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Rights-Based Management: Efficiency Gains, Ecological Impacts, and Distributional Effects. Corbett A. Grainger October 24, 2014. Today’s Objective. Overview What are impacts of rights-based management in fisheries? Economic Impacts / Who Wins? Ecological Effects?

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rights based management efficiency gains ecological impacts and distributional effects

Rights-Based Management: Efficiency Gains, Ecological Impacts, and Distributional Effects

Corbett A. GraingerOctober 24, 2014

today s objective
Today’s Objective
  • Overview
    • What are impacts of rights-based management in fisheries?
      • Economic Impacts / Who Wins?
      • Ecological Effects?
  • Impacts of Property Right Security
  • Impact of Policy Uncertainty
  • Distribution and Free Allocation
  • A Note on Taxation

Corbett A. Grainger

economics of property rights
Economics of Property Rights
  • “Bundle of Sticks”
    • Right to Use, Right to Benefit, Exclusivity, Free Transferability
    • See the works of Prof. RagnarArnason
  • Literature points to huge gains due to ITQs
    • Allocativeefficiency
    • Technical efficiency
  • Strong rights
    • create incentives to reduce waste
    • create incentive for “long run” planning
    • create significant value
    • are good for conservation

Corbett A. Grainger

ecological impacts
Ecological Impacts
  • Strong property rights align economic and environmental interests
  • Resource user has a vested interest in the health of the fishery
  • No more lobbying for overexploitation
  • Good for conservation

Corbett A. Grainger

imperfect rights
“Imperfect” Rights
  • Infringing on the property right decreases the resource’s value
    • Could view as increasing the effective discount rate (Grainger and Costello, 2014a)
  • Limits on use
  • Limits on exclusivity
  • Limits on divisibility
  • Limits on transferability

(limits on permanent trades/consolidation caps)

Corbett A. Grainger

imperfect rights cont
“Imperfect” Rights Cont…
  • Policy Uncertainty
  • a basic principle in economics
    • Policy uncertainty (affecting costs) causes delayed investment
      • Uncertainty about property right
      • Introducing uncertainty about security of the right
      • Proposals to introduce taxes
    • Policy uncertainty decreases the value from the resource

Corbett A. Grainger

distributional impacts
Distributional Impacts
  • The allocation of rights impacts the distribution of income
  • Absent transaction costs, the efficient outcome is independent of the initial allocation
    • The initial allocation here has already been made.
  • Free allocation of ITQs
    • Dynamic efficiency argument (Arnason et al.)
    • Some required for Pareto-improving policy
    • Without free allocation, some resource users would prefer regulated open access (Grainger and Costello, 2014b)
    • Otherwise some may favor an inefficient policy (Libecap and Johnson; Karpoff; others)

Corbett A. Grainger

rents under itqs are capitalized
Rents Under ITQs are Capitalized
  • Rights lead to *big* increases in the resource’s value.
  • Free allocation is needed for ITQs to be welfare-improving for everyone.

Corbett A. Grainger

a note on taxing rents
A Note on Taxing Rents
  • Rents are created by fishing firms innovating
    • Cost reductions
    • Timing and marketing
  • Without strong rights, value disappears
  • Under standard regulation (elsewhere)
    • Overcapitalization
    • Rent dissipation
    • Lobbying for overharvest
  • Literature urges some caution (e.g. Johnson, 1995)

Corbett A. Grainger

moving forward
Moving Forward
  • Iceland’s ITQ system has been a huge success
    • Strong property rights create value, promote investment in resource
  • Policy recommendations:
    • Maintain strong property rights
    • If anything, increase efficiency by reducing transaction costs!
    • Reduce policy uncertainty

Corbett A. Grainger