Tragedy of the Commons: Analysis of Fishing Industry

Tragedy of the Commons: Analysis of Fishing Industry OBJECTIVES To understand the ‘tragedy of the commons’ as a form of market failure, with specific reference to the fishing industry To analyze the Indian fishing industry with respect to ‘tragedy of the commons’ To outline the pros and cons of methods by which the ‘tragedy of the commons’ can be solved to ensure sustainability of fisheries Introduction Our presentation is on a form of market failure known as â€Å"tragedy of the commons†. This refers to the problems inherent with resources that are treated as common property. Our focus is specifically on the fishing industry with India as a case study. It is necessary to first define what we mean by common property resources. Common property resources share two characteristics: excludability and subtractability. Excludability refers to controlling access to a resource by potential users, i.e. it is open access. In the case of common property such as fishing waters, every citizen has access to this resource without any restrictions as is the current case in India. Subtractability means that each user of that resource is capable of subtracting from the welfare of other users. That means that if one person fishes in that water source, there will be less fish stocks available for the other fishers. Since each fisherman is a rational being, he will take into consideration only his own marginal costs and revenues, ignoring the fact that increases in his own catch will deprive other fishermen of their catch, as well as affect the future of the sustainability of fish stocks. As fish stocks continue to get depleted, eventually that resource becomes so degraded that it collapses completely, for example the collapse of the Newfoundland cod fishery in North America in 1989. In this case, the market due to lack of regulation resulted in excess capacity and overexploitation of the resource. Since in the long term the good is not efficiently allocated, this form of market failure is called â€Å"tragedy of the commons†. Tragedy of the Commons in the Indian Fishing Industry Fishing is a big business in India. The local industries employ about 15 million citizens and overall exports had brought in 2.8 billion USD worth of forex to the country. Officially, the government’s stance seems to be that fishing levels and resources are adequate and that there is still further capacity for growth and has busied itself with developing mechanized fisheries as a means of catching more fish than a traditional fisherman could. The Marine Products Exports Development Authority (MPEDA), which operates under the Ministry of Commerce, has outlined a number of objectives regarding the growth of the fishing industry in India, including: India to be among the top 5 seafood exporters in the world Employment in the fishing sector to double by 2015 India currently follows an open access policy to water resources or fish stocks, i.e. fishers don’t require any quotas or licenses required to operate. Apart from some laws against fishing during the breeding season, and using explosives to kill fish, India does not place any great restrictions on its fishing industry in hopes to encourage fishing for the purpose of exports. This has led to overfishing and depletion of fish stocks. This strong emphasis on output has already placed India’s fisheries under huge pressure, as more and more boats hit the waves in search of fish. According to a 2012 study by Greenpeace, 90% of India’s fish resources have reached or are operating beyond their sustainable level and poor regulation of the industry has contributed to a decline in growth of India’s fisheries. Fishermen are going farther and wider to secure a catch as traditional marine fishing areas show depleting numbers of commercially valuable fish. In such a scenario, it is inevitable that India will not be able to follow its open access policy for long and will have to put in stronger regulations to make its fishing industries more sustainable. Possible solutions to the tragedy of the commons Individual transferrable quotas (ITQs): Privatization of the common resources is one of the solutions offered to the tragedy of the commons, to ensure excludability. Privatization usually provides incentives for rational exploitation of the resource. But marine resources cannot exactly be privatized so it takes the form of quotas. If the owner has a stake in a particular stock of fish, that person or company will want to ensure the sustainability of the stock to ensure a potential for future profit. ITQs are a transferrable share of a part of the total allowable catch (TAC). These shares are divided into portions for individual quota holders, who can catch their quota, or alternatively, can buy, sell or lease them. Because owners of quotas have long-term access to the fishery, the long-term health of the stock is in their interests, and so we have a market system that encourages sustainability. Since portions of the stock are guaranteed, there is no fear that someone else will benefit from the resource by exploiting it faster. However in practice it is rather difficult to enforce these quotas when it comes to fisheries. And since quotas are difficult to enforce, each quota holder feels that the other fishermen might break the rules and so continue to engage in overfishing. By-catch dumping: This occurs because a vessel or individual fisher cannot predict the number of each species that is caught (since even targeting one species inevitably results in catching more than one species). Some species for which the quota has already been filled may be caught, and with the quota already filled the only option is to dump the excess fish. Quota busting: Fishermen take more than their allowed quota of a species. Especially when there are a large number of vessels operating it is difficult to prevent quota busting, leading to a much larger catch than is actually recorded in the official data. High-grading: The quota is for a fixed volume of fish, so smaller or less desirable fish are thrown overboard so that the revenue per unit of quota is maximized. These discarded fish will die and deplete fish stocks but are not counted in the mortality rate of fish in the official records. One method to prevent high-grading is on-board inspectors but this is too expensive and impractical especially in fisheries with large number of vessels. Another solution to the problem of high-grading would be to offer the quotas in terms of total value of catch in terms of price rather than total physical quantity of catch. So there wouldn’t be low quality fish discarded as they could still be sold for a low price and wouldn’t drain the quota. But the problem with this approach is constant fluctuations in prices may make the quota difficult to determine. All of these malpractices lead to wrong data being recorded. Further quotas are then decided on the basis of this faulty data, thus threatening sustainability as the quotas would be too high. Currently according to Greenpeace 25% of catch is discarded, but this figure may not reduce with ITQs. Community transferrable quotas CTQs would make the resource a communal property. Communal property is held by a group or community of interdependent users who exclude outsiders and regulate use by members of the local community. CTQ’s would also enhance enforcement capabilities and solve the serious problems of high-grading and discarding that are present in ITQ systems. This enhanced enforcement would come from within the community itself. Since all members of the community share the costs of cheating, it is likely that community members would keep a close eye on the activities of others. Anyone caught cheating would face not only the fines and like penalties that would come with an individual quota system, but would also face a loss of face in the community. One problem is a matter of definition. It is not clear whether entire communities may buy and sell quotas, or individuals within the communities can exchange their shares among each other. In the former case, it seems unlikely that an entire community could agree to buy or sell a quota, and if they did, there is potential for a dissenting minority to lose their right to access the fishery due to simply being outvoted. If transferability in CTQ’s refers to exchange within the communities, then it seems likely that the same problem of concentration of ownership might occur, though on a slightly smaller scale. Before a community-based quota program were to be implemented, it would be necessary to clarify what type of exchange could take place and determine a set of regulations for such exchange. Another problem with CTQ’s is that this system might not be able to account for the sheer size of the fishing industry as it exists today. Long gone are the days when small inshore vessels were responsible for catches; today much of the work is done offshore by large trawlers taking in massive amounts of fish from open waters, sometimes hundreds of miles from the coastline. Community based quotas seem well equipped to deal with inshore fishing, but offshore operations often involve corporations not fixed geographically in a â€Å"community†. These and many other issues must be resolved before any kind of effective CTQ system is put in place. Conclusion Thus we have outlined tragedy of the commons with special reference to the fishing industry, and outlined the pros and cons of individual quotas and community quotas. The government of India should look at both sides of the issue, and consider local needs of subsistence fishing communities, sustainability of resources as well as India’s international export status while designing its policies to deal with overexploitation of fisheries. Bibliography David Feeny, S. H. (2006). Questiong the assumptions of the tragedy of commons model of fisheries. Land Economics , 187-205. Greenpeace. (2012). Safeguard or squander: deciding the future of Indias fisheries. Greenpeace. Hardin, G. (1968). The tragedy of the commons. Science , 1243-1248. LeDrew, S. (2003). Property Rights and the Fishery: ITQ’s and CTQ’s as solutions to the problem of the commons. OMRN. Narayankumar, R. (2012). Economic efficiency in fishing operations technology, exploitation and sustainability issues. Cochin: Central Marine Fisheries Research Institute. NFDB. (n.d.). About Indian Fisheries. Retrieved from National Fisheries Development Board: http://nfdb.ap.nic.in/html/aboutus.htm