Sustainable Economics in the Management of Fisheries and Natural Resources in the North Atlantic

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Sustainable Economics in the Management of
Fisheries and Natural Resources in the North
Atlantic
Ragnar Arnason

• Nordic conference on the protection of the sea
  and living marine resources in the North Atlantic
• Tórshavn
• 21-22 June 2001

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Content of Talk

• 1. How natural resources should be utilized
• - All natural resources - not just living marine
  ones
• - General principles of optimal utilization
• - Fairly theoretical but (hopefully) still
  practical

2. Two dimensions - Resources under national
jurisdiction - Resources co-utilized by foreign
nations
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Background
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North Atlantic Communities

• Six main communities
• Northern Norway,
• Shetland,
• Faroe Islands,
• Iceland,
• Greenland
• Newfoundland
• Small and isolated
• Similar cultural background (except Newfoundland)
• Various degrees of political independence

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Dependence on Natural Resources

• Heavily dependent on natural resources
• For production activity (industry)
• Living marine resources (all)
• Farmland (all)
• Forest and forestry (Northern Norway,
  Newfoundland)
• Oil and minerals (N. Norway, Shetland, Greenland,
  Newf.l, Faroes)
• Hydro- and geothermal energy (N. Norway, Iceland,
  Newf.l)
• Tourism (all)
• For the quality of life
• Pristine and clean natural environment
• Maintenance of cultural traditions and identity

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Dependence on natural resources has not
diminished substantially

• New industries depend on natural resources
  directly and indirectly
• Power intensive industries
• Tourism (pristine environment and culture)
• Services and commerce (partly based on natural
  resource activities)
• Even high tech industries (people ?environment)
• Without their unique natural resources the North
  Atlantic communities could hardly exist

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Optimal use of natural resources

• Social importance implies the need for optimal
  use
• Optimal use maximization of flow of benefits
  from the resources over time
• (Nota bene market and non-market benefits)
• Optimality is crucial
• Anything else implies social waste

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Optimal use and Sustainability

• Optimal use may or may not imply sustainability
• Renewable resources only
• Optimality sometimes implies depletion
• However..
• Maximum present value of benefits usually implies
  sustainability
• Communities desire to last implies
  sustainability
• International pressure for sustainable resource
  use

In a sense North Atlantic communities are
custodians of their natural resources on behalf
of the global community ? Sustainability!
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Resources under Domestic Jurisdiction
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Good Resource Use

• Optimal utilization paths
• Not constant utilization over time
• Identification of optimal paths
• Science (geology, biology, engineering,
  economics, mathematics, statistics, sociology
  etc.)
• Implementation of these paths
• The art of resource management (system design,
  politics, administration, management, enforcement
  technology, judicial processes)

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Identification of optimal paths

• Find feasible utilization paths
• Science, biology, geology etc.
• Select the optimal path
• I.e. the one that maximizes present value of
  benefits over time
• Economics, mathematics, statistics

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Optimal non-renewable resource use An example
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Optimal renewable resource use An example
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Implementation of optimal paths

• Management system
• Rules influencing resource use (E.g. turfs,
  quotas, taxes, licences etc.)
• Enforcement system
• Methods to enforce the management system
  (monitoring, inspection, policing)
• Judicial system
• A system for sanctioning violators
  (courts, penalties etc.)

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The Management System
Three categories of methods

• 1. Quantity constraints (commands)
• 2. Corrective taxes/subsidies (price corrections)
• 3. Property rights

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Quantity Constraints

• Aim Alter natural resource use by commands
• Examples
• Restrictions on investments
• Equipment requirements
• Material restrictions
• Restrictions on operating days
• Production restrictions
• Generally economically inefficient
• Do not generate social benefits
• Costly to implement
• But may conserve natural resources

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The Simplest Natural Resource Model
Maxmum Benefits
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Quantity Constraints
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Corrective Taxes/Subsidies(Green taxes/subsidies)

• Aim Alter incentives for natural resource use
• Examples
• Tax on pollution (green taxes)
• Tax on fish catch
• Subsides for pollution abatement equipment
• Subsidies for reduction of land improvement
• Can be economically efficient in theory
• But difficult to administer correctly

Nota bene Increased government revenues?
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The effect of corrective taxes
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Property Rights

• Aim Alter incentives for natural resource use
• Examples
• Mining rights
• Territorial use rights (land use)
• Fish quotas (IQs/ITQs)
• Economically efficient in theory (... and
  practice)
• But often administratively demanding
• Sometimes not feasible to implement

Nota bene Property rights are in many ways
socially natural Property rights are foundation
for the market system
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Effects of property rights
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Property Rights and Equity

• The institution of property rights is often
  assumed to be inequitable
• However, property rights are compatible with any
  desired distribution of benefits
• Initial allocation of property rights
• Taxation and redistribution of resource rents

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The International Dimension
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Influences from other countries

• None of the North Atlantic communities has full
  control over their natural resources
• Examples of external impacts
• Water and airborne emissions (pollution)
• Fishing from common stocks
• Mining (from common resources)
• Competing uses of resources (transport, military
  activities, turism etc.)

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International shared resources

• Lead to common property problems
• Just like unmanaged use of domestic resources
• Potential huge losses
• (of all possible economic gains)

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The international situation
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Other international influences

• Political pressure for utilization of resources
• Often induced by environmental organizations
• Amounts to extortion
• Either you do it right, or else
• Extortion is generally economically inefficient
• Much better to purchase conservation (.from
  harvesters)
• Or, for that matter, purchase extraction
  rights (.from conservationsists)

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Q is trading equilibrium
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How do deal with international resources ?

• Particularly difficult because lack of management
  authority (unlike within nations)
• need super-national authority that unifies
  management responsibilities
• If so, we are essentially in the single country
  management framework
• Similar management solutions

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International resource management

• National property rights as widely as possible
• Benefits the whole
• But note problems with distribution of benefits
• Often difficult bargaining games
• But technical (and perhaps political) limits to
  property rights
• Need also commonly managed areas
• common property rights, international taxes

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Conclusions

• North Atlantic communities are heavily dependent
  upon continued use of natural resources
• May also be regarded as custodians of a global
  natural resource heritage

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This implies two things

• Implement sensible resource management system
  domestically
• (i) Property rights
• (ii) Corrective taxes/subsidies
• Work toward international agreement on the
  sensible use of shared resources
• This should be based on the same general
  management principles

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End
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System of current in the North Atlantic