So given the events of the recent few week it seems that issues around the environment and energy have subsided to the back burner for a little while. However, The Economist had an article which talks about a very interesting "tragedy of the commons" problem with fisheries.
Fisheries are a shared resource, and as such, given a completely competitive market, the incentives are aligned for fishermen to over-fish. However, limiting short term fishing would actually help grow the resource in the long run, and thus increase the value for all fishermen.
In light of the market failure, it is important to note that governments have tried bring regulation to solve these problems. Governmental agencies typically put a limit on the season as a way of restricting the total quantity fished. However, as fleets and techniques have become more modernized this has led to an ever shrinking season as market participants race to fill their quotas in the allotted time.
An innovative technique known as the "ITQ" (Individual Transferable Quota) privatizes fisheries and awards "ownership" rights to the market. The incentive of the owners is now to increase the market value of their rights, and is believed to solve the market failure.
While environmental groups and fisheries economists held this to be true in theory, it seems that some economists from the University of California have actually proved that this in a data driven manner.
A few questions given this:
1. Does it make sense to privatize all fisheries? It seems that the incentive to cheat is really high. Obviously, there should be some self-policing involved, but in classic game theory, it probably makes sense for a smaller ITQ holder to over-fish if no one is looking.
2. Can you extend this to other game? I'm not sure whether it is feasible to create hunting ITQs. When you create any security, there is a certain amount of regulatory and bureaucratic oversight necessary to make sure that any market is functioning properly. My guess is that most state natural resources bureaus would not be able to handle the complexity of having a large number of these rights owned by a very disaggregated group of individuals.
3. Should this be a method of protecting biodiversity? I don't think so. The value created by biodiversity in the short-term is unclear and if any assets were created the market would award them little if any value. Given this, if oil were discovered in any fishery the market value of ITQs would increase, oil companies would buy them, and then proceed to destroy the fish. In this case, the cost of reduced biodiversity is an externality borne by individuals operating outside this market, as such, these rights can't be used in the name of conservation.
Fisheries are a shared resource, and as such, given a completely competitive market, the incentives are aligned for fishermen to over-fish. However, limiting short term fishing would actually help grow the resource in the long run, and thus increase the value for all fishermen.
In light of the market failure, it is important to note that governments have tried bring regulation to solve these problems. Governmental agencies typically put a limit on the season as a way of restricting the total quantity fished. However, as fleets and techniques have become more modernized this has led to an ever shrinking season as market participants race to fill their quotas in the allotted time.
An innovative technique known as the "ITQ" (Individual Transferable Quota) privatizes fisheries and awards "ownership" rights to the market. The incentive of the owners is now to increase the market value of their rights, and is believed to solve the market failure.
While environmental groups and fisheries economists held this to be true in theory, it seems that some economists from the University of California have actually proved that this in a data driven manner.
A few questions given this:
1. Does it make sense to privatize all fisheries? It seems that the incentive to cheat is really high. Obviously, there should be some self-policing involved, but in classic game theory, it probably makes sense for a smaller ITQ holder to over-fish if no one is looking.
2. Can you extend this to other game? I'm not sure whether it is feasible to create hunting ITQs. When you create any security, there is a certain amount of regulatory and bureaucratic oversight necessary to make sure that any market is functioning properly. My guess is that most state natural resources bureaus would not be able to handle the complexity of having a large number of these rights owned by a very disaggregated group of individuals.
3. Should this be a method of protecting biodiversity? I don't think so. The value created by biodiversity in the short-term is unclear and if any assets were created the market would award them little if any value. Given this, if oil were discovered in any fishery the market value of ITQs would increase, oil companies would buy them, and then proceed to destroy the fish. In this case, the cost of reduced biodiversity is an externality borne by individuals operating outside this market, as such, these rights can't be used in the name of conservation.
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