Rent capture in rights based fisheries
Creators: name: Grafton, R. Q.
Publisher: name: University of British Columbia
Year: 2008

description: A major issue in resource economics is the capture of economic rent. In fisheries, in contrast to nonrenewable resources, there has been a general failure by regulators to prevent rent dissipation or capture rent where it exists. New ways of managing fisheries such as the assignment of property rights in the form of individual harvesting rights have been introduced in Canada and other countries and have proved successful in improving economic efficiency. Despite such success, there remains no detailed study of the implications of rent capture from such fisheries. The thesis addresses this important problem in both a theoretical and empirical framework. The theoretical model assumes a fishery regulated by an individual transferable quota scheme where there are two representative fishers that differ only with respect to their harvesting functions and fixed costs. The short-run quota equilibrium in the fishery is compared to a first-best solution where a resource owner can determine the number of fishers of each type, their individual harvests, and the biomass. Assuming risk averse behaviour by fishers, it is shown that with uncertainty the expected rent in the fishery will be equal to or less than the equilibrium with no uncertainty. Such a result is not the case in an open access fishery. An implication of the work is that reducing the uncertainty faced by all fishers for a given total allowable catch will not decrease the expected rent from the fishery and in general will increase it. Decreasing the risk costs of certain fishers and not others may, however, increase or decrease the expected rents. Using the theoretical model, different methods of rent capture including a quota rental charge, profit charge, net cash flow charge, ad valorem royalty, auction of the harvesting rights, lump sum fee, and a. quota transfer charge are compared and evaluated. The criteria for assessing the different methods of rent capture include their effect upon the profits of different fishers, efficiency, costs of rent collection, and risk sharing and flexibility. It is shown that with no uncertainty a quota transfer charge and lump sum fee are both capable of distorting the Pareto efficient quota equilibrium while still capturing less than the estimated resource rent. Assuming variability in the output price, it is shown that a profit charge, net cash flow charge, and an ad valorem royalty cannot decrease and will in general increase the expected rent at any charge rate whenever the quota price is positive. Comparisons between the rent capture schemes also reveals differences in the burden of the rental paid by different fishers. The empirical study examines the effects of rent capture in a rights based fishery using data from the British Columbia sablefish fishery. The first part of the study estimates the rent in the fishery using a 1988 costs and earnings survey of individual fishers. Estimates of the rent in 1990 are obtained from simulations using a normalised quadratic and a translog restricted profit function. Using the simulations, the different methods of rent capture are examined with respect to the burden they impose on fishers and implications for the fishery. The thesis provides several contributions to the literature. It provides an original framework for examining different methods of rent capture in a rights based fishery with heterogeneous fishers with and without uncertainty. Using this model, the thesis distinguishes between short and long-run phenomena and presents the important differences between the several methods of rent capture. Using data from the British Columbia sablefish fishery, the thesis also provides the first empirical study of the effects of rent capture in a rights based fishery.