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Challenging the Theory of Catch Shares in Chile

March 19, 2012

This year is an important year for Chilean fisheries as the National Fisheries Law is up for review.  Ten years ago the Chileans implemented widespread catch shares with this law, making them a leader in Latin America. 

But how has it gone?  Dr. Hugo Salgado, an economist from the University of Concepcion, Chile, shares his thoughts in the video below.  I highly recommend it for those who are interested in how fisheries are managed. All in all, the presentation is very smart. 

The key takeaway for me is that Chile’s catch share system hasn’t succeeded at providing conservation benefits. Why?  Well, signs indicate that it is because the fishing companies have lobbied for unsustainable quotes. This would appear to violate a core assumption in catch shares theory that fishing rights will generate stronger incentives for fishermen to conserve.

So, is catch shares theory wrong or is there something else going on here?  Here Salgado and I partially disagree. Salgado explains that the main problem is that fishing companies don’t care about conservation in the same way fisheries managers do.  As a result, the main fix for the system would be the incorporation of other insturments, which Salgado and others are now exploring.

We had a nice email conversation and Salgado put it this way:

Regarding the “core assumption of catch share theory”, I think the problem is that the users have a more complex objective function and it might be different from the regulators objective function.  They [the fishermen] might be “optimizing” the fishery by depleting it.

But catch shares theory doesn’t require fishermen to think like fisheries managers.  In fact, the core assumption is that fishing companies care most about maximizing profits.  Usually their profit consideration is focused on the short-term as future catches are not guaranteed…but this is assumed to change as companies gain secure rights.  As for the depletion incentive, most economists I’ve talked to think this can occur, but only in fisheries that have extremely low productivity, such as Orange Roughy or deep-sea sharks.

I find far more compeling the idea that the Chilean system suffers from poor design.  Hake, anchoveta, sardines, and jack mackerel are to varying degrees shared stocks with Peru, to which the catch shares program does not apply.  In effect, there is less security to the fishing rights, so less long-term thinking. 

Furthermore, as best as I can tell from internet research, there is only limited tranferability of rights in the Chilean system.  Companies can transfer their rights from vessel to vessel, but they cannot sell them to other companies.  Of course, rights still get transferred through company consolidation, but this makes rights purchases extremely lumpy.  This sort of distortion reduces the incentive to maximize share value through good conservation policies.

In Salgado’s defense, he did make a very good point via email that there are similar problems in fisheries that are not shared with Peru and he himself did not see the transferability issue as problematic. 

Salgado also opened up some very interesting theoretical questions on the behavior of different types of participants in catch share systems: conglomerates and artisanal fishermen.  In his presentation’s Q&A session, Salgado suggested that Chilean fishing companies may have different interests than small-scale fishermen, particularly as they are owned by much larger companies involved in timber and mining.  This begs us to ask on the role a company’s internal culture plays in their conservation choices.  

This also makes me think of R.D. White’s excellent book, Crimes Against Nature, which gives a primer on the emerging field of environmental criminology.  In one chapter in particular, White explores the sociological perspective on how the corporate structure can lead to environmental wrong-doing:

The corporate form is thus itself criminogenic in nautre. For example, it is difficult to secure meaningful convictionsfor corporate wrong-doing due to the complications surrounding the status of corporations as legal persons, and because corporate crime tends to be socially defined as less harmful…Moreover, the complexities and nuances of the crimes of the powerful, involving coprorations and the State, demand even greater than usual investigatory sophistication and a steadfastly critical theoretical orientation if they are to be fully appreciated and unravelled.

Perhaps bigger companies have less incentive to ‘do the right thing’ and therefore they require even greater financial incentives to play the game as we’d like them?  In my view, this again returns us to catch share design and the need for rights to be fully secure and transferible.

On artisanal fishermen, Salgado mentioned the difficulty in getting them to shift to pro-conservation behavior, even when it’s in their long-term interest. The problem is that cuts to quotas for conservation purposes don’t just dent their short-term earnings as they do for companies’ decision-makers.  Instead, cuts can very well reduce artisanal fishermen’s ability to feed themselves.  Do you give up your only dollar today to get $10 tomorrow?  What about when you need that dollar to take care of your family? 

As for the way forward, Salgado and I agree wholeheartedly.  As he put it in his presentation:

We need to design better management instruments, and the best way to do that is in a multi-disciplinary way.

As I explored above, economics, political science, and criminology all offer interesting ways forward.

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