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Grafton, Squires, and Fox. Private Property and Economic Efficiency: A study of a common-pool resource.

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grafton squires and fox private property and economic efficiency a study of a common pool resource

Grafton, Squires, and Fox. Private Property and Economic Efficiency: A study of a common-pool resource.

B.C. halibut fishery provides a natural experiment for analyzing the effects of privatizing the commons. The experiment tests for changes in firm behavior, efficiency, and producer surplus upon the implementation of ITQs on the fishery.

Background in Halibut fishery:

Fishing effort was increasing in the 1980’s. # of boats increased from 333 to 435 over the decade, and there was a 12-fold increase in the average catch per day.

By the late 1980s reduced fishing season had increased fishing intensity. Fisherman had to maximize landings over just a 6-day season.

Results of reduced fishing season include (1) Decrease in product quality, (2) Derby style fishing, (3) dangerous and wasteful fishing habits, (4) Decrease in bargaining power of fishers, (5) Consumers eat frozen rather than fresh halibut.

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In 1988, Canadian Department of Fisheries introduced individual harvesting rights (Individual Vessel Quotas, 70% of the fisherman surveyed approved of this resource management tool.
  • IVQs : Initial Allocation designed as a % of the TAC. (30% based on vessel length, 70% based on best catch of previous 4 years). Prohibition of transfers in 1st two years of the IVQ program.
  • Question: What are the flaws in this initial allocation given above? What are implications of the prohibition of quota transfers?
  • Fishing season increased dramatically after the IVQ program implemented. 1990 - 6 days. 1991 - 214 days 1993 – 245 days.
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Economic and Ecologic results from the IVQ system included
  • Fall in crew size. (No longer needed a big crew to maximize landings in derby style fishing on a 6 day season.
  • Fish price Increased. (bargaining power of fisherman increased, size of fish increased, a significant proportion of the catch was sold as fresh fish rather than frozen
  • Fisherman Safety increased (this was not a trivial concern in the 1980s)
  • Fishing Efficiency increased.

Explanation of changes in fisherman efficiency.

  • In derby style fishing, fisherman obliged to catch their harvest in a very limited period. As such, the costs they incur many not vary a great deal in terms of the number of fish caught. The overriding incentive was to catch as many fish as possible, while considerations of cost minimizing input allocations are of secondary importance.
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By contrast, when harvest is fixed by the amount of quota owned or leased by the fishery, fisherman wish to receive the highest value possible from quota AND to minimize the costs for a given harvest.
  • Efficiency increased, but not overnight. The 2 year trial period where IVQs were not transferable was an example of attenuation of property rights. Owners were uncertain if the IVQ system would last beyond the trial period. They were reluctant to change certain inefficient fishing practices.
  • Empirical results confirm that ensuring an exclusive property right with a good quality of title is sufficient to yield substantial gains in revenues and producer surplus.