opening
restrictions (it
will raise

GoodIncentive of
maximizing
NPV for
Monopoly
owners- Low
information
asymmetry
costs

Good provided
share quotas
used TAC
remains at
present level
of catch

3. EQUITABLE DISTRIBUTION
Current
Policy

Harvesting
Royalties and
License Auction

RiverSpecific
Auctioned
Monopolies

Individual
Transferable
Quota
Scheme

Fairness
to
current
license
Holders

Nominally
fair but not
so in
practice as
rent is
Defacto
property
rights at
nominal
prices

Good for existing


fishers b/c of
concession of buyback licenses
(those leaving will
avoid capital loss)Remaining fishers
suffer loss (thru
royalties and
auction)

Very goodPotential for


high rent
some of
which can be
used to
compensate
existing
fishers (direct
payments /
preferential
bidding
rights)

Excellent
incumbents
get ITQs with
low tax rates
and rents
would also
accrue

Fairness
to
Aborigin
al
Fishers

Nominally
fair but not
so in
practice as
rent is

Good subsidy to
acquire licenses

Good fixed
percentage of
monopolies
given to
aboriginals

Excellent
Hold
commerical
fishing
licenses

EQUITABLE DISTRIBUTION
Current
Policy

Fairness Poor large


to
subsidy is
Taxpayer paid
s

Harvesting
Royalties and
License Auction

RiverSpecific
Auctioned
Monopolies

Individual
Transferable
Quota
Scheme

Excellent
Generation of
revenues through
auction of
royalties and
reduction in
expenditure from
monitoring as the
fishing capacity is
reduced

Excellent
River
monopolies
act as low
cost regime
for catching
the fish- high
auctions

Dependent
High
administrativ
e costs v. 5
percent
collection on
TAC

4. POLITICAL FEASIBILITY
Current
Policy

Likelihoo High in
d of
place
Successf
ul
Adoption

Harvesting
Royalties and
License Auction

RiverSpecific
Auctioned
Monopolies

Low- not attractive Medium


to remaining
large
fishers
potential
gains, but
radical
change
requiring
complete
restructuring
of the
industry

Individual
Transferable
Quota
Scheme
Highattractive to
incumbent
fishers

RECOMMEDNATION
Individual Transferable Quota Scheme
Uncertainty
River Specific Exclusive Ownership v.
Harvesting Royalties and License Auction
High rent dissipation as small boat removed and low
cost technology
Low cost of enforcement
Preservation of stock
Fairness to all stakeholders

Recommended:
Ownership

River Specific Exclusive