Economic Efficiency in Common Property Natural Resource Use: A Case Study of the Ocean Fishery

The Common property ocean fishery is often cited as an example of economic inefficiency in production. The usual recommendation is to restrict entry of fishermen so that incomes of those remaining are improved. Such logic would seem to indicate that the economic theory of common property natural resource use is not well developed. It was with this premise that the current investigation commenced. A mathematical model of productive interdependence among firms in a common pool situation was developed. Following this the concept of rising supply price for an industry exhibiting productive - interdependence was introduced. The concept of a fishing-day was introduced and it was argued that the firm viewed a fishing-day as one of its variable inputs. When the above concepts were combined with the biological model presented, a bioeconomic model of the fishery evolved. The model permitted illustration of the impact upon industry output from changes in: (1) technology; (2) demand for the product; and (3) fish population; and the chain of ramifications which result when current production is something other than the sustained yield of the fish stock. The usual charge that a common property fishery is "inevitably overexploited" was evaluated in the context of the bioeconomic model and seen to be false. The traditional recommendation to restrict entry such that fleet marginal cost equals fleet marginal revenue, so as to maximize "rent," was shown, instead, to merely create higher - than-competitive returns (profit) for remaining fishermen. The disregard for those fishermen excluded by such action was questioned on equity grounds, as well as on grounds of economic efficiency. It was also demonstrated that depending upon demand for the product and technology of the industry, equating fleet marginal cost with fleet marginal revenue was not sufficient proof that the fish stock would not be overfished. The usual. concern for the welfare of the resource under common property exploitation was discussed and 'in light of present regulations, deemed to be of little moment in the fishery. A sole own9r could, perhaps, achieve7ecprl.omies of largescale production in the long run, but to do so would require access to a large number of fishing grounds. This being the case, extraction of monopoly profits would occur. Also to be weighed against possible gains from unified management would be the impact on those excluded from the fishery. Regard for regional employment, stability, and growth would seem to be ignored in the process of possibly reducing per unit production Costs in the fishery. The presence of productive .interdependence was seen to provide no basis for the charge that externalities are present in a cornmon property fishery. A distinction between interdependence and externalities exists which, up to now, has gone unrecognized. Thus, the recommendation for taxes to "internalize the externalities" was shown to be incorrect. Misallocation of fishing effort over grounds of different quality may exist, yet reallocation (costless) is more likely - to create differential profits for vessels on the better grounds, than it is in realizing social savings. The rudiments of resource allocLtion theory were presented, with particular reference to the fishery. It was concluded that the salvage value of commercial fishermen is lower than their acquisition cost and hence they .may be receiving their "opportunity" income. This being the case, the usual conclusion that society would benefit if "excess" fishermen produced other goods and services, appears weak. It was further hypothesized that, contrary to traditional thought, fishermen are more mobile than those occupational groups which stand to gain from long-term asset (land) appreciation. In conclusion, the presence of considerable uncertainty in a fishery, and the lack of perfect knowledge on the part of biologists and economists, renders the sweeping conclusions of traditional writers in fishery economics, and their subsequent policy recommendations, particularly vulnerable to incredulity.