Property Rights

The
Economic Freedom
Network

Property Rights: Creating Incentives
and Tools for Sustainable Fisheries Management

Elizabeth Brubaker

In many fisheries around the world, including most in Canada, governments are in control. And for the most part, they're doing a rotten job. It's not that individual bureaucrats—or their political masters—mean ill. And it's not that they're incompetent. On the contrary, most are fine, hard-working, well-meaning people. But political pressures and bureaucratic structures being what they are, government managers simply don't have the incentives to make the best long-term decisions. And they don't have the tools.

Unfortunately, when governments are in control, fishers don't have the right incentives or tools either. No one does.

Putting more control into the hands of fishers would change that. Establishing secure property rights creates the incentives that fishers need to manage their stocks sustainably. Furthermore, property rights provide fishers with powerful tools to protect stocks and habitats.

Perverse incentives

In a system where governments make the decisions—or essentially, where governments hold the rights—no one has strong incentives to set sustainable harvest levels. In such a system, overfishing is in the interest of both governments and fishers.

Why? First, with governments, there's the problem of time horizons. Politicians suffer from what you might call "short-termism." Their interests tend to stretch just as far as the next election. They will choose actions with short-term political pay-offs, even if they might have disastrous long-term consequences.

Next, there's the problem of agency. Normally, people act as agents for others. In most businesses, decision makers are the agents of the shareholders. They're required to act in the shareholders' interest. But whose agents are politicians and bureaucrats? Whom do they represent? What happens when different interests collide? What happens when commercial, recreational, and aboriginal fishers —or fishers and conservationists —clash? One Canadian bureaucrat complains that his department is like a ping pong ball. It gets bounced between over a dozen user groups, all of them are competing and pointing their fingers at the others. The result is often compromise that really doesn't serve anyone's interests, or paralysis. It's in govern-ments' self interest to delay in the face of conflict or uncertainty.

Another problem with government management is that of capture by special interests. In other words, politicians and the bureaucrats they control are susceptible to political pressures. In Canada, the pressure to create jobs is the greatest political pressure of all. Not necessarily long-term, sustainable jobs. Short- term, highly visible jobs that the government gets credit for will do just fine.

Of course, the fact that governments can be captured by special interests creates a whole new set of problems. Interest groups start investing money in winning the political competition. Lobbying increases the costs of doing business. And it's a terrible waste of resources, since it doesn't actually produce anything.

Perhaps most important, when governments control fisheries, there is the problem of accountability. Government decision makers aren't held accountable for making particular decisions. They don't reap financial benefits from making good decisions, and they don't pay the costs of making bad decisions. For them, there are no rewards, no punishments, no incentives.

East coast disaster

When people with such perverse incentives are running a fishery, the results can be disastrous. Canada's east coast fishery has provided a textbook case of the mismanagement of a fishery for political gain. For centuries, a rich fishery dominated by cod, haddock, and other groundfish, sustained Canada's east coast. For the first half of this century, cod landings fluctuated around 500,000 metric tonnes. Landings then increased dramatically, thanks to both foreign fishing and the increased capacity of our own fleet.

In the 1970s, the federal government stepped up its involvement in the management of this fishery. It promoted what it called an "expansionist development philosophy" centred on creating jobs. The government based catch limits not on what the fish stocks could bear but on the economic needs of fishing communities. It supported fishers, boat owners, and processors with construction and insurance subsidies, tax breaks, loan guarantees, and Unemployment Insurance benefits.

By the 1980s, scientists warned that the stocks couldn't support this institutionalized overfishing. But the government paid them no heed. An internal government report that surfaced last summer charged that scientific information was "gruesomely mangled and corrupted to meet political ends." The report accused fisheries managers of "scientific deception, misinformation, and obfuscation." It went on to say: "It has become far too convenient for resource managers and others to publicly state that their decisions were based on scientific advice when this is clearly not the case. It appears that science is too much integrated into the politics of the department."

When people with ... perverse incentives are running a fishery, the results can be disastrous.

The result was a collapse of the cod stocks which resulted in a moratorium, since 1992, on fishing for cod and many other groundfish. Forty thousand fishers and processors were thrown out of work. It was a social, economic, and ecological disaster.

Who was held accountable for this? Who got fired, or demoted, or even reprimanded? No one! This is disgraceful.

Even more disgraceful is that we didn't learn our lesson from the cod catastrophe. Just before the last federal election was called, the government announced that it would be reopening the cod fishery. But the government was in no position to start giving away the cod. Even the fisheries department admitted that there were "considerable uncertainties" about the stocks. Independent scientists were far blunter, warning that stocks are still dangerously low—perhaps as low as one or two percent of their former levels. Some stocks, they warned, are still declining. Reopening the fishery, they said, was a "risky and irresponsible pre-election ploy."

West coast disaster

Politics drives fisheries on Canada's west coast too. Out West, salmon are the most important fish. In recent decades, governments have overseen the decimation of salmon stocks. Three out of the last four years have seen dismal runs—the worst in memory. It's not hard to see why. The government, under irresistible pressures to provide jobs, has encouraged overfishing. It has subsidized a fleet far too large for the stocks. And it has permitted catch levels that are far too high.

Back in the 1980s, the government admitted that, in setting catches, it didn't always follow the advice of scientists. In its words, "escapement targets have often been compromised on the basis of compelling social considerations." Scientists continue to complain that the government ignores their recommendations. As one biologist recently charged, the allocation system "is dominated more by threat of civil disobedience than by reasoned analysis." As is evidenced by the declining stocks, such a political approach can be dangerous indeed.

Habitat destruction serious

Clearly, perverse incentives have led politicians and bureaucrats to permit overfishing. But it's not just overfishing that's resulted from government control over Canada's fisheries. Habitat destruction is another, and equally serious consequence.

For the same reasons that governments permit overfishing, they permit the destruction of fish habitat. They simply have strong political and financial incentives to do so.

This is a big issue on Canada's west coast, where damage to habitat threatens salmon stocks. In recent decades, countless activities have degraded salmon habitat. Logging and the construction of logging roads have caused landslides that have smothered stream beds. Hydro dams have also degraded habitat by changing water flows and temperatures. Of course those dams have also blocked access to habitat. Wastes from pulp mills and sewage systems have reduced oxygen in waters and harmed fish.

Unchecked pollution has harmed fish and habitat on the east coast, too. There, human sewage is one of the worst culprits. It hits shell-fishers the hardest. Thanks to contamination, almost 2,000 square kilometres—over a third of the region's shellfish growing areas—are regularly closed to harvesting. Sewage pollution is solely responsible for 20 percent of the closures and a contributing factor in another 50 percent.

Why fishers don't protect the stocks

Governments have a variety of incentives that lead them to encourage both overfishing and habitat destruction. But what about fishers? Are their incentives any different? Unfortunately, when fishers don't have strong property rights, their incentives also work against conservation. When governments hold the rights, fishers have every reason to overfish.

We call this "the tragedy of the commons." That phrase is usually used to describe an open access fishery, but it also applies to any situation in which fishers don't have exclusive, long-term rights to their fish. Without such rights, fishers have incentives to catch as much as they can. No fisher has any reason to conserve. That's because if he leaves a fish uncaught, there's no guarantee that it will be around to spawn, or to catch next year. More likely, it'll end up in his competitor's hands.

This situation becomes a vicious circle that leads even the most honourable fishers to race for fish and to catch more than they should. Last year, we saw this tragedy playing itself out on Canada's west coast. Salmon fishers from Canada and the US couldn't agree on who had the right to catch how many fish. The fish often spawn in the rivers of one country, and then swim out into the waters of the other country. The treaty that governs catch allocations has expired.

Last summer, fishers in both countries far exceeded safe catch limits. They did so precisely because they feared that if they didn't catch the fish, their rivals would. First, in July, the Alaskans caught four times more sockeye salmon than usual. They intercepted 300,000 sockeye that the Canadians thought belonged to them.

In response, in August, the Canadians implemented an aggressive "Canada First" fishing strategy. The idea was for Canadians to intercept as many fish as possible while they were in Canadian waters, leaving as few as possible for U.S. boats to catch. They took several million sockeye. This wasn't just the fishers' idea. It was all done with government approval. Of course the government denied that the strategy was "aggressive," It was simply, in its words, "vigourous."

I'd say that "stupid" is a better word. Both countries are cutting off their noses to spite their faces. Scientists and environmentalists are warning that this could have disastrous effects on future fishing. One biologist calls it a "scorched earth policy." One problem is that fewer sockeye than expected reached their spawning grounds. A more serious problem is that sockeye salmon swim with coho salmon. And the coho are endangered. Last year's reckless overfishing may have brought the coho closer to extinction.

Management tools

Even if governments or fishers had the incentives to manage fisheries sustainably, would they have the tools? Even if they wanted to conserve stocks, or improve habitat, could they? The answer, under a regime of government control, is no.

Governments don't have the tools to manage fisheries sustainably. One of the most serious problems is that remote governments don't have much knowledge of local stocks, fish behaviours, habitats, or environmental conditions. Good management decisions often have to be based on very detailed information that is specific to a particular time and place. Central planners can't possibly have this kind of information. Their information will be at best incomplete, and at worst inappropriate for a specific circumstance.

Government knowledge is wanting in another area as well: Governments can't really know how valuable resources are to various interests. They have no way of measuring the needs of competing resource users. And they can't measure the impacts of their decisions on various parties.

Even if governments had better knowledge, there would be another problem. Most government managers lack the ability to act quickly. But time is a luxury that a good fisheries manager can't always afford. The resource is rarely in equilibrium. It can be quite volatile. Managing it well requires an ability to respond to that volatility.

What about the fishers? Do they have better tools? In contrast to governments, fishers certainly have detailed, time-and-place-specific information. They know exactly how valuable certain resources are to them. And they can act quickly. But fishers have a whole different set of problems. They don't lack managerial tools. Instead, they lack legal tools. Without strong property rights, fishers are virtually powerless, legally, to protect fish and habitats from pollution or other harm.

Fishers can rarely launch common law court actions against polluters. In this, they're unlike many other victims of pollution. The common law includes powerful protection for property owners who've been harmed by pollution. Pollution may constitute a trespass on someone's land, or it may constitute a nuisance. If so, the victim can take the polluter to court. He may get an injunction against the pollution, and may get compensation. But it's much harder for fishers because they don't have clear rights to fish or fish habitat. If a polluter damages fish habitat, or harms fish, so what? Whose property has it harmed? Whose rights has it violated? On what grounds could a fisher sue?

Courts have established that fishers normally have no grounds to sue polluters. Back in 1927, on Canada's east coast, a cod merchant named McRae sued a whaling company. The company had built an oil and guano factory nearby. McRae complained that the factory committed three separate nuisances. First, the smoke from it drifted over his property and contaminated his drinking water pond. Second, its sickening odours prevented him from enjoying his property. And third, the grease, oil, fat, and pieces of whale carcasses that floated on the water made it impossible for him to carry on his fishing business.

The judge hearing the case noted that McRae was complaining of two distinct kinds of nuisance: private and public. If a nuisance interferes with a private right, an individual may take action against it. The factory's air pollution and its odours fell into the category of private nuisance. The judge agreed that they violated McRae's property rights. He issued an injunction against them.

The water pollution, however, was a different matter. The judge explained that the pollution didn't interfere with a private right. It interfered with fishing, a right common to all the public. If a public right is violated, it is the Attorney General, acting on behalf of the public, who must sue. In order for an individual to have a public nuisance claim, he must demonstrate that he has suffered "special" damages: his damages must be different in both kind and degree from others. The judge determined that the damage McRae suffered was no different from that suffered by other fishers. McRae therefore had no cause of action. And so the judge refused to ban the water pollution.

In 1970, commercial fishers out east lost another case for the same reason. Several fishers sued a phosphorus company. They accused it of discharging poisons into Placentia Bay. Its wastes, they said, polluted the water, poisoned the fish, and destroyed their commercial value. In response, the company argued that the fishers had no grounds to sue for private nuisance. The court agreed. The fishers held rights in common with other citizens. The company didn't violate their rights to any greater degree than it violated those of others. The pollution was therefore a nuisance committed against the public. Consequently, the fishers couldn't bring a private action. The pollution would continue.

Property rights a solution

The current system doesn't work. What does work is a regime where fishers hold strong property rights. Armed with strong property rights, fishers have both the legal authority and the legal tools to protect their resources from pollution. They no longer need to rely on governments to protect their interests; they can take matters into their own hands and sue those who violate their rights.

There have been hundreds of such cases. They're most common in England. They generally pertain to inland rather than ocean fisheries because in England, virtually all inland fisheries are privately owned.

Because the ownership of ocean fisheries is far rarer than the ownership of inland fisheries, I don't have as many examples of ocean fishers going to court to protect their assets. It does happen though. For example, in the northwest United States, in the state of Washington, ocean front property extends to the low tide mark. (That's in contrast to most jurisdictions, where ownership stops at the high tide line.) There, the owners of oyster beds vigorously protect water quality. In fact, oystermen who own tidelands are widely credited for the health of many of Washington's watersheds.

Lest you imagine an unmanageable tangle of litigation resulting from the assignment of property rights, let me say that I don't think it will happen. Strong property rights have a preventative effect. Polluters have frequently corrected existing problems in order to avoid lawsuits.

I should also mention that even when armed with the strongest rights, fishers won't always choose to prevent harmful developments or to eliminate pollution. Sometimes it'll be cheaper for an industry to compensate its victims than to clean up its act. But as long as fishers have the power to shut down polluters, they can make meaningful choices between defending their property and accepting compensation. They're in a strong bargaining position, and those bargains would be arrived at freely and fairly. They would reflect the values and the circumstances of all directly involved parties.

Property rights don't only confer legal powers on their holders. Strong property rights also give their holders powerful incentives to protect fish and their habitat. The stronger the fishers' rights, the more likely they are to profit from investments in monitoring, in habitat protection, and in restoration. Property rights internalize the benefits of such investments. As the stocks grow, and catches become easier or larger, the value of the rights increases. If the right is in the form of a quota, the market value of the quota increases. If the right is to a stretch of river, it's the real estate that has an ever-increasing value. Either way, the rights holders have strong economic incentives to preserve and enhance their assets. Knowing that they'll reap the benefits of conservation, they have every incentive to conserve.

Fish stocks, if managed properly, can sustain themselves indefinitely. Fishers know this. When they have secure rights to future stocks, overfishing is not in their self interest. They have powerful incentives to maximize their stock's value, not just today, but in the future. If we look at private fisheries around the world, we see that rights holders frequently limit fishing for the long-term benefit of their fisheries. Some of the most obvious examples are to be found in privately held inland sport fisheries in eastern Canada, England, Scotland, and Iceland.

Commercial fishers, whose property rights take the form of ITQs, can also limit fishing pressures. I was fascinated to learn that on occasion, Icelandic fishers have actually lobbied for lower catches than those proposed by the government! Early last year, in response to indications of healthier cod stocks, Iceland's prime minister suggested increasing the cod catch. But the association representing boat owners rejected his proposal. It proposed increasing the catch only in the following year, and then only if stocks remained healthy.

Stronger property rights have also changed Canadian fishers' behaviour for the better. Before vessel quotas were introduced in 1991, our west coast halibut fishery suffered from over-harvesting. Annual catches consistently exceeded the limits set by government. Fishers raced to catch as much as they could, endangering themselves, losing gear, and wasting fish. Not until they obtained more secure rights could fishers afford to slow down. Rights brought with them a dramatic transformation. Catches now remain under the annual limits and waste has been reduced by 50 percent.

Property rights principles

Property rights both enable and encourage fishermen to conserve stocks and preserve their habitat. It's clear that in order to save fisheries, we need strong property rights. The form they should take in specific fisheries is less obvious, so rather than recommending a specific form, I'd like to suggest a few principles.

Several features characterize strong property rights regimes. The strongest rights are exclusive: their holders can prevent others from using the resource. Rights, of course, are only as exclusive as they are enforceable. So enforceability is essential. The strongest rights are also transferable: this enables efficient managers to buy out bad managers, ensuring that rights end up in the hands of those who can make the best use of them. Property rights must also be perpetual: permanent rights encourage management decisions that ensure long-term productivity rather than short-term gain.

Property rights both enable and encourage fishermen to conserve stocks and preserve their habitat.

Furthermore, under the strongest property rights regimes, decision making is fully devolved. Whenever possible, decisions about fisheries should be in the hands of fishers themselves. If they have exclusive, transferable, perpetual rights to the resource, it is they who will benefit or suffer from any decisions made. So they have incentives to decide wisely.

One of the essential characteristics of a strong property right is that it can't be expropriated without compensation. Expropriation without compensation sends the wrong signals to both owners and governments. Governments who expropriate don't have to take the costs of their decisions into account. They can quite arbitrarily do something that's inefficient or costly. But to them it looks free, since they aren't paying the costs.

The solution to this problem is to make governments pay the full costs. The best way to do this is to require them to buy out property owners. Whenever possible, governments should acquire property just like the rest of us do: through voluntary transactions.

Relying on voluntary agreements for conservation is still pretty rare in Canada, but there's increasing interest in doing so. The Nature Conservancy organization has set up over 500 nature preserves on land that it's purchased, while Ducks Unlimited has protected over 17 million acres of waterfowl habitat by leasing and purchasing land.

Voluntary transactions ensure that all costs are taken into account, and they ensure that all parties are left better off than they were before. Otherwise, they wouldn't enter into an agreement. It's a win-win situation. In the case of the fisheries, both the fishers and the stocks win.

Conclusion

Ownership can take many forms. Individuals, communities, associations, or firms can own specific stocks. They can own fishing areas, or fish habitat. Judging from experience around the world, an endless number of configurations are possible. There's no good reason not to experiment with several. As long as they confer secure rights, and as long as they get governments out of the business of managing fisheries, they should have an excellent chance of success.

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Last Modified: Wednesday, October 20, 1999.