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Institutional Economics and
Fisheries Management
Elizabeth H. Petersen - 9781843767824
Downloaded from Elgar Online at 10/24/2017 01:27:25PM
via (NUS) National University of Singapore
Elizabeth H. Petersen - 9781843767824
Downloaded from Elgar Online at 10/24/2017 01:27:25PM
via (NUS) National University of Singapore
Institutional
Economics
and Fisheries
Management
The Case of Pacific Tuna
Elizabeth H. Petersen
Natural Resource Economist, Advanced Choice
Economics Pty Ltd, Australia
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
Elizabeth H. Petersen - 9781843767824
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© Elizabeth H. Petersen 2006
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system or transmitted in any
form or by any means, electronic, mechanical or photocopying,
recording, or otherwise without the prior permission of the
publisher.
Published by
Edward Elgar Publishing Limited
Glensanda House
Montpellier Parade
Cheltenham
Glos GL50 1UA
UK
Edward Elgar Publishing, Inc.
136 West Street
Suite 202
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library of Congress Cataloguing in Publication Data
Petersen, Elizabeth H., 1974–
Institutional economics and fisheries management : the case
of Pacific tuna / Elizabeth H. Petersen.
p. cm.
Includes bibliographical references.
1. Fishery management. 2. Institutional economics. 3. Tuna
fisheries–Pacific Ocean. I. Title.
SH328.P48 2006
333.95'6783'091646–dc22
2005049464
ISBN-13: 978 1 84376 782 4
ISBN-10: 1 84376 782 1
Printed and bound in Great Britain by MPG Books Ltd,
Bodmin, Cornwall
01
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Contents
List of figures
List of tables
Acknowledgements
Introduction
1 The new institutional economics and
natural resource management
2 The Western and Central Pacific tuna
fishery
3 Getting fishery policy objectives right
4 Achieving policy objectives through
institutional reform
5 Managing resource revenues
6 The catch in trading fishing access for
foreign aid
7 The contribution of fishery resources to
economic development
References
Index
vi
vii
ix
xi
1
23
39
55
87
117
143
157
175
v
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Figures
2.1
2.2
2.3
4.1
4.2
6.1
6.2
7.1
The Western and Central Pacific region
Tuna catch by harvest technique
Total catch by tuna species
Example of bionomic and
rent-maximizing biomass levels for a
distant water fishing nation (DWFN)
and a Pacific island country (PIC)
Stock of fish (S), resource rents (R) and
tariff rates (t)
Aid donated by Japan to the Pacific
island countries and total worldwide
aid flows through time
Total aid donated by Japan through
time in 1999 terms
The nexus between institutions,
economic policy and economic
performance
24
28
29
61
70
125
127
153
vi
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Tables
1.1 Conceptual property right hierarchy in
an international fishery
6
1.2 Payoff matrix for two fishers of a
common fishery faced with a decision
of whether to increase catch rates
16
1.3 Efficient institutional structures for
allocation of resource entitlements
under different conditions of
transaction costs
20
2.1 Tuna catches from the top ten countries
fishing in the Western and Central
Pacific
26
2.2 Economic statistics showing the
importance of the fishing industry for
selected Pacific island countries
32
2.3 Access fees paid by major distant water
fishing nations
33
2.4 Estimates of 1999 access fees paid to
Pacific island Forum Fisheries Agency
member countries
36
5.1 Selected statistics for the Kiribati
Revenue Equalisation Reserve Fund
104
5.2 Gross fisheries revenue, and current
and potential access fees from fisheries
in each Pacific island country
111
vii
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Institutional economics and fisheries management
5.3 Total population and fishery revenue
per capita for selected Pacific island
nations
5.4 GNP per capita, and fishing revenue
per capita as a percentage of GNP per
capita
6.1 Foreign aid donated to the Pacific
island countries by donor, 1998–99
average
6.2 Tuna catch by Japan by major species
6.3 Tuna prices by major species and
harvest technology
6.4 Sensitivity on the expected value of
Japan’s tuna catch and access fees
6.5 Tuna catch and access fees paid by
Japan in Pacific island country
exclusive economic zones
6.6 Aid donated by Japan to Pacific island
countries (1998–99 average), and
sensitivity on access fees
113
115
123
128
129
131
133
136
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Acknowledgements
The publishers wish to thank the following who
have kindly given permission for the use of
copyright material.
Asia Pacific Press for the article ‘Institutional
structures of fishery management: the fortuna in the
South Pacific’ by Petersen, E. (2002), in R. Garnaut
(ed.), Resource Management in Asia Pacific Developing
Countries, Canberra: Asia Pacific Press.
Elsevier for the article ‘Economic policy,
institutions and fisheries development in the
Pacific’ by Petersen, E. (2002), in Marine Policy, 26,
(5), 315–24.
Elsevier for the article ‘The catch in trading
fishing access for foreign aid’ by Petersen, E. (2003),
in Marine Policy, 27, (3), 219–28.
Elsevier for the article ‘Rethinking fisheries policy
in the Pacific’ by Pretes, M. and E. Petersen (2004),
in Marine Policy, 28, (4), 297–309.
Marine Resource Economics for the article
‘Multilateral governance of fisheries: management
and cooperation in the Western and Central Pacific
tuna fisheries’ by Chand, S., Q. Grafton and
E. Petersen (2003), in Marine Resource Economics, 18,
(4), 329–44.
Every effort has been made to trace all the
copyright holders but if any have been inadvertently
ix
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Institutional economics and fisheries management
overlooked, the publishers will be pleased to
make the necessary arrangements at the first
opportunity.
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Introduction
Over the last two or three decades, economists
and other social scientists have given increasing
attention to institutions, defined as humanlydevised rules, as critical determinants of economic,
social and political growth and development.
Economic institutions, defined as rules that govern
economic behaviour, have been dramatically
reformed over this time period. Globally, some of
these reforms include the collapse of communism
in eastern Europe, the growth of institutions for
market capitalism in China, Vietnam and other
communist states, the influence of the World Trade
Organization in multilaterally reducing barriers to
trade, the rise of regional trade agreements and the
freeing up of world capital markets.
Economic institutions for the governance of
natural resources have also experienced dramatic
reforms. Such reform has often been stimulated
by increased competition for resource access and
exploitation, leading to emerging resource scarcity.
This scarcity has prompted managers to focus on
strengthening private property rights and relying
on markets for allocating and adjusting these rights
amongst potential users. The increased focus on
individual transferable quotas (ITQs) is evidence
xi
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Institutional economics and fisheries management
of this. Globally, this push towards strengthening
property rights for fishery resources has led to the
formation of a number of agreements and laws
such as the 1982 United Nations Convention on
the Law of the Sea and the 2001 United Nations Fish
Stocks Agreement. While economic institutions for
fisheries governance is still evolving, there is still
a strong need for continued reform, as evidenced
by the vast body of literature citing failed fisheries
governance and resource scarcity.
The fisheries management literature is primarily
focused on biological research. This research is
important and necessarily vast, given the difficulty
involved in accurately measuring and monitoring
fish stocks. However, the management of most
fisheries stops short of using the biological data
to inform economic analysis. Often the maximum
sustainable yield is used as a benchmark for
establishing a total allowable catch (TAC), and
little attention is given to how this TAC should be
efficiently and equitably allocated and distributed
amongst potential resource users.
Fishery economics is often perceived to be a
discipline entirely focused on developing and
exploiting the resource for maximum short-term
monetary gain. Fishery economists, in general, have
failed to successfully market their discipline as one
focused on long-term sustainability of economic
returns which generally requires the biological
sustainability of stocks. Moreover, in most cases,
the annual harvest rate that maximizes these longterm economic returns of a fishery (the maximum
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Introduction
xiii
economic yield) is less than the maximum amount
that can be harvested annually without decreasing
biological stocks (the maximum sustainable yield).
Hence fisheries economists generally advocate
harvest rates less than those advocated by biologists,
espousing the precautionary principle. Economists
have not successfully extended this message, and
most fisheries are managed according to maximum
sustainable yield principles. Moreover, economics
research can provide significant benefits to a
fishery in encouraging property right structures,
entitlement systems and mechanisms for allocating
and adjusting these entitlement systems.
Perhaps this economics research is relatively
sparse, compared with biological research, for the
following reasons. First, good economics research
cannot be conducted without sound biological
knowledge. Second, there are often simplistic and
polar views amongst economists on the appropriate
roles of markets and governments. Third, economics
research has, until recently, been bounded by
conventional neo-classical economic analysis. The
new institutional economics has historically been
outside the bounds of conventional economics and
ignoring it has led to economic analysis that is a
rather blunt and inflexible instrument for decisionmaking. Current progress in new institutional
economics is still limited. For example, institutional
economics relies on the measurement of transaction
costs for comparing different institutional structures,
however there are no analytical tools available for
ex ante measurement of these transactions costs.
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Institutional economics and fisheries management
Hence, ex ante institutional analysis is difficult and
often subjective. This is made more difficult when
dynamic transaction costs (costs associated with
reforming an existing institutional structure) are
high. However, the new institutional economics is
now established as an important and non-trivial
sub-discipline of economics. The growing amount
of research is likely to have a positive impact on
economics and natural resource management,
especially fisheries management, in the decades
to come.
About this book
The purpose of this book is to contribute to biological
and economic sustainability of fish resources
worldwide, by providing an analysis of fisheries
management in the context of new institutional
economics. The analysis can be applied to fisheries
management in any application. For clarity, the
Western and Central Pacific tuna fishery is used
as a case study. The general premise of the book
is that sound fisheries management requires, first,
a clear definition of policy goals for the fishery
(common policy goals include long-term biological
sustainability and maximization of sustainable
economic returns) and, second, a set of institutions
for achieving these policy goals. Without these
policies and institutions, there is likely to be resource
conflict and over-exploitation, both biologically and
economically.
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Introduction
xv
The book comprises seven chapters. Chapter 1
introduces a theoretical background to the new
institutional economics in the context of natural
resource management. An outline of its development
and the seminal works of literature are provided.
The three general institutions for natural resource
management are introduced as property rights,
entitlement systems, and mechanisms for allocating
and adjusting entitlement systems. The concept
of transaction costs for determining institutional
choice is then presented in the context of these three
institutions for natural resource management.
Chapter 2 provides a description of the case
study fishery. Material presented in Chapters 3
to 6 is considered first with reference to the basic
paradigms, and then in relation to its application
to the case study fishery. Chapters 3 and 4 focus
on the general theme of the book: getting the
policy objectives right (Chapter 3) and developing
institutions for achieving these policies (Chapter 4).
It is argued that different policy objectives will result
in different governance structures. Moreover, sound
policy objectives can lead to sound governance
structures, just as inappropriate policy objectives
can lead to inappropriate governance structures.
In Chapter 3 it is noted that it is difficult to be
prescriptive regarding defining an appropriate
extractive policy for a fishery, as this depends on the
individual characteristics of the fishery and fishers,
and on the specific objectives of the property right
holder. However, two economic theories that have
been proven to be true and non-trivial but are
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Institutional economics and fisheries management
frequently misunderstood by policy-makers are
presented. These are the theory of comparative
advantage and Tinbergen’s principle of one policy
instrument per policy objective. These theories are
described, and the impacts of misunderstanding
or ignoring them are outlined. Fisheries policy
in the Western and Central Pacific tuna fishery is
then reviewed, with discussion on possible policy
reform.
Chapter 4 moves on to the development of
institutions to achieve the policy goals. The current
property rights structures for multilateral fisheries
are outlined, and the current institutional structures
for governance of the Western and Central Pacific
tuna fishery are presented, with some discussion on
hindrances to institutional reform. The chapter then
progresses by presenting a model for analysing rent
generation in a multilateral fishery. This model is
applied to the Western and Central Pacific tuna
fishery by presenting a proposed cooperative
governance structure. The structure is likely to
provide significant benefits, including resource
sustainability (by setting a regional total allowable
catch and encouraging the harvest of older age
classes of tuna), significantly higher economic
returns, removal of ‘race to fish’ incentives, and
economies of size and scope in the management
and monitoring of tuna resources.
In Chapter 5 the issue of managing resource
revenues is discussed. This issue is often intensely
debated, especially in fisheries where a significant
proportion of resource rents accrue to government.
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Introduction
xvii
Without strong institutions for managing resource
revenues, they can be wastefully spent on
consumption, poor quality investments and, in
worst cases, civil conflict, corruption and poor
economic growth. It is argued that economic and
fisheries development is influenced less by fishing
per se then by the management of fishery revenues.
A trust fund approach for managing fishery revenue
is given particular attention in this chapter.
A special issue relating to fisheries management
in developing countries is presented in Chapter
6: the exchange of subsidizing fishing access for
foreign aid. It is argued that this exchange effectively
disempowers a country’s own efforts towards
development by decreasing the transparency of
fishing right allocations, placing the developing
country in a weak bargaining position with regard to
allocating fishing rights and reducing the flexibility
of government spending. Often these results are in
the best interests of the aid-giving nation and are
encouraged by it. It is argued that development
financed through fisheries revenue is likely to be
stronger and more sustainable than aid-financed
development, and avoids the political constraints
associated with foreign aid flows.
The book concludes in Chapter 7 with a discussion
of the role of fishery resources in economic
development. It is argued that good economic
policies and institutions for fishery governance is
necessary but not sufficient for fisheries, and broader
economic, development. They must be coupled with
broader strengthening of economic policies and
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Institutional economics and fisheries management
institutions for social and economic governance.
These broader institutions include, amongst others,
the security of property and contractual rights, a
competent and honest bureaucracy, and a reliable
and independent judiciary. In the absence of
strong broader institutions for social and economic
governance, natural resource revenues can result in
poor economic growth and civil conflict.
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1.
The new institutional
economics and natural
resource management1
In the last two decades, economists and other social
scientists have realized that institutions, defined as
humanly-devised rules, significantly shape human
behaviour. This realization has led to a new field of
study called New Institutionalism. In the context
of economics, the term ‘institution’ does not refer
to organizations such as financial institutions,
business corporations or government agencies.
Rather, organizations are founded on and operate
according to their institutional framework. North
(1994) succinctly writes that if institutions are the
rules of the game, then organizations and their
entrepreneurs are the players.
Institutions consist of either internal constraints
(for example, taboos, customs) or external rules (for
example, constitutions, laws). Internal institutions,
often called informal institutions, are rules that
have evolved spontaneously through experience
and learning. External institutions, sometimes
referred to as formal institutions, are designed,
imposed and enforced from above by a political
authority. North (1991) comments that formal or
1
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Institutional economics and fisheries management
informal institutions exist to govern almost all
situations of exchange and transformation. The
study of institutions within economics is concerned
with one particular subset of human exchange and
transformation: that of economic exchange and
the allocation of resources and consumer goods
and services.
Veblen (1909) and Coase (1937, 1960) were the
first to write of institutions, although the new
institutional economics grew in influence after the
work of Williamson (1979, 1985, 1998), Williamson
and Masten (1999), Matthews (1986) and North
(1991, 1994). Gordon (1954) may have been the first
to investigate the consequences of institutions for
governance of fisheries. Bromley (1989) tied the new
institutional economics approach to policy issues
and the management of the environment. Stevenson
(1991) followed Bromley’s work by focusing on
common property economics, with application to
ocean fisheries, climate change and biodiversity.
Challen (2000) applied the new institutional
approach to water resources, in particular inland
bodies such as rivers, lakes and reservoirs.
The new institutional economics gives attention
to the institutional structures that govern economic
behaviour and forms the basis of the concept of
efficiency, including the operation of markets.
Markets require institutional structures established
by government, including defined property rights,
general protocols for contracting, and the means
for policing and enforcing contracts (Challen,
2001). However, although markets cannot exist
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The new institutional economics
3
in the absence of public subsidization through an
appropriate institutional framework, the role of
institutions goes beyond that of supporting markets.
While some decisions are made by government
owing to some recognizable reason for market
failure, for others there has never been a market,
nor is it foreseeable that they will be controlled by
market processes.
1.1
Institutions of natural resource
management
In studying the governance of natural resources,
it is helpful to consider three types of institutions:
property rights, entitlement systems, and
mechanisms for allocating and adjusting resource
entitlements. The following discussion gives special
attention to the governance of fishery resources to
aid clarity.
1.1.1
Property rights
Property rights describe the nature of an entity
holding decision-making power as to the way in
which a resource is used. Natural resources can be
classified as open-access (or non-property), where
there is no defined group of users or ‘owners’ and
so the benefit stream is available to anyone; privateproperty, where an individual or corporation has a
right to exclude others from using that resource;
common-property, where a community, through
either formal or informal mechanisms, controls the
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Institutional economics and fisheries management
nature of resource use; or state-property, where, in
order to prevent over-use and/or to gain revenue,
a state agency controls the nature of resource use
(Bromley, 1989; Young, 1992).
If there is no restriction on exploitation, the
resource is termed ‘open-access’ and is susceptible
to the problems associated with this classification
(Gordon, 1954). The interests of the fishers, who
are motivated by private profit, and the interests
of the national economy, which seeks to prevent
dissipation of the resource, are in conflict. Individual
fishers will be driven by competition to operate
where total cost equals total revenue (or where
marginal cost equals average revenue), which is
likely to be beyond the maximum sustainable yield,
the most that can be harvested without reducing
long-term stock size. At this level of use only normal
profits are made, since greater than normal profits
will encourage greater resource exploitation, and
no resource rents are derived from the fishery. The
likely results of open-access are over-capitalization
and over-exploitation that will gradually deplete
the resource. To protect the resource and optimize
economic rents (the difference between the value
of the catch and the economic cost of the fishing
effort), control must be exercised over resource use
through state-property rights, common-property
rights or private-property rights. Of these forms
of property rights, none is universally superior,
rather each has its own merits depending on the
circumstances to which it applies.
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The new institutional economics
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For any one resource there are multiple levels of
property rights, ranging from the broad powers of
the state or national government to the individual
powers of users making harvest and investment
decisions. In between these extremes there may be
other levels of state-, common- or private-property
rights. Challen (2000) poses the following property
right hierarchy that may exist for an ocean fishery
(Table 1.1). The highest form of property right is
conceptualized as common-property amongst
nations of the world. The next level may be formed
in establishing zones of territorial waters within
each nation state, giving state-property rights to
the nation. The third level may then be established
as the state allocates common-property rights to
fish stocks in particular regions. These regional
communities may then allocate rights to individual
fishermen, establishing the fourth tier of privateproperty rights. Note that at each tier there can
also be ‘bundles’ of rights, for example, rights of
leisure anglers and commercial fishers to fish the
same resource.
1.1.2
Entitlement systems
The resource-owner (private-property), community
(common-property) or government (state-property)
can assert control over resource use in two ways: by
imposing direct controls on the resource through
input or output restrictions; or by operating
controls which indirectly affect the resource, that
is, fiscal controls, subsidies, taxes, or price and
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Challen (2000)
Individual
fishermen
Allocation of quotas to
fishing effort or sale to
other fishermen
Source:
Community
members or
representatives
Private-property
Common-property
Private production
and investment
decisions
Individual
transferable quota
issued to fishermen
Exclusive
community rights
to fishing areas
State-property
National
government
Allocation of fish
stocks amongst
regional communities
Allocation of fish
stocks amongst
individual fishermen
Definition of
territorial waters
Common-property
Multiple national
governments
Allocation
decision
Allocation of fish
stocks amongst nations
Conceptual property
right regime
Parties to
decision-making
Conceptual property right hierarchy in an international fishery
Scope of allocation
problem
Table 1.1
The new institutional economics
7
marketing strategies (Lawson, 1984). These direct
and indirect methods of management can be used
individually or simultaneously. However, indirect
methods of entitlement are not transparent and
can cause considerable disruption to the economy,
having effects beyond the confines of the resource
in question. The use of indirect methods is not
recommended in this study and will not be
discussed further. Two generic types of direct
management can be considered: input controls and
output controls.
Input controls
Gulland (1977) lists the following four methods of
input control for the entitlement of fishery resources:
restrictions on gear (to control selectivity or to affect
fishing power), closed seasons, closed areas and
limits on entry (limitation on the number of vessels
by licensing).
Gear restrictions are sometimes effective at
reducing fish mortality and are relatively simple to
enforce. However, economic efficiency is generally
lower as individual vessels catch less for the same
operating expenditure. Gear restrictions may
also limit technological advancement unless nonrestricted inputs cannot be easily substituted for
restricted inputs (Campbell and Lindner, 1990).
Furthermore, it is difficult to determine what kind
of input (length of net, mesh size, and so on) has
the desired reduction in effort. Effort control is
unlikely to be successful if restrictions are placed
on a complicated mix of inputs. Moreover, fishers
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Institutional economics and fisheries management
often alter their non-restricted inputs, resulting in
‘effort creep’ and no significant reduction in fishing
mortality.
The impact of a closed season or area of a fishery
leads to a reduction in the time or space in which
the fish can be caught without necessarily leading
to conservation of the resource or a long-term
reduction in fishing effort. Rather, ‘high grading’
or exploitative behaviour is encouraged, whereby
effort is increased to exploit the resource in a shorter
period of time or area, the highest value fish are
taken, or wasteful fishing methods are used.
From experience, limiting entry through the
licensing of vessels has had little success. Adequate
surveillance has historically been costly, although
the advent of geographic information system
(GIS) mapping technology has reduced this cost
substantially. A problem of particular importance
in developing countries is their inability to impose
effective sanctions. Furthermore, control of the
number of vessels may not be effective in decreasing
fishing effort, as fishing technology may improve
to allow larger harvests. An additional problem
of limiting entry is that control of a single species
fishery is not a satisfactory method of management
in a multi-species fishery when not all species are
equally subject to the control.
Output controls
Gulland (1977) lists two kinds of output control
for the entitlement of fishery resources: output
quotas (a single overall quota or allocated quotas
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9
to vessels, factories or other groups), and limits on
the sizes or conditions of fish that can be landed.
These output controls are generally effective in
limiting fishing effort, and hence they do not suffer
the inefficient costs of fishing arising from input
controls. However, output controls have other
shortcomings such as the risk of over-capitalization,
large enforcement costs and the encouragement of
exploitative behaviour.
An output quota is an allocation of a total allowable
catch between individual units of effort (Lawson,
1984). This right may be given for a specified
time, quantity of fish or percentage of total catch.
This method of control may be biologically and
economically efficient if, firstly, there is knowledge
of the year-to-year allowable catch (this requires
expansive resource monitoring) and, secondly,
quotas are distributed in a way that ensures the
most efficient fishers are allowed the right to
resource use.
There is some debate concerning the success of
output quotas. FAO (1998) argues that individual
tradable quotas have been introduced successfully
in a growing number of countries such as Australia,
Canada, Iceland, New Zealand and the United States
of America. However, there has been a decline in fish
stock in some fisheries managed by quota systems,
for example, the United Kingdom (Goodlad, 1992).
It should be remembered that fishing effort is the
control variable. How to control effort and what
institutional setting might best implement these
controls is the fisheries management problem. Most
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advocates argue that individual tradable quotas
address this core problem in a way that is direct
and transparent and is more efficacious than any
other method yet devised. This line of thinking
was widespread in the late 1980s and early 1990s.
The Commonwealth of Australia (1989) advocated
individual tradable quotas as the most effective
means of managing target fish stocks and enshrined
the quotas in legislation in the 1991 Fisheries
Management Act. However, lately it has been
recognized that human ability to acquire timely
and accurate quantitative measurement of the state
of the system and the nature of its interaction is
limited. Managing a resource through catch quotas
alone is losing favour with state governments in
Australia owing to this cost and the difficulty of
monitoring (AFFA, 2001). Smit (1997) notes that
the Netherlands’ individual tradable quota system
was only successful because it was accompanied by
licensing, input management (maximum days-atsea) and gear restrictions.
The second on Gulland’s list of output controls,
limits on fish landed, is only effective where landings
take place at regulated ports and is not appropriate
where fish can be transshipped or sold at sea.
In summary, there is no ‘perfect’ entitlement
system. The optimal system depends on the
characteristics of the resource being controlled. In
the case of fisheries, these characteristics include
those of the fishery, the fishers and the broader
institutions of social and economic governance.
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1.1.3
11
Mechanisms for allocating and adjusting
entitlements
Mechanisms for allocating and adjusting entitlements
amongst users can be broadly categorized as either
administrative or market-based. Administrative
systems allocate or adjust entitlements either by
unilateral decisions from particular circumstances,
or by establishing a set of a priori rules which establish
the circumstances under which allocation can
occur. The most common administrative methods
for allocating fishing rights are: (1) on the basis of
historical participation, which tends to favour the
older, established fishing units (these units may
not necessarily be the most efficient but may be
important if rewarding those who established the
fishery is required); (2) on the basis of catch size,
which tends to favour established fishing units and
encourages false reporting; (3) on the basis of socioeconomic considerations, which could favour poorer
small-scale fishing units which rely on fishing as a
source of income if equity rather than efficiency is
the managing authority’s objective; and (4) on the
basis of a lottery, which gives everyone an equal
chance of obtaining a quota but does not ensure the
most efficient fishing units are successful.
Market-based systems allow the trading of
entitlements between the governing body and the
users, or between users. Such trading of entitlements
is often subject to constraints on the nature of the
transaction and with whom the transaction can
occur. The most common market-based systems for
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trading entitlements are auctions and tenders. If the
auction or tender is designed properly, it ensures
that the most efficient users receive the largest parcel
of quotas, and the managing authority receives the
most economic rent.
1.2
Institutional choice for natural resource
management
Within each institutional hierarchy there are different
types of institutional structures: different property
right regimes, different systems of entitlement and
different mechanisms for allocating and adjusting
these entitlements. When establishing or modifying
an institutional structure, choices need to be made
about the form of each institution. These choices
should be made so that appropriate decisions
are enforced for resource use. The determination
of who will make these decisions is the crux of
institutional choice. It is not a definitive matter;
rather the optimal institutional hierarchy differs,
just as the specific components of each application
differ. Again, focusing on fishery management,
the optimal institutional hierarchy depends on
the biological characteristics of the fishery, the
characteristics of the fishers, and the characteristics
of the broader institutions of social and economic
governance.
From a new institutional economics perspective,
the central determinant for comparing institutional
structures is transaction costs. Transaction cost
theory of institutional structures is an examination
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of the efficiency of institutions. Williamson (1979)
describes it as follows: ‘[t]he overall objective
of the exercise essentially comes down to this:
for each abstract description of a transaction,
identify the most economical governance structure
– where by governance structure I refer to the
institutional framework within which the integrity
of a transaction is decided.’ Coase (1960) generally
defines a transaction as a re-allocation of resources
and describes the wide diversity of economic
decisions required as: to discover who has interest
in the allocative decision; to discover who it is
necessary to include in the decision process; to
exchange information between parties to decisionmaking; to conduct negotiations leading up to the
decision; to monitor subsequent behaviours to
ensure that these are consistent with the decision;
and to bear some uncertainty with respect to the
outcome of the decision. Transaction costs are the
costs of undertaking these activities, the costs of
‘doing business’.
These expositions on institutional choice have
only considered transaction costs in a general
sense. However, there are two types of transaction
costs that must be taken into account when
choosing between institutional structures: static
transaction costs, the costs of making and executing
allocation decisions within an existing institutional
framework; and dynamic transaction costs, the costs
of altering an existing institutional framework.
Policy analysis for institutional change should
explicitly incorporate these transaction costs. Most
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policy analysts have in the past given only implicit
and subjective recognition to these costs. Problems
arise in ex ante analysis of these transaction costs
owing to a lack of procedures and techniques for
measuring and quantifying the different types of
transaction costs.2
Using transaction cost theory, an examination
of choice amongst various institutional structures
for regulating resource use is presented in the
following section. The examination includes
choice between different property right regimes,
entitlement systems and mechanisms for allocation
and adjustment of these entitlement systems.
1.2.1
Choice of property rights
Examination of choice between property right
regimes is discussed within the institutional
hierarchy framework presented in Table 1.1. The
top level of the institutional hierarchy is exogenous
to the system of resource use, as the property right
structure will be determined by the nature of the
resource and the broader institutional structure
that lies outside the resource allocation problem.
The choice between property right regimes further
down the institutional hierarchy is a problem of
minimizing transaction costs.
The choice between a private-property regime and
some form of collective-property regime, where the
latter is either common-property or state-property,
can be conceptualized in the following example.
Table 1.2 shows a payoff matrix for a prisoner’s
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15
dilemma game applied to a hypothetical fishery.
Imagine that two fishers each catch 100 fish from
the one fishery. The total amount of fish available
is scarce such that, if the catch rate is increased,
the cost of fishing increases and the total return
to all fish is reduced. The fishers have the choice
of increasing their catch rate by 10 per cent or not.
If neither increases the catch rate, the payoff is
$1000 ($10 × 100 fish) per fisher. If only one fisher
increases their catch rate, the fishery is degraded
and the return to all fish is reduced by five per
cent ($1000 × 0.95 = $950). However, the return to
the fisher who increases the catch rate is higher as
he/she has the returns from the extra 10 per cent
of fish (110 × $9.50 = $1045). As illustrated in the
payoff matrix, had the fishers been able to confer
on their decision, they would have both chosen to
do nothing and receive the highest expected payoff
(top-left box of the matrix). Yet, in the absence of
this conferral, each fisher has the dominant choice
strategy of increasing catch rate by 10 per cent with
a reduced expected return to each fisher of $990
(bottom-right box of the matrix).
This is an illustration of a collective action problem
and the costs of coordination where economic
outcomes for parties involved in decisions are
interdependent. In situations where such collective
action problems occur, the outcome in terms of
resource use will fall short of the ‘perfect’ outcome.
It is the difference between the two outcomes that is
the transaction cost of collective decision-making.
Where a collective-property regime is considered
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Table 1.2
Payoff matrix for two fishers of a common
fishery faced with a decision of whether to
increase catch rates
Fisher 2
Maintain
Increase
fishing rate catch rate
by 10 per
cent
$1000, $1000 $950, $1045
Fisher 1 Maintain
fishing rate
Increase catch $1045, $950 $990, $990
rate by 10 per
cent
Source:
Petersen (2002a)
to have lower transaction costs than a privateproperty regime, the question remains as to whether
a common-property or state-property regime
should be chosen. The answer to this question lies
in the comparison between the benefits and costs of
decision-making under these regimes and is specific
to the circumstances to which it applies.
1.2.2
Choice of entitlement system
Defining an entitlement system requires the
definition of a mechanism for physically dividing
the use of a resource between potential users.
Duncan and Temu (1997) accentuate the importance
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of implementing self-enforcing and self-monitoring
institutional mechanisms, as they are generally
more effective than regulations. However, it is
very rare that such mechanisms negate the need
for regulations. Where these regulations are
needed, two kinds of transaction costs occur in the
establishment of direct methods of entitlement: (1)
the static transaction costs associated with setting
and adjusting the quantitative size of the controls
and, with respect to input controls, determining
the specific inputs that should be controlled; and
(2) the dynamic transaction costs of monitoring
and enforcing the controls. The relative size of
these kinds of transaction costs depends on the
characteristics of the resource, the technology in
use, and the characteristics of the resource users.
Similar transaction costs are required for
establishing total allowable catch in both input and
output controls. The major source of transaction
costs for input controls arises in the determination
of regulated inputs and the implementation of the
regulation. Stevenson (1991) argues that the size
of the transaction costs required to implement
input controls depends on the extent to which the
following conditions do not hold:
•
•
Regulators have knowledge of at least the
principal components of the production
function by which the resource is utilized.
The production function is consistent across
users of the resource.
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•
The production function is ‘rigid’ inasmuch
as there cannot be substitution of other inputs
for the regulated inputs and the production
function is slowly changing over time.
If the production function is complex with many
substitute inputs, the transaction costs associated
with information gathering to define the function
and determine which inputs should be regulated
to limit effort to the desired level can be high. This
regulation should allow a technically efficient
combination of inputs, otherwise the resulting
dead-weight loss of welfare may be regarded as
a transaction cost of regulation. If technology is
improving quickly through time, transaction costs
may be high, as frequent revision of the controls is
needed. In general, monitoring and enforcement
costs of input controls are proportional to the
number of regulated inputs and the ease with
which they can be monitored and measured.
The major source of transaction costs for output
controls is monitoring and enforcement. The size
of these transaction costs depends on the ease with
which the resource ecosystem can be measured.
Output controls are rarely used in self-governed
or state-governed fisheries owing to the perception
that resource measurement is difficult and costly.
This perception is waning with the realization
of the efficiency losses and often maintained
excessive catch rates due to input substitution of
input controls.
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1.2.3
19
Choice of mechanism for allocation and
adjustment of entitlements
Mechanisms for the allocation and adjustment of
entitlements can occur by administrative decision by
resource managers, or by market processes. Many
economists advocate the use of market mechanisms
on the grounds that they allocate resources in such
a way as to ensure their maximum-value use.
They argue that administrative allocation does not
guarantee that firms receiving the resource-right
are the most efficient (for example, Hartwick and
Olewiler, 1998). However, Challen (2000) argues
that market allocation and adjustment cannot be
ubiquitously considered superior to administrative
allocation and adjustment, as (1) large transaction
costs in the market may cause prices to diverge
from the rent value of the resource, and (2) there are
potential spillover effects and associated transaction
costs arising in implementation of a distribution
mechanism.
Entitlement allocation and adjustment is an
empirical issue. Efficient institutional structures
must be determined by considering transaction costs
arising in the particular distribution circumstance.
These transaction costs arise from potential gains
of the market and the external transaction costs
involved in implementation of the market as shown
in Table 1.3.
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Table 1.3
Efficient institutional structures for
allocation of resource entitlements under
different conditions of transaction costs
External transaction costs of
market allocation
Potential
efficiency
gains of a
market
Source:
Low
High
Low
Administrative
or market
Administrative
High
Market
Administrative
or market
Challen (2000)
Concluding comments
In this chapter the concepts of ‘institutions’,
defined as humanly-devised rules, and the new
institutional economics, a field of study that focuses
on institutional structures that govern economic
behaviour, have been introduced. The three main
types of institutions that govern natural resources
are defined as property rights, entitlement systems
and mechanisms for allocating and adjusting
entitlements. From a new institutional perspective,
institutional choice for natural resource management
is argued to be determined by a comparison of
transaction costs, the costs of ‘doing business’.
In subsequent chapters special attention is given to
devising institutional structures for the governance
of fishery resources. While the arguments presented
can be applied to all fisheries, the Western and
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Central Pacific tuna fishery is used as a case study to
illustrate these arguments. Chapter 2 is a description
of the Western and Central Pacific tuna fishery.
Notes
1. Adapted from Petersen, E.H. (2002), ‘Institutional
structures of fishery management: the fortuna in the
South Pacific’, in Resource Management in Asia Pacific
Developing Countries, with permission from Asia Pacific
Press, Canberra.
2. Challen (2000) proposes that policy analysis for institutional
change should also include a quasi-option value that
captures the cost to society of future inflexibility of a future
institutional structure. Challen notes that conceptually
this quasi-option value is similar to that which has
been studied in the context of irreversible decisions of
environmental development versus preservation (Arrow
and Fisher, 1974). Institutional flexibility has an option
value where uncertainty exists over future states of
the resource and the ability to respond to the learning
may be limited to decisions made at the current time.
The quasi-option values proposed by Challen pose the
greatest difficulty in quantitative policy analysis for
institutional choice.
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2.
The Western and Central
Pacific tuna fishery1
The Pacific Ocean spans more than a third of the
earth’s surface and half of the earth’s sea surface: an
expanse of 180 million square kilometres. Scattered
in the Western and Central part of the Pacific Ocean
are the 200 high islands and 2,500 low islands and
atolls that comprise the 22 countries and territories
of the Pacific islands (Figure 2.1). Of these 22,
there are fourteen independent or self-governing
countries, and eight territories of France, New
Zealand, the United Kingdom and the United States
of America. The former include the Cook Islands,
the Federated States of Micronesia, Fiji, Kiribati,
the Marshall Islands, Nauru, Niue, Palau, Papua
New Guinea, Samoa, Solomon Islands, Tonga,
Tuvalu and Vanuatu. The territories include three
dependencies of France (French Polynesia, New
Caledonia, and Wallis and Futuna), three of the
United States of America (American Samoa, Guam
and Northern Mariana Islands), and one each of
Great Britain (Pitcairn Island) and New Zealand
(Tokelau). All these Pacific island countries and
territories are members of the Secretariat of the
Pacific Community (formerly the South Pacific
Commission).2 With the exceptions of Papua New
23
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120E
Minami
Tori Shima
Northern
Marianas
160E
Palau
140E
M
urr
ay
g
rlin
Da
Tokelau
Phoenix
Jarvis
Palmyra
Howland
& Baker
Tuvalu Funafuti
Kiribati
Johnston
Hawaii
160W
Line
Islands
180
New Zealand
The Western and Central Pacific region
160E
Norfolk
160W
Î
140W
Î
140W
Cook
Wallis &
Samoa
Islands
Vanuatu Futuna
American
New
Fiji
Tonga Samoa
Caledonia
Niue
French Polynesia
Matthew
& Hunter
Solomon Is
Australia
Papua New Guinea
180
Marshall
Islands
Tropic of Cancer
Nauru
Wake
Federated States of Micronesia
Guam
140E
Gillett et al. (2001)
Buru
Figure 2.1
Source:
40S
20S
EQ
20N
120E
Pitcairn
120W
120W
40S
20S
EQ
20N
The Western and Central Pacific tuna fishery
25
Guinea, the Solomon Islands and Fiji, each of these
countries or territories consists of a single small
island or a group of sparsely distributed islands.
The negotiation of the United Nations Convention
on the Law of the Sea in 1982 (which was not
ratified until 1994) gave the Pacific island countries
sovereignty over the sea area within 200 miles of
their coastline, an area known as the exclusive
economic zone (United Nations, 1994). As illustrated
in Figure 2.1, several of the Pacific island countries
and territories have a considerable amount of ocean
area in their control, with ocean area exceeding
landmass by an average factor of 3,000 to 1 (World
Bank, 2000). Not surprisingly, the Pacific Ocean
has had significant influence in the shaping of
the culture and economies of these nations. While
coastal marine resources provide an important
source of food, income, culture and recreation,
offshore marine resources in the region are frontiers
of high economic and strategic potential.
2.1
Size of the fishery
The Western and Central Pacific is currently the
most important tuna-fishing region in the world.
It represents approximately 70 per cent of total
estimated Pacific Ocean catch (of 2.7 million tonnes in
2003) and close to 50 per cent of the global tuna catch
(approximately 4 million tonnes in 2003) (SPC 2004).
Other important tuna-fishing regions include the
eastern Pacific, west Africa and the western Indian
Ocean. The Western and Central Pacific supplies
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approximately 40 to 60 per cent of all tuna for canning
purposes and 30 per cent of the tuna for the valuable
Japanese sashimi (raw fish) market. Historically 90
per cent of catch has been harvested by the four main
distant water fishing nations (Japan, Taiwan, Korea
and the United States of America). Five out of the
other six countries in the top ten are Pacific island
countries extracting substantially smaller harvests
from the fishery than the four major distant water
fishing nations (see Table 2.1).
Table 2.1
Tuna catches from the top ten countries
fishing in the Western and Central Pacific
(thousand metric tonnes)
1970 1980 1990 1995 2000
Japan
305
Taiwan
19
Korea
17
a
USA
0
Solomon Islands
0
Philippines
0
Vanuatu
0
Papua New Guinea 2
FSMb
0
Australia
0
519
23
51
11
24
0
0
34
0
1
436
140
209
164
30
24
0
0
0
2
444
205
205
168
54
28
8
15
8
7
440
277
196
134
13
36
70
22
7
Notes:
a
United States of America excluding American Samoa
and Hawaii
b
Federated States of Micronesia
Sources:
SPC (2000) and Petersen (2002a)
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It is important to note at this stage that most of the
data presented in this section are based on vessel
logsheets. As discussed later, access fees paid by
distant water fishing nations are calculated on catch
rates that are in turn based on previous catch. There
is, therefore, a direct incentive for fishers to underreport catch rates so as to reduce the cost of access.
Hence, the data presented here are likely to be underestimated and should be treated with caution.
2.2
Tuna harvesting techniques
The four tuna species that inhabit the Western and
Central Pacific fishery are skipjack (Katsuwonus
pelamis), yellowfin (Thunnus albacares), bigeye
(Thunnus obesus) and albacore (Thunnus alalunga).
There are three main forms of harvesting tuna:
purse-seining, which targets skipjack and yellowfin;
pole-and-lining, which targets skipjack and, to a
smaller extent, yellowfin; and longlining, which
targets yellowfin, bigeye and albacore. It is shown in
Figure 2.2 that longlining is the traditional harvest
form. Pole-and-lining became popular in the 1970s
to early 1980s but has since waned with the introduction of purse-seining, which now accounts for
approximately 75 per cent of total tuna catch. The
purse-seine fishery developed rapidly in response
to improved technological ability to fish the deeper
thermocline found in the Western and Central Pacific
tuna fishery, poor fishing conditions in the eastern
Pacific Ocean, and the emergence of the Korean,
Taiwanese and Japanese purse-seine fleets.
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Tuna catch (thousand metric tonnes)
1200
1000
800
600
400
200
0
1962
Sources:
1972
Longline
1982
Pole-and-line
1992
Purse-seine
SPC (2000) and Petersen (2002a)
Figure 2.2
Tuna catch by harvest technique
The proportion of each species in the total tuna
catch reflects the change in harvest technology
(Figure 2.3). In the early stage of the industry
very little skipjack tuna was caught as longlining,
which does not target skipjack, was the only
harvest technology used. With the advent of poleand-lining in the late 1960s, skipjack harvests
increased markedly. The development of purseseine technology in the 1970s caused the yellowfin
harvests to increase and added to the escalation in
skipjack harvests.
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Tuna catch (thousand metric tonnes)
1600
1400
1200
1000
800
600
400
200
0
1962
1972
1982
1992
Total
Skipjack
Yellowfin
Bigeye
Albacore
Sources:
SPC (2000) and Petersen (2002a)
Figure 2.3
2.3
Total catch by tuna species
Status of stocks
Skipjack, yellowfin and albacore constitute
approximately 67, 19 and 3 per cent of total tuna
catch respectively. While these species have
significant variations between harvests, fluctuation
in ocean climates is deemed responsible for these
variations and fishing is having little impact on
stock levels.3 In fact, Hampton et al. (1999) argue
that these species could sustain higher catch rates.
Bigeye forms 5 per cent of total catch. It is slowergrowing and longer-lived than the other tuna
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species and is therefore less effective at regenerating
after fishing. The decline in adult biomass since the
increased popularity of purse-seining in the 1970s
has given concern that harvest rates of this species
are already unsustainable.
The fisheries literature is replete with examples
of failed fisheries management, and the majority
of the world’s fisheries are being harvested at, or
above, the maximum sustainable yield (FAO, 2002).
There are very few differences between the Western
and Central Pacific tuna fishery and these other
tuna fisheries other than its remoteness from many
distant water fishing nations. Interest in the Pacific
islands region by international fishing companies
is increasing. It is imperative that governance of
the fishery is strengthened to prevent continued
over-fishing of bigeye tuna, and the other species
start to be over-exploited (biologically). Moreover,
further analysis needs to be conducted to check
whether each of these species is being over-fished
in economic terms.
2.4
Revenue generated from the fishery
The two statistics most often used to quantify
fisheries benefits are the proportion of gross domestic
product (GDP) and the proportion of export earnings
from the fisheries sector. Making quantitative
assessment of the economic significance of the tuna
industry in each of the Pacific islands countries is
difficult, as many of the required indicators are not
measured at the national level. Available statistics
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for selected Pacific island countries are presented
in Table 2.2. There is considerable variation in
these statistics between nations of the Western
and Central Pacific. For example, the fisheries
sector is an important contributor to government
revenue in Kiribati, Tuvalu, the Federated States of
Micronesia and the Marshall Islands while only two
per cent of total government revenue in Papua New
Guinea.4 Fish exports dominate export activities in
the Federated States of Micronesia, the Marshall
Islands and Tonga, having established local tuna
fishing activities through joint ventures with distant
water fishing nation firms. It is noted that fishing
as a share of GDP is likely to be underestimated in
the Pacific island countries, where marine products
play a large role in domestic food consumption in
these primarily subsistence economies.
The landed value of the total tuna catch is
approximately US$2.2 billion (SPC, 2004). This
landed value was equal to around 11 per cent
of the region’s GDP in 1998 (Gillett et al., 2001).
Approximately 90 per cent of the annual tuna catch
is harvested by distant water fishing nations who
pay access fees on average of approximately three
to four per cent of their gross revenue, although
the percentage varies across distant water fishing
nations (Table 2.3).
Limited research has been conducted on the rent
potential of the Western and Central Pacific tuna
fishery. It would be extremely helpful to know
this rent potential, that is, the economic rents that
could be gained from the fishery where optimal
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Sources:
≈ = approximately
< = less than
0.85 (1999)
92 (1999)
2.2 (1999)
79 (1997)
1.3 (2001)
–
0.6 (1999)
–
15 (2001)
32 (2000)
–
<1 (1993)
Exports
(per cent of total value)
1.4 (1998)
15.5 (1990)
9.5 (1993)
…
…
…
…
6.2 (1999)
9 (1993)
…
5 (1993)
…
GDP
(per cent)
TISES (1996), Duncan and Temu (1997), Bank of PNG (2000), and ESCAP (2000, 2001, 2002)
Notes:
… = not available
– = negligible or zero
…
29 (1998)
61 (1998)
25 (1993)
…
5 (1993)
2 (1999)
…
≈ 5 (1993)
…
≈ 35 (1993)
–
Government revenue
(per cent)
Economic statistics showing the importance of the fishing industry for selected Pacific
island countries
Fiji
FSM
Kiribati
Marshall Is.
New Caledonia
Palau
Papua New Guinea
Samoa
Solomon Is.
Tonga
Tuvalu
Vanuatu
Table 2.2
The Western and Central Pacific tuna fishery
Table 2.3
Access fees paid by major distant water
fishing nations
Distant water
fishing nation
Access fee
(per cent of gross revenue)
World Bank van Santen and
(1996)
Muller (2000)
United States
Japan
Taiwan
Republic of Korea
Source:
33
10
5.0
3.7
2.2
10
1.1
3.8
3.4
Petersen (2003)
quantities were harvested at an optimal age using
optimal technology. Campbell et al. (2000) used
a tuna population dynamics model (spatiallydisagreggated, multi-gear, multi-species simulation
model) interfaced with a simplex optimization
algorithm to attempt to locate an optimal level
and mix of technologies, given the objective of
maximizing economic rents in the long run. The
current access fee structure of four per cent of the
gross revenues of the distant water fishing nations
was assumed, and tuna prices were allowed to vary
as a function of quantity of the various tuna species
in the total tuna supply. This latter assumption is
sound given that the Pacific islands region services
one-third of global tuna supply and 40 to 60 per cent
of tuna to canneries. Campbell et al. (2000) estimated
the demand elasticity for raw tuna supplied to the
canning markets by purse-seine and pole-and-line
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fleets in the Western and Central Pacific to be 1.55,
and that of the fresh and frozen tuna supplied by
longline fleets to be 2.53.
Campbell et al. (2000) found the economic rent
potential of the region to be an estimated US$373.7
million (in 1996 prices), more than twice the actual
value for 1996 (US$158.3 million). This maximum
was obtained by reducing fishing effort for all fleets,
and virtually eliminating the pole-and-line and
frozen albacore longline fleets (fresh tuna longline
fleets were included in the optimal fleet structure).
Purse-seine effort was reduced by more than 50 per
cent of the 1996 level in this optimization procedure.
Fishery exploitation required a shift from younger
to older age classes of fish. Total revenues and costs
fell to approximately 77 per cent and 54 per cent of
the 1996 level respectively, resulting in a more than
doubling of economic rent.
The Campbell et al. (2000) study suggests that
the overall level of effort and the fleet structure
of the fishery are sub-optimal. Other studies have
supported these findings (for example, van Santen
and Muller, 2000). Moreover, Campbell et al. (2000)
assumed access fee levels of 4 per cent of catch
value. As mentioned previously, they argue that
the true economic rent is around 13 per cent of
revenue at the 1996 level of effort, and 40 per cent
in the optimization model, although these figures
differ across fleets.
Such rents are comparable to the fees, based on
cost recovery alone, charged by the Australian
Fisheries Management Authority to fishers in the
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35
Australian bluefin tuna fishery of approximately
11 per cent of gross revenue (AFMA, 2000). The
European Union pays African countries access
fees in the range of 18 to 45 per cent of the value
of their catch (Iheduru, 1995). Gillett, Preston and
Associates (2000a) estimate fishery rents for the
Papua New Guinean tuna fishery to be between
10 and 22 per cent for purse-seine vessels and
between 17 and 31 per cent for longline vessels,
depending on the specific vessel technology. Thus,
at the current access fees and level of exploitation,
if the Pacific island countries potentially doubled
their fees they would still receive less than half the
total resource rents in the fisheries.
Given that the majority of fishing effort is by the
distant water fishing nations, it is not surprising
that the majority of government revenue is from
access fees from these nations (see Table 2.4).
These revenues are increasing. The US$60.3 million
received from access fees in 1999 is 403 per cent
greater than that reported by Clark (1983). The
fishing industry also provides benefits in revenue
generated by fines. Often fines received by countries
are not reported to the Forum Fisheries Agency,5
however reported fines totalled US$3.9 million
in 1996.
Most countries have a narrow resource base
and small domestic markets, resulting in heavy
dependence on a small number of export
commodities. Moreover, economic growth for the
Pacific islands region as a whole has been slow,
mainly owing to insecure and poorly defined
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Source:
Note:
a
16 693 026
9 188 000
10 642 000
6 250 000
579 357
0
4 200 000
47 563 383
Purse-seine
0
1 450 000
0
0
0
0
0
1 405 000
Pole-and-line
16 693 000
15 732 000
12 741 000
9 742 000
579 000
500 000
4 290 000
60 277 000
Total
Gillett et al. (2001)
Purse-seine vessels of the Forum Fisheries Agency member countries with preferential access
0
5 128 000
2 099 000
3 492 000
0
500 000
90 000
11 309 000
Longline
Estimates of 1999 access fees paid to Pacific island Forum Fisheries Agency member
countries (US$)
USA
Japan
Taiwan
Korea
FSM Arrangement a
China
Others
Total
Table 2.4
The Western and Central Pacific tuna fishery
37
institutional structures. A UNESCAP6 seminar on
promoting exports of fish and fishery products
in developing countries held in 1996 concluded
that tuna stocks have the greatest potential for
the expansion of exports from Pacific island
countries (Sawhney, 1996). The dependence on
tuna is already unmatched elsewhere in the world
and is likely to increase, causing the ownership
of tuna, and the right to harvest it, to be sensitive
political issues in the Pacific island countries. The
following chapter outlines the importance of getting
fisheries policy right, so that the most appropriate
institutional structure for fisheries governance can
be determined.
Notes
1. Adapted from Petersen, E.H. (2002), ‘Institutional
structures of fishery management: the fortuna in the
South Pacific’, in Resource Management in Asia Pacific
Developing Countries, with permission from Asia Pacific
Press, Canberra.
2. Other members of the Secretariat of the Pacific Community
include the five remaining founding countries: Australia,
France, New Zealand, the United Kingdom and the United
States of America.
3. The coefficient of variation of skipjack, yellowfin, bigeye
and albacore yields across years is 82, 75, 44 and 39 per
cent respectively.
4. However, government revenue from the fisheries sector
represents 33 per cent of non-tax revenue in Papua New
Guinea even with its relatively large mining, petroleum
and agricultural sectors. For perspective, these fees
are greater than the amount of money the Papua New
Guinean government spent in 2000 on services related
to law and order.
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5. The Forum Fisheries Agency was established in 1979
following a directive by the South Pacific Forum to
increased regional cooperation in governance of the
Western and Central Pacific fishery. The Agency member
nations include Australia, Cook Islands, Federated States
of Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue,
Republic of the Marshall Islands, Palau, Papua New
Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and
Vanuatu.
6. United Nations Economic and Social Commission for Asia
and the Pacific.
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3.
Getting fishery policy
objectives right1
The general policy objectives of most fisheries may
be summarized as, first, to ensure the biological
sustainability of fish stocks and, second, to maximize
economic returns from the fishery. While the first
of these may be relatively easy to define, evidence
from fisheries worldwide suggests that it is very
difficult to achieve in practice. For example, the
FAO (2002) estimate that 25 per cent of the world’s
major marine fish stocks or species groups for
which information is available are under-exploited
or moderately exploited, approximately 47 per
cent of the main stocks or species groups are fully
exploited (catches have reached, or are very close
to, the maximum sustainable yield), and 28 per cent
of stocks or species groups are reported as overexploited, significantly depleted, or recovering from
depletion. The last of these groups is the fastest
growing of the three groups, at the expense of the
first group. The second of these general policies,
to maximize economic returns from a fishery, may
come in a number of different forms; for example,
to maximize economic returns to the state, or to
private fishers.
39
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It is difficult to be prescriptive regarding what
is an appropriate extractive policy for a fishery;
the policy will differ depending on the individual
characteristics of the fishery, the fishers and the
objectives of the property right holder (for example,
whether a government is pursuing efficiency or
equity in resource rent distribution). As mentioned
in the introduction, some form of regulation is
needed in a fishery to prevent the ‘tragedy of the
commons’ – where individual fishers are motivated
to operate beyond the maximum sustainable
yield, often leading to biological and economic
over-exploitation. Many property right holders
make the mistake of not clearly defining a set of
policies before determining, or changing, the set of
governing institutions. Without a clearly defined
set of policies, the consequent institutions may not
achieve a desired result. Additionally, policy-makers
often introduce policies that are counter-productive
to resource sustainability and rent maximization.
This is generally the result of ignorance of the
consequents of their decisions. There are two
policy theories that have been shown to be true
and non-trivial, but are frequently misunderstood
by policy-makers: the theory of comparative
advantage, and the Tinbergen Principle.
The theory of comparative advantage states that
any economy will be most productive when it
specializes in production of those goods and services
that it does relatively ‘best’. While a country may
have absolute advantage in production of all goods
and services (it can produce them at an absolutely
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41
lower cost than other countries), no country has
comparative advantage in all goods owing to the
differences in the relative costs of production.
Hence, even the smallest and poorest countries
stand to benefit from specialization and trade.
Unfortunately, there are no techniques for directly
measuring a country’s comparative advantage, as it
requires the knowledge of pre-trade relative prices
that are unobservable. The literature focuses on
indirect techniques of measurement, of which the
most common is ‘revealed’ comparative advantage
where ex poste trade patterns are used to reveal
comparative advantage (Balassa, 1965).
It is a natural inclination to try to directly
determine the industries in which a country has
comparative advantage. However, Duncan et
al. (1999) note that comparative advantage is
too fluid and too complex for governments to
impose a decree in favour of the development
of certain industries. Nevertheless, while it is
not appropriate for governments to try to select
industries in which their country has comparative
advantage, government has an overwhelming
responsibility to create an environment where
private agents can use information efficiently to
search out areas of comparative advantage. This
process involves providing the economic policies
and institutional framework needed for efficiently
functioning markets.
While the theory of comparative advantage is one
principle of economics that is often misunderstood
or ignored, the Tinbergen Principle is another. Jan
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Tinbergen, who won the Nobel Prize in economics
in 1969, developed the principle that the number
of policy instruments should match the number of
policy objectives (Tinbergen, 1952). If one policy
instrument is used to achieve more than one policy
objective, none of the objectives will be achieved
efficiently. Many countries try to achieve more than
one policy objective with the one tool; for example,
the policy objectives of maximizing economic rents
and establishing domestic-based industry through
the one policy instrument of directly encouraging
foreign direct investment to base locally. Such poor
policy-making achieves neither goal well. The
amount of the effective public subsidy paid out
in the form of low-cost access and in exemptions
from taxes is unknown but can be large, creating
significant distortions in an economy.
These are the two policy theories that, to the
author’s mind, have had the largest impact on
the success of fisheries governance. The Western
and Central Pacific tuna fishery is used below as
an example of how ignoring these theories has
impacted upon the sustainability of economic
returns from a fishery.
3.1
Fisheries policy in the Western and Central
Pacific tuna fishery
The Pacific island countries have long sought to
increase their share of economic rents from the
Western and Central Pacific tuna fishery. Their
struggle started towards the end of the 1970s when
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they first attempted to extract access fees from Japan,
and continued into the 1980s when United States
fleets entered the fishery. Not until the end of the
1980s, when some Pacific island countries started
establishing access arrangements with Soviet fishing
companies, did the island countries have sufficient
bargaining power to charge these fees (Schurman,
1998). Later the heightened presence of Korean and
Taiwanese fleets (along with other minor fleets)
increased competition for access, giving the Pacific
island countries the ability to increase access fees.
Now ten distant water fishing nations fish
in the Western and Central Pacific, harvesting
approximately 86 per cent of catch (mainly Japan,
Taiwan, South Korea and the United States of
America) (SPC, 2000). Pacific island countries
negotiate access fees in the order of three to four
per cent of gross revenue for the right to fish in
their exclusive economic zones. It is evident from
a number of studies that higher access fees could
be generated in a competitive environment.
In reaction to the meagre returns from access fees,
Pacific island governments adopted a new strategy
in the 1990s of trying to force domestication of the
industry in the belief that they could duplicate
distant water fishing nation activities to yield greater
benefits from the fishery. This domestication came
in various forms ranging from large-scale public
investments in fishing vessels to public investment
in aeroplanes, port infrastructure and bases from
which tuna can be processed for shipping. Many
of the region’s governments have invested many
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millions of dollars of aid funds and public revenues
in this domestication. These investments were made
with government as sole owner and operator, or in
joint ventures with foreign countries (predominantly
Japan and the United States).2 Unfortunately, all
the investments that have been operating for more
than two years, with only a few minor exceptions,
have failed financially, some repeatedly. Owing
to the pressing need for employment and foreign
exchange, some public sector investments have been
sustained despite their financial losses, receiving
massive injections of additional public funds.
The government of the Federated States of
Micronesia has made the greatest effort toward
domestication, investing over US$120 million3
by 1995 through state-owned fishing enterprises
(the National Fisheries Corporation, the Caroline
Fishing Corporation, the Yap Fishing Corporation
and Wespac). All enterprises have been operating
at a loss (Schurman, 1998). Other examples of
unsuccessful public operations include Solomon
Taiyo Limited in the Solomon Islands, Te Mautari
Ltd in Kiribati and two purse-seiner joint ventures
between the Marshall Islands and the United States
of America (the last requiring US$15 million from
the government of the Marshall Islands).
Private investment in tuna ventures has been
minor compared with public investment. However,
most have proved successful. Private ventures in
Fiji, the Cook Islands and Tonga show promise.
Improved economic conditions in Samoa resulting
from reforms aimed at encouraging private sector
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45
development, amongst other things, have led to the
growth of domestically-owned fishing companies.
This is evidence that fishing activities can develop
without government support providing there exists
a secure investment environment.
Pacific island country governments have been
assuming their country has comparative advantage
in the fisheries sector by investing substantial public
funds in the industry, with generally disastrous
results. It is tempting to assume that owing to the
vastness of the resource, the close proximity to
fishing grounds (and hence lower freight costs),
the low cost of labour and the lack of other natural
resources in the region, development of the fishing
sector must produce greater benefits than other
sectors in the economy. However, the tuna industry
is characterized by extremely high risk, costs
and skill requirements. It is not conceivable that
Pacific island countries can determine comparative
advantage in this industry. Further, McCoy and
Gillett (1997) note that, at 1997 fish prices, only the
Japanese and United States foreign purse-seine
operators in the Western and Central Pacific were
profitable; Taiwan was just breaking even, and the
Republic of Korea was incurring net losses in their
operations.
The Asian Development Bank (1997) advances the
following determinants of the public investment
failures in fisheries projects in the Western and
Central Pacific: inadequate management, weak
direction at the board level (usually composed of
civil servants), inappropriate government operating
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procedures, low labour productivity, deteriorating
prices, shortages of fish, and comparatively highcost operations. The first four determinants are
typical problems associated with government
involvement in business activities. There is no
reason for this kind of government involvement as
may be necessary in land-based business activities in
a region where property rights to land are insecure
and, hence, where government backing of some
kind is required. The United Nations Convention on
the Law of the Sea allocated strong state-property
rights to resource use for the ocean area within 200
miles of a country’s coastline. Governments can
allocate resource entitlements to resource use in the
exclusive economic zones knowing that there can be
no future claim for compensation by right-holders.
Maintaining public investment in the tuna industry
is likely to result in continued financial losses at the
expense of forgone opportunities for the private
sector. Grynberg (1997) notes that the opportunity
cost to the Solomon Islands of the poor performance
of Solomon Taiyo Limited (a tuna harvesting and
canning joint venture created in 1973 between the
government of the Solomon Islands and a Japanese
firm, Taiyo Gyogyo Kabushiki Kaisha, now renamed
Maruha) is in effect the development potential of
the Solomon Islands’ main natural resource.4
As only a few local activities have been financial
successes, experience has shown that these public
subsidies have been dissipated to create a few, likely
short-term, jobs. For example, public subsidies
have been given to several longlining companies
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47
by the Marshall Islands’ government to use the
Islands’ port facility. Although some local income
has been generated, Schurman (1998) notes that the
multiplier effects have been few. Some employment
has been created in the on-shore processing facility;
however, the Chinese boats rely exclusively on their
own fishing crews. As profits are minimal, little is
spent on local consumption goods and services and
most is sent home to help their families.
Gillett, Preston and Associates (2000a) analysed
the benefits that flow to the economy from
domestication of the industry. They note that
‘both Yap and Pohnpei (States of the Federated States of
Micronesia) have lost millions of dollars through their
attempts to establish viable purse-seine operations … With
the benefit of hindsight it is possible to see that both States
would have been better off if they had adopted the lower
risk strategy of collecting access fees from distant water
fishing fleets. To date most attempts to establish purseseine fisheries have been government-run or sponsored,
and nearly all have failed.’
Gillett, Preston and Associates continue by saying that
‘quite often high access fees paid by foreign fishing fleets
deliver a higher level of domestic value added at less risk to
an economy than costly attempts to establish a local fleet.’
The Tinbergen Principle was also violated when
the Forum Fisheries Agency member countries
banned transshipment at sea in June 1993 in a bid
to increase port activity and monitor fish mortality.
While the latter reason is admirable, compulsory
port transshipment is a very high-cost way of
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encouraging local economic activity, generally
leading to only a limited domestication of activities.
Furthermore, the willingness to pay for licence fees
by distant water fishing nations will decrease to
cover these transaction costs. Duncan and Temu
(1997) note that effectively the Pacific island
countries themselves are paying for transshipment
through a reduction in access fees. From figures
presented in Gillett et al. (2001) access fees received
by the region decreased from four per cent to three
per cent of gross revenue. This decrease could be
attributable to the transshipment costs. The merits
and costs of transshipment should be analysed
solely on its role in harvest monitoring. If its benefits
from harvest monitoring do not outweigh this loss
of access fees, the ban should be lifted.
3.2
Towards policy reform in the Western and
Central Pacific tuna fishery
In support of earlier statements that many policy
analysts do not understand the theory of comparative
advantage, many foreign consultants, advisors
and aid donors are encouraging Pacific island
countries to pursue their current policy of forcing
domestication of the industry through concentrating
on the transshipment and servicing end of the
industry where profits seem most likely,5 through
encouraging the development of the domestic
longline industry (which is less cost intensive than
the purse-seine industry) and through encouraging
domestic-based investment in tuna processing.
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However, experience and economic theory show us
that this is simply poor policy advice. The amount of
effective public subsidies is unknown, and they are
likely to be dissipated with limited domestication
of activities and probable financial failure.
A far less risky policy option is for Pacific island
governments to focus on maximizing resource rents
derived from access fees from both distant water
fishing nations and local fishing nations, and reorienting government spending of the revenue
into indirect support of the domestic market. The
Asian Development Bank (1997) argues that the
lack of private investment in tuna ventures is due
to the protected and internationally uncompetitive
nature of Pacific island countries, evidence of
consistent government failures in the industry and
the comparatively high-cost, high-risk, high-skill
requirements of the industry. By removing itself
from direct investment in the industry and instead
directing public funds into governance, institutional
strengthening, broad policy change and investment
in education and health, an overall economic
environment conducive to private investment will
be created. Such an environment will help private
agents to use information efficiently to search out
areas of comparative advantage. If any Pacific
island country has comparative advantage in the
tuna industry, private tuna ventures will develop
without direct government support.
This advice is criticized by fishery managers
in the Pacific islands region for a number of
reasons. A first criticism stems from the pressing
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need in Pacific island countries for job creation.
This need leads to the exchange of cheap (or
free) access for domestically-based activities.
However, it was argued earlier that often these
subsidies are dissipated with only limited domestic
job creation.
The second criticism of the advice relates to this
need for strong economic and social governance.
While economic benefits from the fishery should
be invested productively, they are often dissipated
through wasteful consumption expenditure and
poor quality investments. This causes frustration
among members of the fishing industry and the
wider community as the benefits from access
fees are strongly dependent on the decisions
government makes. This ‘resource curse’ is widely
discussed in the literature (for example, Auty,
2000; see Chapter 7). With poor use of fishing
revenue comes the temptation to require that a
proportion of access fees be invested back into
the fishery, a temptation enhanced by the need
to generate foreign exchange to pay for imports.
Weak governance and the high cost to society of
unemployment should not be used as excuses for
subsidizing domestically-based industry. Such
problems need to be addressed at their roots (for
example, improved transparency). Using them as
excuses for subsidizing domestic industry only
increases the risk of another failed public fishing
investment in the Pacific. A discussion on how
resource revenues can be managed to maximize
economic growth is provided in Chapter 5.
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The third criticism of this advice is related to the
Pacific island countries’ dependence on bilateral
aid provided by distant water fishing nations in
exchange for cheap access. Fisheries ministers
gain much public support when announcing aid
packages (such as the funding of infrastructure or
hospitals) that have been negotiated as part of the
access agreements. Much of this aid has been used
in direct support of the domestic fishing industry,
in many cases with poor results. For example,
Japan donated a transshipment port to Majuro in
the Marshall Islands which was empty for close to
a decade owing to a lack of a domestic fleet and
foreign boats to service (Schurman, 1998). Because
the true value of the resource rent is unknown, the
value of the public subsidy (in the form of forgone
access fees) exchanged for this overseas assistance
is not known. There is a lack of political will to
resist accepting these side payments in exchange
for cheap access. The problems associated with
exchanging cheap access fees for bilateral aid in the
Pacific will be analysed in more detail in Chapter 6.
Moreover, introducing new and transparent policies
and institutions that will maximize the access fees
and improve the economic environment for private
investment risks some distant water fishing nations
boycotting the fishery or the restricting of imports
of canned tuna by boycotting nations. In response
to this criticism, competition for access to the fishery
is increasing with the European Union and other
distant water fishing nations seeking entry to the
Western and Central Pacific tuna fishery as over-
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capacity in other international fisheries increases.
It is likely that boycotting countries would reenter the fishery and lift restrictions on imports
of canned tuna in time. This change in policy
would require strong political will but is likely to
result in significant economic benefits. The pace
of domestication should not be forced. Enhancing
capabilities in the fishing sector will take time.
3.3
Concluding comments
This chapter has accentuated the need for a set of
clearly defined policy objectives for determining
an appropriate institutional structure for natural
resource management. Development of these policy
objectives is not an easy task. It is argued that two
policy theories that have been shown to be true
and non-trivial have important impacts on fisheries
management: the theory of comparative advantage
and the Tinbergen Principle. The following chapter
focuses on the next step in fishery management
after defining a clear set of policy objectives –
determining an appropriate institutional structure
to meet these policy objectives. The theory can be
applied to any fishery. The Western and Central
Pacific tuna fishery is used as an example.
Notes
1. Adapted from Petersen, E.H. (2002), ‘Economic policy,
institutions and fisheries development in the Pacific’,
Marine Policy, 26 (5), 315–24, with permission from
Elsevier.
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2. To the author’s knowledge, no government has entered
into a major joint venture with its own private sector.
3. For perspective, the Federated States of Micronesia GDP
in 1995 was US$206 million.
4. The poor performance of Solomon Taiyo Limited has seen
a steady decrease in penetration of canned tuna into the
European Union market to the benefit of countries such
as Thailand and the Philippines who do not possess
advantages of abundant stocks of tuna in relatively close
proximity or a 24 per cent margin of preference under
the Lomé Convention and Contonou Agreement. This
trade preference has helped support a non-profitable
industry. Global and regional trends (such as a decrease
in preference to the European Union, low tuna prices and
social unrest) and a diminishing reliance on Maruha and
the Solomon Islands government for protection during
lean periods has caused Maruha to leave the joint venture,
offering a redundancy package to the small remaining
active workforce (170) and the inactive workforce (1730).
At the time of writing, the company is 51 per cent owned
by the national government through the Investment
Corporation of the Solomon Islands and 49 per cent
owned by the Western Province government. The future
of the company is still uncertain.
5. For a transshipment facility to be profitable, Schurman
(1998) notes that it requires a large number of boats to
support it, approximately 15 to 20. However, foreign
boats are highly mobile which causes the Pacific island
countries to invest in their own longline fleets to decrease
their risk of being left with an expensive servicing facility
and no boats to service.
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4. Achieving policy objectives
through institutional reform1
Once a property right holder has determined
a set of policy objectives for the fishery, a set of
institutional structures can be determined, or
reformed, to reach these policy goals. As outlined
in Chapter 1, institutional structures for natural
resource management relate to the nature of the
property right hierarchy, entitlement systems
and mechanisms for allocating and adjusting
entitlement systems. From a new institutional
economics perspective, determining the optimal set
of institutional structures requires the comparison
of transaction costs for each option. Transaction
cost structures will differ for each application,
depending on the characteristics of the fishery, the
fishers and the broader institutions of social and
economic governance.
This chapter presents an analysis of institutional
structures for an international fishery, using the
Western and Central Pacific tuna fishery as an
example. The chapter starts in Section 4.1 with
an analysis of current property right structures
for an international fishery with special reference
to the Western and Central Pacific region. The
current entitlement institutions, and institutions for
55
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Institutional economics and fisheries management
allocating and adjusting entitlements, are reviewed
in Section 4.2. Hindrances to institutional reform
are presented in Section 4.3. A model for analysing
rent generation in a multilateral fishery is outlined
in Section 4.4, arguing that cooperation between
states is essential for sustainable and efficient
governance. A proposed cooperative structure
for the Western and Central Pacific tuna fishery
is presented in Section 4.5. The chapter ends with
some concluding comments.
4.1
Property rights – multilateral governance
of fisheries
Prior to the early 1980s, all deep-sea fish stocks
(further than 12 miles from a nation’s coastline) were
subject to open-access by all nations of the world
where no entitlement institution was established for
resource use. Decisions relating to fishing effort were
made by individual fishers and typical problems
arising from such open-access arrangements were
widespread. This ‘tragedy of the commons’ was
partly resolved with the negotiation of the United
Nations Convention on the Law of the Sea in 1982
(which was not ratified until 1994), which allocated
sovereignty of fishing rights to individual countries
for the region within 200 miles of their coastline,
a region named the exclusive economic zone.
Hence the Convention allocated state-property
rights over the exclusive economic zones. As 90
per cent of ocean fish harvests take place within
the coastal regions, the establishment of these
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state-property rights was expected to significantly
ease over-exploitation problems. Additionally,
the coastal states believed that, unless they were
granted access to national waters by coastal states,
distant water fishing nations would not be able to
commercially harvest on the high seas (Brasao et
al., 2000). This belief has proven to be misguided,
and over-exploitation of important stocks continues
in international waters.
As a step towards encouraging cooperation in the
management of straddling and highly migratory fish
stocks, the Draft Agreement for the Implementation
of the Provisions of the UN Convention on the Law
of the Seas of 10 December 1982, relating to the
conservation and management of straddling and
highly migratory fish stocks, known simply as the
UN Fish Stocks Agreement, entered into force in
2001 (United Nations, 2001). Specifically, the UN
Fish Stocks Agreement encourages cooperation
through requiring that both coastal states and
distant water fishing nations cooperate in managing
fish stocks bilaterally, multilaterally, or through the
establishment of Regional Fisheries Management
Organizations, as appropriate. Hence, although
clearly defined property right have not been assigned
for the high seas, indistinct property rights have
been allocated to coastal states and distant water
fishing nations for management and conservation
purposes of marine resources that straddle the
exclusive economic zones and high seas.
Prior to, and in response to, the ratification of the
UN Fish Stocks Agreement, a number of Regional
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Fisheries Management Organizations for tuna
have been established. The first of these, the InterAmerican Tropical Tuna Commission (IATTC), was
formed in 1950 to maintain the populations of tuna
and other fish stocks taken by tuna vessels in the
Eastern Pacific Ocean (IATTC, 1949). The IATTC
has only played a minor role in tuna management,
as its principal duties are to coordinate research
and development activities, and recommend
appropriate conservation measures. The Agreement
for the Establishment of the Indian Ocean Tuna
Commission (IOTC) was adopted in 1993 and
entered into force in 1996. The IOTC contributes
to improving knowledge of tuna resources in the
region, coordinating research and development
activities, and reviewing the economic and social
aspects of fish stocks (IOTC, 1993). As in the case
of the IATTC, the IOTC has only played a limited
role in conservation and management measures.
However, Hedley (2002) argues that conservation
and management measures are likely to be adopted
in time by both the IOTC and the IATTC.
Pacific island countries and distant water
fishing nations have been alerted to the need
for cooperation in managing the Western and
Central Pacific tuna stocks through the overexploitation of bigeye tuna and the negotiation
of the UN Fish Stocks Agreement. This has led
to the September 2000 signing by all coastal and
distant water fishing nations2 of the Multilateral
High Level Convention on the Conservation and
Management of Highly Migratory Fish Stocks in
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the Western and Central Pacific Ocean (MHLC,
2000). The Convention requires the establishment
of a Western and Central Pacific Tuna Commission
that will be responsible for promoting cooperation
and coordination between members to ensure the
conservation of fish stocks. The first meeting of the
Commission was held in December 2004. Thus the
Commission is in a formative stage and is likely
to benefit from discussion on how to encourage
cooperation amongst Pacific island countries and
distant water fishing nations in the Western and
Central Pacific.3
The individual states have allocated a mixture
of weak common-property rights to the so-called
Nauru Group, and weak private-property rights to
individual fishers. The Nauru Group was established
in 1983 by the Federated States of Micronesia,
Kiribati, the Marshall Islands, the Republic of
Palau, Nauru, Papua New Guinea and the Solomon
Islands. The aim of the Group, as expressed in the
Nauru Agreement Concerning Cooperation in the
Management of Fisheries of Common Interest, is
to achieve a coordinated approach to the fishing
of common stocks in their exclusive economic
zones by foreign fishing vessels. The Agreement’s
jurisdiction covers large percentages of tuna
resources in the Western and Central Pacific. The
implementation of the Agreement is achieved by the
mechanism of minimum terms and conditions of
access; however, compliance with these minimum
terms and conditions has not been satisfactory. One
reason for the lack of compliance is that the terms
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and conditions have not been made national laws,
and hence the distant water fishing nations do not
see the Agreement as binding.
Outside the Nauru Group, private-property rights
are allocated through international treaties with
the distant water fishing nations. The politically
independent countries cooperate closely on
establishing these treaties with the Forum Fisheries
Agency, enabling them to present a united front
in dealing with the distant water fishing nations.
However, decisions about defining protocols for
fishing rights and the means by which the rights are
enforced are all the responsibility of the individual
Pacific island states. Cartwright and Willock (1999)
note that most coastal states are subject to almost
continual bilateral approaches for access by the
mobile distant water fishing fleets. The treaties are
negotiated because distant water fishing nations can
harvest and market tuna at a lower cost than Pacific
island countries. Hence it is beneficial for both
parties if distant water fishing nations harvest the
tuna resources and pay the Pacific island countries
access fees to do so.
Figure 4.1 is an illustration of the potential cost
differences between distant water fishing nations
and Pacific island countries. The example assumes
density-dependent growth for tuna resources, a
competitive market for tuna, and linear harvesting
costs for both distant water fishing nations and
Pacific island countries. Consider first the absence of
cooperation or a bilateral treaty. Rent is maximized
where biomass is X*PIC, which is greater than the
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61
TCPIC
TCDWFN
TR
X'PIC X*DWFN X*PIC
X'DWFN
BIOMASS
TC
= total harvesting costs
TR
= total revenue
X'DWFN = bionomic equilibrium for DWFN
X'PIC = bionomic equilibrium for PIC
X*DWFN = rent-maximizing biomass for DWFN
X*PIC = rent-maximizing biomass for PIC
Source:
Chand et al. (2003)
Figure 4.1
Example of bionomic and rentmaximizing biomass levels for a distant
water fishing nation (DWFN) and a
Pacific island country (PIC)
open-access or bionomic equilibrium (X'PIC) where
the coastal state alone exploits the fishery and no
rents are generated by the coastal states. Now
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consider the situation where distant water fisheries
can participate in the regulated exploitation of
the fisheries. Assuming that distant water fishing
nations have lower harvesting costs than the
Pacific island countries, rents are maximized
where biomass is X*DWFN. Because X*DWFN < X*PIC,
it becomes clear that the lower-cost distant water
fishing nation will exploit the fishery at a lower level
of the biomass than the higher cost Pacific island
countries.4 Hence it follows that an agreement for
successful joint exploitation of the tuna resources
requires an understanding on both the appropriate
level of exploitation and the division of rents.
Maximization of rent and biomass levels requires
cooperation from all parties, since tuna migrate
across jurisdictions and in the high seas.
4.2
Entitlement institutions and institutions
for allocating and adjusting entitlements
The predominant entitlement institution currently
used in the Western and Central Pacific tuna fishery
is the input control mechanism of limited entry,
where direct control is placed on the number of
vessels in the fishery through licensing. However,
very few restrictions are placed on the number
of vessels, and hence licensing acts mostly as a
mechanism for monitoring fishing activity. The
banning of non-licensed vessels from the fishery
is poor and few output controls are introduced or
enforced. Hence over-investment and therefore
over-exploitation are widespread.
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Vessel licences are allocated and transferred
amongst resource users through international treaty.
All treaties are bilateral except one multilateral
treaty between the United States of America and
certain governments of the Pacific island countries.
This multilateral treaty entered into effect in June
1988 when 50 vessels were licensed to fish in the
16 Forum Fisheries Agency member countries for
a period of five years. The treaty was extended
in June 1993, whereby 55 vessel licences were
issued for a period of 10 years (FFA, 2001). The
treaty was extended for a further 10 years until
2013. Revenue from this treaty has been extremely
valuable as a known and stable source of revenue
for the party governments, allowing improved
fiscal management in those countries. However,
as they are negotiated by resource managers, there
is no guarantee that the access fees reflect the true
value of the economic rent.
Moreover, licence fees are largely determined
according to the estimated value of the catch
assessed in advance on the basis of catch taken
in previous years. It is of no surprise that underreporting is evident. The Forum Fisheries Agency
estimated that 45 per cent of catch was not reported
in 1992. If this is true, the Pacific island countries are
losing a considerable amount of resource revenue
and the sustainability of the industry is in jeopardy.
Furthermore, bilateral aid is often given in exchange
for cheaper access, as well as the offer of sidepayments to resource managers. These international
treaties are not transparent, give incentives to
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under-report, and do not ensure the most efficient
fleets are allocated the access rights.
4.3
Hindrances to institutional reform
The general lack of institutions and the weakness of
the existing institutions lead to two major concerns
with current governance of the Western and Central
Pacific tuna fishery: the Pacific island countries are
not deriving as much benefit from its exploitation
as they should; and current management strategies
will not ensure long-term sustainability of the
resource. Four general factors may have contributed
to this situation, resulting in high transaction costs
of reform:
1. The absence of capacity (in the form of human
resources, investment capital and infrastructure)
of governing states to implement and enforce
new institutions; and the lack of understanding
of the benefits of a strong institutional
framework. Globally, the poorest governance
of natural resources is within those countries
facing more pressing fundamental problems of
war, civil unrest, natural disasters and weak
government.
2. The lack of supporting institutions for natural
resource management that could compel or
impose an agreement. The development of
institutions for collective action between Pacific
island countries is hampered by commitment
problems.
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3. The lack of institutional precedence over interjurisdictional rights of fish resources. Few
fishing rights problems worldwide involve
the migration of fish stocks through as many
political divisions. Furthermore, those fisheries
with such migration have not been firmly
governed by institutional frameworks that
ensure sustainable resource use, and hence
cannot be used as a conceptual model for the
Western and Central Pacific tuna fishery.
4. The uneven distribution of benefits and costs
of implementing new institutions between the
Pacific island countries. While the development
of new institutions is likely to improve the
welfare of all countries, benefits may accrue
disproportionately, causing some countries to
hinder institutional development.
Ostrom (1990) and Challen (2000) quote the last
three factors of lack of supporting institutions, lack
of institutional precedence, and uneven distribution
of benefits and costs as impeding institutional
development in many other common-property
situations.
It has been established that the sustainability of
the stock is in jeopardy, there is potential for much
larger resource rents to be extracted from the fishery,
and the maximization of long-term fishery revenues
requires cooperation from Pacific island countries
and distant water fishing nations. Attention must
now focus on developing an institutional structure
that will help ensure an increase in total rents, an
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increase in the proportion of the rents that accrue
to Pacific island countries, and the continued
sustainability of the resource. An innovative model
is provided in the following section to conceptualize
the problem and help design a potential institutional
structure to address these issues.
4.4
A model for analysing rent generation in a
multilateral fishery
To assess the potential benefits of cooperation in the
Western and Central Pacific tuna fishery, a model
developed by Chand et al. (2003) is presented
below.
The following Cobb-Douglas production function
is used to represent aggregate catch:
Q = K α L1− αS ( t ; ω )
∂S
> 0.
∂t
(4.1)
Aggregate quantities are denoted by capital letters
such that Q denotes total catch, K the industry
capital stock, and L the total number of fishers. S
denotes a steady-state stock (biomass)5 of fish for a
set of given institutional controls placed on the total
catch. These institutional controls are represented
here by t and could include a tax (a tariff or charge on
harvest), or the market price of tradable harvesting
rights. As there is no uncertainty over the stock,
catch or prices, the price and quantity instruments
are identical in this model. Other factors beyond
the control of policy-makers that may impinge on
S are denoted by ω.
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All factors included in equation (4.1) are modelled
as essential for production, since a zero input of any
one factor results in zero output. Equation (4.1) may
be thought of as a steady-state relationship between
total stocks and harvest for a given institutional
regime. S can be zero when the stock is totally
depleted – when values of t are relatively low or
even negative – and is bounded from above by the
biological carrying capacity of the ocean – when t is
relatively large. This implies a positive association
between S and t, illustrated by the right-hand-side
inequality in equation (4.1).
The intensive-form equivalent of equation
(4.1) depicts an individual fisher ’s production
function as:
q = kαS,
(4.2)
where, for ease of notation, small letters are used
to denote per-fisher values for the variables in
capital letters, and the steady-state stock is written
as S. Note that the catch of an individual fisher is
assumed to be too small to impact on S. The aftertax economic profits accruing to an individual
fisher, assuming a unit price of fish, is given by
equation (4.3):
π = (1 – t)q – rk,
(4.3)
where r denotes the rental rate on capital. Through
the choice of the level of k by individual fishers,
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profit maximization yields the steady-state stock
of capital as:
α(1 − t ) 1−1α
k* = [
S] .
r
(4.4)
From equation (4.4) it can be seen that the steadystate level of k increases with a rise in stock of fish
and/or capital productivity and falls with a rise in
the rental rate of capital. However, it is ambiguous
to changes in t – while a rise in t lowers after-tax
profits to the fisher, it also raises the steady-state
stock of fish. These two effects work in conflicting
directions on k and are central to being able to
use a tax instrument, or an equivalent quantity
instrument, to ensure sustainability of the resource
and to maximize rents.
If the government acts as a Stackelberg leader in
this game, each fisher takes t as given in choosing
the level of effort. Let the government maximize
steady-state rents, R, from imposing a tariff t on
total catch, Q:
R = tQ = tLq = tLkαS.
(4.5)
Maximizing R, by the choice of t, and substituting
the steady-state value of k* into equation (4.5),
yields the following first order condition for the
revenue function:
α
2α −1
α
2α −1
dR
α
a
∂S
,
= a(1 − t )1 − α −
t(1 − t ) 1 − α +
t(1 − t )1 − α S 1 − α
1−α
1−α
dt
∂t
(4.6)
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α α
where a = ( )1− α L . We can simplify the expression
r
∂S
= κ, a
in (4.6) by setting α = 0.5 and letting
∂t
constant. These restrictions do not change the basic
structure of the model, or the qualitative findings
of the analysis, but simplify equation (4.6) to the
following:
dR 1
= [L − ( L + 2r − 2κLS)t − 2κLSt 2 ].
dt 2r
(4.6a)
The first derivative of equation (4.6a) is quadratic,
indicating that the revenue function is cubic in the
tax rate, t. Solving for the two turning points for t
in terms of revenues, R, yields:
t* =
−( L + 2r − 2κLS) ± (.)2 + 8κL2S
.
4κLS
(4.7)
Equation (4.7) indicates that R is minimized for the
negative value of t* and maximized for its positive
value, as shown in Figure 4.2. A subsidy of t*x leads
to no revenues and the stock being driven to zero.
Note that revenue increases as t* increases from t*n to
positive values. Hence t*n has a knife-edge property.
Revenue is maximized at the stable equilibrium,
t*p. The following policy implication can be drawn
from these findings – policy-makers will raise any
positive tax rate, or set the total allowable catch for
the harvesting rights, to the point where revenue
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is maximized. This is akin to following the arrows
leading to t*p in Figure 4.2. Given this, the question
S
S(t)
t
t*x
R(t)
S(t)
t
t*x
R*(t)
t*n
Source:
t*p
t
Chand et al. (2003)
Figure 4.2
Stock of fish (S), resource rents (R) and
tariff rates (t)
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remains, how can t be set for the Western and
Central Pacific tuna fishery to maximize rents?
The assumption of a single policy-maker is crucial
for selecting t*p. This finding supports results of
game-theoretical models of straddling stock
fisheries (for example, Arnason et al., 2000) that
show that competitive games lead to exhaustion
of the fishery, whereas cooperative games can
maximize long-term returns from the fishery by
producing single policy-maker-type conditions.
It has been a growing awareness of this need for
cooperation that has led to the adoption of the UN
Fish Stocks Agreements, where Regional Fisheries
Management Organizations are required to manage
straddling and highly migratory fish stocks. The
following section presents a proposed multilateral
governance structure for the Western and Central
Pacific to achieve cooperation between Pacific island
countries and distant water fishing nations.
4.5
Towards a cooperative governance
structure for the Western and Central
Pacific tuna fishery
At a minimum, successful governance of fisheries
requires: (1) fishers who are actively involved in the
co-management of the resources (Grafton, 2000),
(2) total exploitation rates that are set at levels that
ensure ongoing sustainability of the fishery and are
accepted by most resource users, and (3) fishers who
have both a long-term interest in the resource and
individual incentives that help ensure that private or
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self-interest is not in conflict with the collective good.
Additional criteria for multilateral governance of
fisheries are that all countries voluntarily cooperate
in joint-management, abide by the agreed-to rules
of exploitation, and support a mechanism for
restricting new entrants into the fishery.6
Often the most difficult of these criteria to
achieve is voluntary cooperation from all parties
in fisheries governance. This requires that each
party is at least as well off with cooperation than
without it, and that a mechanism exists to ensure
that a cooperative outcome can be monitored and
enforced, and carries with it sufficient penalties
to discourage non-compliance. In the case of the
Western and Central Pacific tuna fishery, there are
substantial benefits to be derived from cooperation
for all parties, particularly through potentially large
increases in long-term economic returns from the
fishery. These long-term economic rents are likely
to be increased owing to a number of reasons. First,
the price per kilogram of the fish harvested is likely
to be raised significantly through the potential
for tuna to be caught at an older age. Second,
Campbell et al. (2000) argue that currently the
fishery is being economically over-exploited. Hence
reduced harvests are likely to lead to increases in
the present value of fisheries rents. Third, current
rent dissipation can be reduced by introducing a
cooperative arrangement that restricts new entrants,
thus raising future returns. Fourth, if a derived
cooperative structure is implemented that allows
the creation of exclusive, tradable and divisible
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harvesting rights, fishers with the highest marginal
net returns will be able to increase their share of
the harvest, thus further increasing the rents in the
fishery. Finally, if harvesting rights are not made
region-specific, fishers will no longer be confined
by state boundaries but will have the flexibility to
fish wherever it is economically optimal, further
increasing efficiency in the fishery. Note that this
last benefit would need to be balanced with imposed
bans for fishing in certain areas to protect the
biological sustainability of the fishery – for example,
to protect spawning areas and young cohorts.
Hence the potential benefits of cooperation to
both Pacific island countries and distant water
fishing nations are large. To help meet the other
criteria for improved management of the Western
and Central Pacific tuna fishery, a multilateral
governance mechanism for tuna, hereafter termed
the tuna governance mechanism, is proposed.
It is consistent with the findings of the model
presented in Section 4.4. However, the details of a
tuna governance mechanism require a great deal
more empirical research and would also be subject
to considerable negotiation that goes beyond the
scope of this book.
A core feature of a successful tuna governance
mechanism is a Tuna Commission that acts as a
single policy-maker and would use either a price
or a quantity instrument (represented by t in the
model) to control harvests and yield desirable
steady-state tuna stock levels. However, as
imposing a differential fee or price instrument for
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Pacific island countries and distant water fishing
nations is considered to be a virtual political
impossibility, only the case of harvesting rights or
quantity controls that would correspond to a price
t is explored in the following proposal.
The proposed tuna governance mechanism
encourages voluntary cooperation amongst Pacific
island countries and distant water fishing nations
with an incentive of increasing long-run revenue.
An outline of what the proposed institutional
structure could be, and the details that would need
to be addressed by all parties in establishing a tuna
governance mechanism, are provided under a series
of headings. These comprise the functions of the
Tuna Commission (Section 4.5.1), fishing entitlements and their allocation and adjustment (Section
4.5.2), monitoring and enforcement (Section 4.5.3),
and the potential benefits for Pacific island countries
and distant water fishing nations (Section 4.5.4).
4.5.1
Multilateral governance and the Tuna
Commission
It is proposed that a Tuna Commission would be
introduced to facilitate cooperation, set harvest
levels for the whole region, support the exclusivity
of tuna harvesting rights and arbitrate disputes.
Current distant water fishing nations and Pacific
island countries would be members of the Tuna
Commission. Monitoring and enforcement of
management regulations on the high seas would
be undertaken by the Tuna Commission, but with
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the assistance of member countries. The Tuna
Commission would have the right to verify that
coastal states and distant water fishing nations
were in compliance with management regulations.
If invited by the Pacific island countries, the Tuna
Commission could also assist in the policing of the
exclusive economic zones of Pacific island countries.
Institutions that facilitate self-policing would be
encouraged. One self-policing mechanism might
involve punishment of both vessel owner and
member country under whose flag it operates for
violations of management rules and regulations
(such as overfishing or fishing in prohibited
areas). The Tuna Commission would work on a
cost recovery basis with ongoing and overhead
costs of the Commission being paid for by a levy
on the value of the tuna catch. Countries not party
to the original agreement could still be permitted
to join the Tuna Commission for a negotiated fee,
but could not harvest tuna unless they lease annual
tuna harvesting rights from existing members. Such
an arrangement precludes the necessity of creating
‘individual transferable memberships’ as proposed
for the Northwest Atlantic Fisheries Organization
(NAFO) by Munro (1996) or a two-tier allocation
system proposed for the same organization by
Grafton and Lane (1998).
It is proposed that a total allowable catch on all
tuna species be imposed by the Tuna Commission
for the whole region through which the tuna
migrate. It is suggested that this total allowable
catch would not specify where the fish could be
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caught, although no-fish zones based on spawning
and regeneration patterns of the fish stocks would
be outlined to protect the biological integrity of
the fisheries. The total allowable catch would be
set using biological research by the Secretariat of
the Pacific Community and would be consistent
with the yield that maximizes the present value of
rents in the fishery. The total allowable catch should
be assessed regularly and revised and updated
using an optimal feedback rule as part of an active
adaptive management approach, as outlined by
Grafton et al. (2000).
Research conducted by Campbell et al. (2000)
suggests that the total allowable catch for all tuna
species would almost certainly be less than current
rates of exploitation. This implies that a set total
allowable catch would require a reduction in
current fishing effort (corresponding to an increase
in t to the point where steady-state revenues are
maximized in the model presented in Section 4.4).
Not only would a lower harvest rate yield higher
economic returns, it may also be justified by the
precautionary principle of management, as the
current exploitation rate is viewed by some as
imposing a risk on the sustainability of some tuna
species (SPC, 2002).
4.5.2
Fishing entitlements and their allocation and
adjustment
Each member of the Tuna Commission would be
allocated gratis annually renewable tuna harvesting
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rights based on a formula that, while reflecting
both coastal state rights and past catch levels of
distant water fishing nations, would largely be the
outcome of negotiations. Such de facto property
rights to the resource have been shown to be
required for successful cooperative governance by
Munro (2000). The tuna harvesting rights would
be divisible and freely tradable over a 12-month
period. Member countries (including both distant
water fishing nations and Pacific island countries)
would then be entitled to assign their allotted tuna
harvesting rights in whatever fashion they wished,
so long as they were ultimately used by a vessel
registered by one of the countries party to the Tuna
Commission. To help ensure a competitive market
for tuna harvesting rights, each member country
could be required to surrender a proportion of
their allocation, say 3 per cent, every year to the
Commission to be sold by tender to the highest
bidder (the design and frequency of the tender is a
matter for further research). In making this initial
allocation, research and experience of trading
sulphur dioxide allowances by US electric utilities –
the world’s largest pollution permit trading scheme
– could be drawn upon. In this example, holders of
sulphur dioxide allowances are obliged to provide
2.8 per cent of their total allocation at an annual
auction. Revenue from the auction is returned to
the utilities at a rate proportional to the allowances
they contributed to the auction. Joskow et al. (1998)
argue that the auction process has helped to ‘jump
start’ the trading of sulphur dioxide allowances and
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provided an important price signal to prospective
buyers and sellers about the value of allowances.
The auctions also yielded important information
to assess the market performance of the scheme
(Carlson et al., 2000).
Following the successful example of the sulphur
dioxide scheme, all proceeds of the tuna tender
would revert to members according to their
contribution to the tender. All parties would have
the option of offering up to 100 per cent of all their
tuna harvest rights via tender, should they wish.
One benefit of a tender system is that it taxes the
full economic rent without having to know its
true value. The true value of the economic rent is
highly uncertain, as it depends on the value of the
fish caught and the cost of fishing effort. Hence
the tendering of fishing rights allows the resource
manager to maximize the economic rent while only
needing to know enough detail on the dynamics
of the industry to be able to set a reserve price for
each licence. So the uncertainty is transferred to
the fishing companies (although at a price, as the
bids will be discounted to reflect this uncertainty).
Another benefit of the tender process would be
to provide information to Pacific island countries
regarding the market rent for harvesting tuna that
is currently kept confidential by Pacific island
countries and distant water fishing nations under the
present bilateral treaty arrangements. Thus Pacific
island countries, at their option, could continue
to engage in bilateral or multilateral treaties with
distant water fishing nations with the benefits of
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this extra information from the tender process to
inform their negotiations.
It is likely that the initial allocation of tuna
harvesting rights will be the biggest stumbling block
to the successful creation of the tuna governance
mechanism. It is essential that the expected return for
all parties from joining the multilateral agreement
exceeds the payoff from not joining. The possibility
exists for strategic bargaining by one or more
parties such that a proposed allocation may offer
some parties less than they would receive without
cooperation. Thus the possibility exists that noncooperation is a stable equilibrium in the absence
of complete information on the ‘threat points’ of
each party to the agreement. This type of stable
equilibrium may resemble the non-cooperation
that sometimes occurs with the exploitation of oil
fields and other such common pools, where joint or
cooperative behaviour is hampered by asymmetry
in information about the value of the parties’ own
and others’ drilling rights (Libecap, 1989).
Arnason et al. (2000) and Brasao et al. (2000) have
also argued that unless side-payments are feasible
cooperative multilateral governance is not stable.
Nevertheless, it is likely that the cooperative solution
for management of the Western and Central Pacific
tuna fishery can generate much higher aggregate
profits than other solutions, giving ample incentives
to reach an agreement. The recent cooperation by all
parties in the form of the Multilateral High Level
Convention suggests that distant water fishing
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nations and Pacific island countries are able to
negotiate in favour of their collective interests.
4.5.3
Monitoring and enforcement
While acknowledging the Pacific island countries’
sovereignty in allocating their own funds to
monitoring and enforcement purposes, it is
envisaged that the Tuna Commission would bear
most of the monitoring and enforcement burden
owing to likely economies of scope and scale. For
example, aircraft used in one jurisdiction could
also be used in another exclusive economic zone,
or for high-seas monitoring (Grafton, 2000). Costs
of monitoring compliance are also likely to decrease
over time with technological improvements. For
example, the installation of a video on each vessel,
which can be monitored through satellite, will
enable the Tuna Commission to verify fishing
activity. Video monitoring, coupled with a vessel
monitoring system (VMS), where vessels are fitted
with an automatic location communicator that sends
signals via satellite giving vessel location, speed
and heading, would be a cost-effective approach to
ensuring compliance. Vessels not fitted with such
equipment, or not registered in a member country,
would be prohibited from fishing in both the high
seas and the exclusive economic zones of the Pacific
island countries.
The proposed institutional structure is likely to
encourage self-enforcement, because holders of
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tuna harvesting rights would help monitor illegal
fishing as non-compliance by others decreases the
economic rents accruing from their own quota.
Similar self-enforcement mechanisms have been
shown to be effective in other fisheries (Duncan
and Temu, 1997).
4.5.4
Potential benefits
The proposed governance structure offers
substantial benefits to both Pacific island countries
and distant water fishing nations. First, cooperation
gives greater scope for countries to set a regional
total allowable catch for tuna that will help to
maximize the regional resource rents, potentially
increasing every country’s net returns from fishing.
Second, cooperation would also allow tuna to be
caught at an older age, thereby increasing returns
per kilogram, as well as ensuring the total harvest
was set at a rent-maximizing level. Third, the
approach provides a way to prevent free access
into the fisheries and mitigates the ‘race to fish’
while complying with United Nations agreements
on fisheries. Fourth, it allows tuna to be traded at its
marginal value and in a more competitive structure
that can benefit both coastal states and low-cost
tuna harvesters. Fifth, it provides the opportunity
for countries to reap the benefits of economies of
size and scope in the management and monitoring
of tuna resources.
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Concluding remarks
This chapter begins by reviewing international laws
and agreements that influence property rights of
capture fisheries, and the institutions of natural
resource management that currently govern the
Western and Central Pacific tuna fishery. It is
clear that the current institutional framework is
not achieving the policy goals of biological and
economic sustainability. In Section 4.4 a model is
described that illustrates that long-term net revenue
of highly migratory and straddling fish stocks is
maximized through the introduction of tax-like
controls, or an equivalent quantity instrument, by
a sole policy-maker. The model indicates that the
Pacific island countries could increase long-term net
revenue from the fishery by achieving sole policymaker-type outcomes through cooperating with
each other and distant water fishing nations.
The chapter provides an application of this model
to the Western and Central Pacific tuna fishery in a
proposed new governance structure for the region
that encourages cooperation amongst Pacific island
countries and distant water fishing nations. The
proposal involves the establishment of a Tuna
Commission that would facilitate cooperation, set
harvest levels for the whole region, support the
exclusivity of tuna harvesting rights and arbitrate
disputes. It is recommended that the governance
structure includes the allocation of divisible, freely
tradable and annually renewable tuna harvesting
rights to Pacific island countries and distant water
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fishing nations, which can then assign them to
member countries in any way they choose. Member
countries can choose to allow the Tuna Commission
to sell these tuna harvest rights for a year via tender
to the highest bidder. To ensure a competitive
market, a small proportion, say 3 per cent, would
need to be surrendered to the Tuna Commission
to be sold via tender. It is envisaged that the Tuna
Commission would conduct most of the monitoring
and enforcement duties.
The cooperative institutional structure proposed
in this chapter has the potential to offer significant
benefits to both Pacific island countries and existing
distant water fishing nations. These benefits include
the potential for significantly higher economic
returns, resource sustainability (through setting a
total allowable catch and encouraging the harvesting
of tuna at an older age), removal of ‘race to fish’
incentives, and economies of scale and scope in the
management and monitoring of tuna resources.
Recent progress in institutional reform of the
fishery has been made with the September 2000
signing of the Multilateral High Level Convention
on the Conservation and Management of Highly
Migratory Fish Stocks in the Western and Central
Pacific Ocean. This Convention requires the
establishment of a Western and Central Pacific Tuna
Commission. The first meeting of the Commission
was held in December 2004. The specific structure
and roles of the Commission are yet to be defined.
In this light, debate on institutional reform in the
Pacific is timely.
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The establishment of an appropriate policy and
institutional framework for a fishery is imperative
for its biological and economic sustainability.
Once these have been established, attention must
be focused on how resource revenues should be
managed. This is especially important in fisheries
where governments extract significant proportions
of these revenues. Unfortunately inappropriate
management of resource rents by governments
has led to corruption, lack of transparency and
poor economic growth in many countries. This
will be discussed further in Chapter 7. The
following chapter provides a discussion on
managing resource revenues to support a strong
and sustained fishery sector, and economy-wide
growth and development.
Notes
1. Adapted from Petersen, E.H. (2002), ‘Institutional
structures of fishery management: the fortuna in the South
Pacific’, in Resource Management in Asia Pacific Developing
Countries, with permission from Asia Pacific Press,
Canberra; and Chand, S., R.Q. Grafton and E.H. Petersen
(2003), ‘Multilateral governance of fisheries: management
and cooperation in the Western and Central Pacific tuna
fisheries’, Marine Resource Economics, 18, (4), 329–44, with
permission from Marine Resource Economics.
2. Japan and Korea did not sign the convention in 2000,
although Korea has since signed and Japan is expected
to soon after the time of writing this book.
3. Note that the Western and Central Pacific tuna fishery is
termed a ‘straddling’ stock as resources move between
the exclusive economic zones and adjacent high seas.
Kaitala and Munro (1993) observe that the economics
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of ‘shared’ resources (which refers to resources that are
shared between two or more coastal states), which is
reasonably well developed, takes us only part way in
explaining the economics of straddling stocks, a field of
research that is relatively undeveloped to date.
4. Munro (1979) analysed the case where two countries
exploit a common transboundary fishery. If they both
have the same discount rates, and if the lower-cost country
exploited the resource unilaterally, it would harvest at a
lower biomass level than if its neighbour were the sole
harvester.
5. Biomass is a composite measure of stock numbers and size,
the rent optimization of which requires considerations
around harvest size and technology to be employed.
6. Munro (1996) emphasizes that without restriction on new
entrants any cooperative agreement will almost certainly
be unstable, because extra effort by entrants reduces the
benefits from cooperation relative to non-cooperation.
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5. Managing resource revenues1
In some fisheries, property right holders pursue
a policy of extracting sufficient fees to cover their
management costs and allowing all other resource
rents to be acquired by the fishers themselves (for
example, the Australian Bluefin tuna fishery).
This is especially true in countries where all, or
the vast majority, of fishers are country nationals.
In other fisheries, governments put a priority on
maximizing returns from the fishers themselves,
especially where the majority of fishers are not
country nationals. In this latter circumstance, the
issue of how the property right holder should
spend these fishery revenues is often the subject
of intense debate.
In fisheries where governments seek to maximize
economic returns, some fisheries specialists argue
that at least some fisheries revenue should be
diverted from the government’s consolidated
revenue (where revenues can sometimes be
perceived to be wastefully spent on consumption or
poor quality investments) into government-operated
fishing ventures. In this chapter, this approach is
critiqued by arguing that the role of government
is to encourage private sector development and to
focus on appropriate regulation of the private sector,
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and not to be involved in commercial activities. An
alternative proposal is provided in this chapter
that, if managed properly, will support strong and
sustained economic development. It is suggested
that access fees to a fishery be maximized, and
that these rents be deposited into a trust fund,
with trust fund earnings being distributed to
encourage a variety of private sector and alternative
economic initiatives.
The focus of this chapter is on the management
of fisheries revenues (primarily tuna) received by
Pacific island governments. However, the proposed
trust fund approach is argued to be an efficient and
transparent way of managing resource revenues
for any country, especially those where resource
rents are a significant proportion of government
revenue (for example, oil revenues in Iraq). In
the next section the approaches for managing
fisheries revenue that have been suggested and
that are currently implemented are discussed,
noting the general failure of these approaches to
achieve sustained financial success. In Section 5.2,
the trust fund approach is introduced. Section
5.3 is a case study of Kiribati, one of the poorer
Pacific island countries. The poor performance
of Kiribati’s public fishing investments and other
public enterprises is compared with the sustained
successful performance of its trust fund. Trust funds
and employment creation is discussed in Section
5.4. An analysis of the size of fishery revenues and
potential dividends for each Pacific island country
is presented in Section 5.5.
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Current approaches to managing fishery
revenues in the Pacific
Currently the Pacific island countries are receiving
access fees on average of approximately three to
four per cent of gross fishing revenue (Gillett et al.,
2001; Schurman, 1998). This is low when compared
with similar fisheries in Africa and Australia and
studies on the potential rent that could be accrued
from the Western and Central Pacific tuna fishery
(see Chapter 2).
Difficulties in deriving economic benefits through
access fees led the Pacific island states to adopt, in the
1990s, a new policy of encouraging domestication of
their fishing industry. The domestication policy was
guided by a philosophy of ‘resource nationalism’
under which states attempted to control, and
even nationalize, important economic sectors.
This philosophy was inspired by many factors,
including anti-colonial feelings, the need for local
employment, and a feeling that distant water fishing
nations had both lacked respect for the islands’
exclusive economic zones and out-manoeuvred
island states in access fee negotiations (Schurman,
1998). The domestication policy has included largescale public investments in fishing activities (such
as vessels and transshipment bases) and incentives
for locally-based foreign direct investment. Many
commentators from within the region now assume
that the Pacific island countries can duplicate distant
water fishing nation activities to yield greater
economic benefits than those received through a
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policy of maximizing access fees, and they advocate
a policy of direct public investment in a domestic
fishing industry (Kiribati, 2000b; ADB, 1998). To
date such a policy has yielded few benefits. The
Asian Development Bank (ADB), whose mandate
includes the Pacific, note in ADB (1997) that all
the fisheries investments that have been operating
for more than two years, with only a few minor
exceptions, have failed financially, some repeatedly.
There has been only further evidence of financial
failure in the industry since this ADB report
(Kiribati, 2000b; Schurman, 1998; SPC, 2000).
It is argued here that it is folly to assume
comparative advantage in such a high-risk, highskill, and highly capital-intensive industry and
that a less risky policy option is for Pacific island
governments to focus on maximizing resource
rents derived from access fees from both distant
water and local fishing nations, and re-orienting
government spending of this revenue into indirect
support of the domestic market (see Chapter 3).
A multilateral governance structure that will
encourage cooperative management and allow
Pacific island countries to collectively increase the
access fees they charge to foreign fleets is presented
in Chapter 4. However, this research is still in its
infancy, and more study is required.
It is noted in Chapter 3 that regional fishery
managers have three main criticisms of the policy of
maximizing access fees. First, owing to the pressing
need for job creation and foreign exchange, access
fees are readily forgone in exchange for domestically-
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based activities that generate employment. Second,
fishing revenue that has gone into the government’s
consolidated revenue has often been wastefully
spent on consumption expenditure and poor quality
investments. Third, Pacific island countries depend
heavily on bilateral aid provided in exchange for
cheap fisheries access (this argument is discussed
further in Chapter 6). The second criticism has led
members of the fishing community to advocate
diverting fishery revenues from consolidated
revenue into fishing-related ventures (Batty, 2001;
Kuk, 2001; Tiller, 2001).
Typically, state resource revenues, such as those
from fishing, have been deposited into consolidated
revenue and used to finance basic government
activities, including fishery development initiatives.
Since the early 1990s all Pacific island countries
have aspired to increase domestication of the
tuna industry in an effort to increase their share of
earnings from the fishery. Almost all of these public
investments have failed financially. (See Chapter 3
for examples of failed public investments.) Private
investment in tuna ventures has been minor
compared with public investment; however, most
private enterprises show potential with successful
ventures being established in Fiji, the Cook Islands,
Samoa, French Polynesia, Tonga, and elsewhere
(ADB, 1997).
Pacific island nations are also hampered by
the economics of the global fishing industry. The
Pacific tuna industry is highly competitive, and
profitability varies considerably in its subsectors.
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Harvesting and canning, two of the subsectors that
are most likely to be developed by Pacific island
states, are generally the least profitable. Greater
profitability is characteristic of other subsectors
such as retailing and distribution. These subsectors
would be difficult for Pacific island states to
develop, as they are already controlled by the
buying nations (primarily Japan, Korea, Taiwan,
China and the United States), and are based
on personal connections and historic business
relationships. As Schurman (1998) notes, ‘it may not
be possible for the islanders to move into the most
profitable part of the industry, namely, distribution
and marketing.’ Increased domestication of the
industry would also mean that the island state
would have to bear more of the burden of patrolling
its own waters and keeping non-licensed fishing
boats out. If a distant water fishing nation were
licensed to fish in a Pacific state’s waters, it would,
presumably, have an interest in keeping rivals out
and would thus bear at least part of the burden
of patrolling. Foreign fleets have ignored island
sovereignty in the past and will likely continue to
do so. Contracting with a foreign fleet could help
keep out unwanted fishers.
Despite a substantially large negative rate of return
on public fishing investments, the Pacific island
countries are continuing to pursue domestication of
the industry. For example, the government of French
Polynesia intends to double production by 2006 by
building at least 56 vessels, 50 per cent of which
will be longlining freezer vessels (SPC, 2002). This
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investment is sizeable. The market value of a new
purse-seine boat is US$12–15 million, and a used one
is US$6–9 million. Longline vessels are considerably
cheaper but can still exceed US$1 million (Schurman,
1998). The Kiribati government has been pursuing
trials since 2000 with the intention of developing a
domestic prototype longline vessel. Both theory and
practice indicate that the probability of success of
these public ventures is not high. However, even if
the record of performance of public fishing ventures
was more favourable, it is still folly to spend public
funds to finance commercial activities. The question
remains, how should fishing revenue be invested so
as to maximize sustained economic development
in the Pacific?
5.2
Trust funds and offshore investment
Development economics literature is increasingly
focusing on a country’s policy and institutional
environments as the main determinants of
economic development (for example, World Bank,
2002a; Olson, 1996). Historically the Pacific island
economies have been characterized by policy and
institutional environments detrimental to private
sector development (Duncan et al., 1999). However,
this is changing with a greater experience and
understanding of ‘market-friendly’ institutions.
With these policy and institutional changes,
improvements in a state’s financial position will then
be affected by the ability of the Pacific island states
to capture, retain and invest resource revenues. An
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alternative to the current practice of depositing
fishing revenue into consolidated funds and using
them to finance commercial fishing initiatives is
to pursue a financial investment policy where
revenues are instead invested in global financial
markets through the use of trust funds.
In a general sense, a trust fund refers to a sum of
money held by one person or entity (the ‘trustee’)
on behalf of others (the ‘beneficiaries’). In this
discussion, the term ‘trust fund’ is used to designate
moneys held in trust by a government on behalf of
the nation’s legal residents (Duncan et al., 1995).
Trust funds are distinct state-managed accounts
and typically have a distinct source of income, a
distinct management policy, and a distinct use for
fund capital and earnings. The following features
are common:
•
•
•
•
•
the fund has a distinct capital source, not
deriving from consolidated revenue;
the capital is protected from direct expenditure
by the government;
the capital is held in trust for beneficiaries,
with the state acting as trustee;
the fund is designated with some special
purpose, or serves some function apart from
general state expenditures;
the earnings derived from fund investments
may also have some special purpose, in line
with the purpose of the fund.
(Poole et al., 1992)
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Trust funds are generally permanent and selfsustaining. Fund capital is invested and may
increase through the reinvestment of fund earnings,
which also protects the real value of the fund against
inflation, and through additional deposits. Fund
capital is typically preserved while earnings are
redeposited, transferred to consolidated revenue,
or used for some other purpose (or a combination of
these). The fund functions as a renewable resource,
providing a steady stream of financial revenues
without depleting fund capital. If fund capital is
invested offshore, the earnings may provide a new
source of foreign exchange and investment capital
for the investing country.
Trust fund earnings can be distributed in various
ways. One possible distribution policy is transfer
to consolidated revenue. Trust fund earnings then
become another source of government revenue,
possibly replacing revenues from the resource itself
over time, or lowering the tax burden for residents.
Trust funds in Kiribati and Tuvalu function in
this way. A second distributional possibility is
the provision of collective goods, typically in the
form of infrastructural projects. Through this form
of distribution, trust fund earnings can finance
special projects for which capital might otherwise
be lacking, possibly through the mechanism of a
development bank. Collective goods might include
the construction or retrofitting of transportation
systems such as roads, rail lines and port facilities,
or could include the provision of collective services
such as education and health care. A third form
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of distribution is through the transfer of fund
earnings directly to the beneficiaries in the form
of dividends. Individual disbursement, used in
Alaska in the United States, creates multiplier
effects in the economy, as most individual dividend
payments recirculate and stimulate local demand
for goods and services. Individual disbursement
also ensures greater equity, in that each beneficiary
receives an equal share of the disbursement (in the
case of collective goods, some users would directly
benefit more than others). A combination of these
distributional policies is also possible, depending
on the amount of earnings to be distributed.
The advantages of a financial investment policy
are numerous. First, it is likely to be beneficial
for a country to further open up to international
capital markets in order to better diversify risk,
although the benefits of this are still unresolved in
the literature for small states. Easterly and Kraay
(2000) argue that, controlling for location, small
states have higher per capita GDP than other states,
statistically similar per capita GDP growth rates to
other states, but greater volatility of annual growth
rates. They explain the last finding as being due
in part to small states’ greater volatility of terms
of trade shocks. In turn, the greater terms of trade
shocks are due to the greater openness, which has
a positive net payoff for growth. Further opening
up to international capital markets may decrease
the volatility of terms of trade shocks through
diversification while also increasing growth.
The need for such diversification will probably
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intensify with the seemingly inevitable reduction
in the availability of concessionary flows in the
coming years.
A second advantage of a financial investment
policy is the intergenerational distribution of natural
resource entitlements. Gerlagh and Keyzer (2001)
consider exhaustible natural resources (allowing
for irreversible degradation of renewable resources)
with amenity value, where amenity value stands
for the various services that the resource can supply
indefinitely (for example, sustainable supply of
the gene pool). Gerlagh and Keyzer compare a
‘zero extraction’ policy (enforced conservation
that avoids environmental degradation) and a
‘grand-fathering’ policy (endowment of the present
generation with all resources) with a trust fund
policy (where future generations receive claims
from the natural resources). Of the three policies,
only the trust fund policy ensured efficiency and
protection of welfare for all generations.2
A third advantage of a financial investment policy
is the increase in transparency of the resource
revenue investment and the protection of capital
from direct expenditure by the government.
Prudent management is essential for the successful
performance of a trust fund. This may not be
achievable in some countries, where persistent
corruption or political divisions, which stimulate
government misallocation of funds, are endemic.
However, these pitfalls may be avoided by
externalizing part of the management process. Most
funds will use external, independent investment
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advisors, as well as external fund custodians and
monitors. A structure including a nation-based
board of trustees setting general policy, offshore
investment advisors making investment decisions,
and a monitor or custodian reporting on the
performance of investments contains checks and
balances which can prevent the fund capital from
misallocation. Small states, such as those in the
Pacific, may want to include trustees from offshore.
A mixture of local and international trustees can
ensure that the interests of the beneficiary country
are fulfilled while investment practices are open and
transparent. A further advantage is that trust funds
provide a means of increasing public savings, and
such an increase has been linked with an increase
in economic growth (Krieckhaus, 2002).
Several Pacific island states, including Kiribati,
Tuvalu, the Marshall Islands and Nauru, have
established trust funds to help manage revenues
from natural resources (both renewable and
non-renewable, although no trust fund has been
established to directly receive fishing revenues)
and other sources (such as aid). Kiribati’s fund is
of particular interest for several reasons. First, it
has been operating for nearly fifty years. Second,
it has performed very well and has been prudently
managed. Third, resource revenues stopped flowing
into the fund over twenty years ago, but the fund has
continued to grow nonetheless.3 Fourth, the fund
provides an important additional source of revenue
to the Kiribati government and helps stabilize its
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economy. The following section considers Kiribati’s
trust fund in greater detail.
5.3
Case study: the Republic of Kiribati
The Republic of Kiribati is a Micronesian island
state in the Central Pacific. The country comprises
the Gilbert Islands (Kiribati proper), the Phoenix
Islands, and the Line Islands, including Kiritimati
(Christmas Island). Prior to independence in 1979
Kiribati was part of the Gilbert and Ellice Islands
Colony, a British territory. Kiribati contains 34
islands, all but one of them coral atolls, with a
combined area of 811 sq km. The total population
is approximately 90 000, with about half living in
South Tarawa, in the Gilbert group (where the
capital is also located), and consists primarily of
Gilbertese, known as I-Kiribati. Kiribati’s sea area
(exclusive economic zone) totals 3 550 000 sq km
(the second largest in the region), giving a sea to
land ratio of 4377 to 1. Kiribati’s small land area
and generally unproductive coral soils mean that
most of the nation’s wealth is derived from the sea,
especially in the form of fish.
Kiribati is a low-income country with an estimated
2000 GNP of about US$90 million, or about US$950
on a per capita basis. The country has a MIRAB
economy, dependent on migration (MI), remittances
(R), aid (A) and bureaucracy (B) (Bertram and
Watters, 1985; Poirine, 1998). Only about 20 per cent
of the working-age adult population are formally
employed, and most of those hold jobs in the public
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sector (Throsby, 2001). The remaining 80 per cent
depend on a combination of subsistence (fishing
and agriculture) and family support (from both
resident and non-resident family members) for their
livelihood. The generation of new wealth depends
heavily on offshore income from the country’s trust
fund and fishing access fees, and from remittances
and development aid. Kiribati’s economy has grown
very slowly. The country’s overall poor performance
is due mainly to its institutional structure, which
inhibits firms from investing (Toatu, 2001). Kiribati
uses the Australian dollar, and thus avoids the need
for setting its own monetary policies and managing
the currency.
Kiribati’s most important fish is tuna. In 1999 20
per cent of the Pacific tuna harvest was caught in
Kiribati’s exclusive economic zone (Gillett et al.,
2001); this was the third-largest tuna catch in the
region. Kiribati does not have a well-developed
domestic industry, with less than 1 per cent of
the Pacific catch being caught by Kiribati-owned
vessels, not including subsistence fishing (Gillett et
al., 2001). The tuna industry accounted for 61 per
cent of government revenue in 1998 and has been
the major source of government revenue since the
cessation of phosphate mining in the late 1970s.
The I-Kiribati also rely heavily on tuna fishing as a
source of employment and as their main source of
protein. The generally poor performance of public
fishing investments in Pacific island states was
noted in Chapter 3. In Kiribati the sole state-owned
fishing enterprise was liquidated in 2000 with its
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fishing vessels being decommissioned or lying
idle. The Kiribati government is still trialling other
fishing vessels in the hope that other technologies
will provide a profitable avenue for public-funded
development of the industry, and has recently
established a new public fishing company, Central
Pacific Producers Update.4 In contrast, Kiribati’s
trust fund, known as the Revenue Equalisation
Reserve Fund (RERF), has performed very well.
The RERF was established when Kiribati was
part of the British Gilbert and Ellice Islands Colony
(GEIC). The source of fund capital was royalty
revenue from the extensive phosphate deposits
on the island of Banaba (Ocean Island), which
was part of the GEIC. Phosphate mining began on
Banaba in 1900 and continued until 1979. In 1945,
largely because of the extensive environmental
damage done to the island (which was never very
agriculturally productive), the Banabans were
relocated to a new home on the island of Rabi,
in Fiji. Mining continued on Banaba until 1979,
when Banaban agitation, falling world phosphate
prices and depleting reserves impelled the newlyindependent Kiribati government to close the mines
(Teaiwa, 2002).
The post-World War II period was a time of
rebuilding after the disaster of war, when the main
island of Tarawa was heavily damaged. Michael
Bernacchi, Resident Commissioner of the GEIC for
much of the 1950s, advocated order, reconstruction,
and the colonial administration’s demonstration of
concern for locals’ welfare and lack of exploitation
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(Macdonald, 1982). He proposed establishing
a trust fund, to be administered by the GEIC on
behalf of the islanders, based on the revenues
from Banaban phosphate. This fund, the Revenue
Equalisation Fund (later the Revenue Equalisation
Reserve Fund) was created in 1956 with A$555 5805
provided by the colonial administration (Toatu,
1993). Thereafter 25 per cent of phosphate revenues
from the Banaba mines were deposited into the
fund (except during the period 1963–69). Prior to
independence, all income generated by the fund
was reinvested, and drawdowns began only after
1979. When Kiribati became independent in 1979,
the Ellice Islands formed a separate country called
Tuvalu. The Tuvaluans asked for a share of the
trust fund, but Kiribati was successful in arguing
that the fund belonged to it alone. Kiribati was
also successful in convincing aid donors that fund
capital should not be considered in aid decisions
(Macdonald, 1982).
The RERF has grown considerably since its
inception in 1956 and reported a balance of A$658
million in 2000. Table 5.1 gives details about the
growth of the fund capital as well as its earnings
and per capita values. At present all fund assets
are invested offshore by two London-based fund
managers. The RERF aims for an equal balance of
equity and fixed income investments, with about
50 per cent of the portfolio invested in equity
investments and 50 per cent in fixed interest
investments. Assets are held in various currencies,
though Australian dollar denominated investments
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account for about half the total, mainly because
Kiribati does not have its own currency and instead
uses the Australian dollar. RERF assets held in
other currencies helped increase the value of the
fund during the 1990s as the Australian dollar
depreciated against many currencies during the
period (ADB, 1998). The fund is administered by
the Reserve Fund Investment Committee, which
consists of the Minister of Finance (chairman) and
five other senior officials. This committee is required
to file quarterly and annual reports with parliament,
and parliamentary approval is needed for all
drawdowns. The committee appoints investment
fund managers, makes auditing decisions, and
sets operational guidelines including fund asset
composition.
The function of the RERF now is to stabilize
government revenues, especially at times when
copra and fishing revenues are low. At these times
the government is authorized to make drawdowns
against RERF income. The government did this
annually between 1989 and 1997, when a total of
A$44.5 million was withdrawn (the fund generated
earnings of about A$345 million during this period,
so only about 13 per cent of earnings were removed).
Between 1998 and 2000 no withdrawals were made
from the RERF (see Table 5.1 for details of deposits
and withdrawals). RERF income thus provides
the Kiribati government with a cushion against
downturns in its resource (copra and fishing)
industries. Redeposit of fund earnings ensures that
the fund continues to grow.
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Table 5.1
Selected statistics for the Kiribati Revenue
Equalisation Reserve Fund (A$ million,
except per capita)
RERF balance
RERF earningsa
Deposits
Drawdown
Returnb
Population
Per capita
value
Per capita
earnings
1996
1997
1998
1999
2000
371.8
22.0
0
5.6
4.5%
81 612
458.9
36.9
0
8.0
4.6%
83 081
570.1
72.0
0
0
4.4%
84 577
601.5
54.5
5.0
0
3.6%
88 000c
658.0
58.9
0
0
4.0%
92 000c
4555.7 5523.05 6740.06 6835.02 7152.2
269.6 444.1
851.3
619.3
640.4
Notes:
a
including interest, dividends, and realized currency and
capital gains and losses
b
interest and dividend rate of return (does not include
currency and capital returns)
c
estimate
Sources: Throsby (2001), Kiribati (2000a), ADB (1998) and
Pretes and Petersen (2004)
According to the Asian Development Bank,
Kiribati’s Revenue Equalisation Reserve Fund has
been well managed and has performed successfully.
The fund has not been subject to charges of
favouritism or corruption, as have beset some
other similar trust funds, such as that of Nauru.
In general, the RERF’s good governance practices,
including its open and transparent policies, and
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its diverse international portfolio of assets, have
served the people of Kiribati well.6
Amongst Kiribati’s policy options for investing
fisheries revenue is to expand the RERF to
incorporate fishing revenues directly, or to establish
a separate fund, modelled on the RERF, to manage
fishery revenues. The performance of the Kiribati
fund suggests that, in small, isolated states especially,
engaging globalization through offshore financial
investment may make more economic sense than
investing in local industries.
5.4
Trust funds and employment creation
Creating employment opportunities is of critical
importance in the Pacific. The formal sector
(those employed in wage labour) in the Pacific
island countries caters for a minority of workers
(approximately 20 per cent of the labour force),
and economic and demographic trends indicate
that the gap between the demand for and supply
of paid employment is growing (UNDP, 1999). This
need for job creation has led many of the Pacific
island countries to invest many millions of dollars
of public funds in fishing ventures. However,
owing to the poor performance of public fishing
ventures, these jobs have been either short-term
or at great financial cost. Even private companies
often depend on foreign labour, because of the
unwillingness of many local residents to accept
wage labour (a high reservation wage). Therefore
even a domestic fishing industry might end up
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bringing in labour from outside, providing little
in the way of employment for nationals.
Locally-owned enterprises do not always provide
better conditions for their workers. A recent
documentary film by Fijian director ‘Atu EmbersonBain, entitled In the Name of Growth – Fiji: A Story of
Fisheries Development, Indigenous Women and Politics,
reveals that work conditions actually deteriorated
when Fijians took over the management of a local
fish cannery on the island of Ovalau from their
Japanese partners. A reviewer of the film observes
that ‘workers interviewed recall that the Japanese
management provided better conditions than
the Fijian management that took over after two
coups in the name of indigenous rights in 1987.
The Fijian management removed fans that kept the
workplace cool, and the workers suffer under heat
and inadequate ventilation’ (Harrington, 2002: 528).
Local control of an industry is thus no guarantee
that local employees will be treated fairly.
Cross-country analyses suggest that development
of the private sector is more effective and efficient
in creating jobs than the public sector (Duncan et
al., 1999; Ncube, 2001; Demekas and Kontolemis,
1999; Malley and Moutos, 1996). In general, public
employment crowds out private employment and
output owing to an induced increase in wages and
taxes. Private consumption decreases, causing
a reduction of job openings and consequently a
decrease in employment (Koskela and Viren, 2000).
It is argued in this book that, rather than forcing
domestication of the tuna industry through public
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fishing ventures, the government’s role should be
one of encouraging private sector development,
especially through improving institutional
openness and transparency, and removing its
direct role in commercial activities, focusing
instead on appropriate regulation of the private
sector. Individual distribution of trust fund profits
through dividends (if large enough) is an equitable
way of making capital available to local residents,
and is likely to have a stronger impact on economic
growth and employment creation than if funds
were invested by the government in commercial
development initiatives.
The experience of revenue distribution policies
in Alaska is illustrative. In their analysis of the
relative benefits of enterprise development and
portfolio investment in rural Alaskan communities,
which have many features in common with Pacific
ones (including a predominance of small, remote,
isolated communities accessible only by air or
sea; subsistence resource dependence; limited
agricultural potential because of climate or soil
type; and dependence on remittances from family
members outside the community), Robinson et
al. (1989) observe that government trust fund
investments have outperformed local business
enterprises by a wide margin. They conclude
by noting that ‘business risk investment in a
remote and isolated economy is inherently risky
… conversely, portfolio management is seen to
offer a far greater return on investment, and, via
dividend distribution, to promote real job creation
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in the service and information sector of Alaska’s
economy’ (p. 276).
Dividends, if paid regularly, could have the
potential to replace the dependence of Pacific island
countries on remittances from migrants overseas
and provide capital where credit and other finance
is costly and difficult to secure. They could also
provide indirect benefits such as allowing recipients
to spend less time working and more time on family
and community activities.
Paradoxically, a rentier policy (as opposed to
domestication of the industry) may also help
protect both the environment and the tuna
resource. Many locally-owned enterprises in the
Pacific islands are already intensely polluting,
and cultural traditions and lack of other options
for waste disposal, such as dumping waste into
lagoons and the open ocean, have led to high
levels of local pollution. South Tarawa in Kiribati
is an especially problematic area. Furthermore,
if employment is the driver of domestication,
environmental consequences of the fishery might
be ignored in order to continue the provision of
jobs. The same could be said about the need to
conserve the resource. A regulatory framework
(both national and multilateral) to conserve the
tuna resource and protect the environment that
does not make exceptions for local residents may
be the best policy for discouraging polluting
enterprises, especially as foreign fishing fleets
would be monitored by multilateral institutions
and not just national ones.
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Alternative, non-capitalist, economic activities
may also alleviate the need for formal employment.
Gibson (2002) gives an overview of a diverse
economy, in which self-employment, cooperatives,
barter and household labour form an important
part. Many of these activities could be supported
if annual dividends provided a cash income that
supplemented subsistence harvesting of both
land and sea resources. Dividends may also have
the effect of freeing up household cash reserves,
allowing these to be directed towards traditional
forms of exchange. Pacific islanders may be able to
draw upon their own traditions to find alternatives
to wage employment in the formal sector.
5.5
Trust funds and revenue distribution
As noted earlier, trust fund earnings may be
distributed in a variety of ways. These include
transferring earnings to consolidated revenue,
where they can finance government operations,
using fund earnings to finance collective goods
such as infrastructural projects, and distributing the
earnings to individuals as dividends. If fund earnings
are large enough, earnings could be distributed in
several or all of these ways. Individual dividends,
if sizeable, could provide an additional, continuing
income stream to island residents, complementing
that of offshore remittances from family members.
These dividends could also be used to help finance
small enterprises or to supplement personal savings
held within the country. The discussion here
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focuses on the potential size of dividends under
various scenarios.
In Section 5.3, Kiribati’s Revenue Equalisation
Reserve Fund was discussed, which now generates
annual earnings of approximately A$640 per person
(Table 5.1). At present, these earnings constitute a
significant proportion of Kiribati’s recurrent revenue,
and it is unlikely that they could be diverted from
that purpose and towards individual dividends.
But if the RERF substantially increased in size, it
might be able to generate earnings beyond what
is necessary to support government expenditure,
and this excess could be paid out as dividends. An
increase in fisheries access fees, with this revenue
deposited into the RERF, is the most likely means
of increasing the fund’s annual earnings. As it is
difficult to calculate fund earnings on the basis of
new deposits into the RERF from increased access
fees, a brief analysis of potential dividends as though
they were paid directly from access fee income will
be used instead. It is not suggested that dividends
should be paid directly from current fisheries
revenues, but rather that the scenarios described
below illustrate the amounts that could accrue to
Kiribati to be paid out as dividends. Access fees per
capita are used as a stand-in for potential dividends
in this analysis.
Table 5.2 presents gross revenue from distant water
fishing activities in the exclusive economic zones
of the Pacific island countries, access fees based on
current fees (3 per cent of gross fisheries revenue)
and possible fees if institutional arrangements for
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the governance of the fishery were improved (5 per
cent to 20 per cent of gross revenue).7
Table 5.2
Gross fisheries revenue, and current and
potential access fees from fisheries in each
Pacific island country (US$ million,
average 1993–99)
Access fees as a
Gross percentage of gross
fisheries fisheries revenue
revenue 3% 5% 10% 20%
Cook Islands
Fiji
FSMa
Kiribati
Marshall Islands
Nauru
Palau
Papua New Guinea
Samoa
Solomon Islands
Tokelau
Tonga
Tuvalu
Vanuatu
Total
Note:
Source:
0.6 0.0 0.0 0.1 0.1
9.1 0.3 0.5 0.9 1.8
557.4 16.7 27.9 55.7 111.5
392.4 11.8 19.6 39.2 78.5
98.5 3.0 4.9 9.8 19.7
122.7 3.7 6.1 12.3 24.5
7.0 0.2 0.4 0.7 1.4
408.4 12.3 20.4 40.8 81.7
16.6 0.5 0.8 1.7 3.3
217.9 6.5 10.9 21.8 43.6
6.3 0.2 0.3 0.6 1.3
0.9 0.0 0.0 0.1 0.2
120.1 3.6 6.0 12.0 24.0
0.3 0.0 0.0 0.0 0.1
1958.3 58.8 97.9 195.8 391.7
a
Federated States of Micronesia
Pretes and Petersen (2004)
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The total value of the fishery (based on average
prices and yields from 1993 to 1999) is approximately
US$1.96 billion. This compares favourably with
van Santen and Muller (2000) who estimate the
gross value of the fishery to be US$1.92 billion. The
Federated States of Micronesia, Papua New Guinea
and Kiribati have the most valuable exclusive
economic zones with gross revenues of US$557,
US$408 and US$392 million respectively. Currently
the Pacific island governments are charging distant
water fishing nations access fees of approximately
3 per cent of gross revenue. These access fees total
approximately US$59 million, which compares
favourably with Gillett et al. (2001), who estimated
total access fees to be approximately US$60 million
for 1999. With the strengthening of institutional
arrangements, access fees of 10 per cent to 20
per cent of gross revenue are assumed, which
would increase revenue from access fees to nearly
US$400 million.
Population size and calculations of fishing
revenue per capita from access fees for each Pacific
island country are shown in Table 5.3. Papua New
Guinea has the largest population by far at just over
5 million. All other Pacific island countries have
fewer than 1 million people, with the population
of Tokelau being just over 1000 people. Currently
fishing revenue per capita is over US$100 for five of
the Pacific island countries: Tuvalu (US$328), Nauru
(US$305), Tokelau (US$131), Kiribati (US$125)
and the Federated States of Micronesia (US$124).
Again these figures could be considerably larger if
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Table 5.3
113
Total population and fishery revenue per
capita for selected Pacific island nations
Fishing revenue
from access fees
(US$/capita), with
access fees as varying
Total
population percentages of gross
fishing revenue
(2002)
3% 5% 10% 20%
Cook Islands
21 000
Fiji
844 000
FSMa
135 000
Kiribati
94 000
Marshall Islands
71 000
Nauru
12 000
Palau
19 000
Papua New Guinea 5 049 000
Samoa
179 000
Solomon Islands
480 000
Tokelau
1 000
Tonga
104 000
Tuvalu
11 000
Vanuatu
193 000
Note:
Source:
a
1
0
124
125
42
305
11
2
3
14
131
0
328
0
2
3
6
1
1
2
207 414 828
208 417 834
70 139 278
508 1015 2030
18
37
74
4
8
16
5
9
19
23
45
91
218 436 871
0
1
2
547 1093 2186
0
0
0
Federated States of Micronesia
Pretes and Petersen (2004)
higher access fees were charged. If access fees were
increased to 10 per cent of gross revenue, fishing
revenue per capita could increase to between US$400
and US$1000 for these countries. Likewise, if access
fees were increased to 20 per cent of gross revenue,
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fishing revenue per capita could increase to between
US$800 and US$2000 for these countries.
To calculate whether these figures of fishery
revenue per capita are large compared with the
income levels of these countries, GNP per capita
and fishery revenue as a proportion of GNP per
capita are presented in Table 5.4. Assuming current
access fees are charged, countries in which fishing
revenue as a percentage of GNP per capita is greater
than 5 per cent include Tuvalu (24 per cent), Kiribati
(13 per cent), Tokelau (13 per cent), Nauru (7 per
cent), and the Federated States of Micronesia (6
per cent). Significantly larger values are possible if
access fees were increased. For example, if access
fees were increased to 10 per cent of gross revenue,
fishing revenues would equal 80 per cent of GNP
per capita for Tuvalu and almost 44 per cent of
GNP per capita for Tokelau and Kiribati. Similarly,
if access fees were increased to 20 per cent of gross
revenue, fishery revenues would equal 160 per cent
of GNP per capita for Tuvalu and almost 90 per cent
of GNP per capita for Tokelau and Kiribati.
The above analysis presents several income
scenarios using access fees per capita as a stand-in
for dividends generated from trust fund earnings. If
this new income were invested through a trust fund,
it would, in the long term, provide a sustainable
source of capital for Pacific island states. Using a
trust fund to invest fisheries revenue overseas and
using fund earnings to indirectly encourage private
sector activity will help enhance sustained economic
development in the Pacific, linking small island
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Managing resource revenues
Table 5.4
115
GNP per capita, and fishing revenue per
capita as a percentage of GNP per capita
(2000)
GNP
per capita
(US$)
Cook Islands
5020 (1999)a
Fiji
1830 (2000)b
c
FSM
2110 (2000)b
Kiribati
950 (2000)b
Marshall Islands
1970 (2000)b
Nauru
4166 (1999)a
Palau
6984 (1999)a
Papua New Guinea 760 (2000)b
Samoa
1460 (2000)b
Solomon Islands
630 (2000)b
Tokelau
1000 (1993)a
Tonga
1660 (2000)b
Tuvalu
1360 (1999)a
Vanuatu
1140 (2000)b
Fishing revenue
from access fees
as a percentage
of GNP (per
capita) with access
fees as varying
percentages of
gross fishing
revenue
3% 5% 10% 20%
0
0
6
13
2
7
0
0
0
2
13
0
24
0
0
10
22
4
12
0
1
0
4
22
0
40
0
0
0
0
0
0
20 39
44 88
7 14
24 49
1
1
1
2
1
1
7 14
44 87
0
0
80 161
0
0
Notes:
a
ADB (2001)
b
ADB (2002)
c
Federated States of Micronesia
Source:
Pretes and Petersen (2004)
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Institutional economics and fisheries management
states with the global economy while supporting
local development initiatives in the region. Finding
a secure future from fisheries in the Pacific will have
less to do with fishing per se and much more to do
with the management of fishing revenues.
Notes
1. Adapted from Pretes, M. and E.H. Petersen (2004),
‘Rethinking fisheries policy in the Pacific’, Marine Policy,
28, (4), 297–309, with permission from Elsevier.
2. The zero extraction policy avoids environmental
degradation possibly at the expense of inter-temporal
efficiency, and the grand-fathering policy ensures
efficiency but cannot prevent a persistent decline in
lifetime utility from one generation to the next.
3. Some fisheries revenues have been indirectly deposited
into Kiribati’s trust fund. These revenues are first deposited
into consolidated revenue, from which general transfers
have been made into the fund.
4. State-owned fishing enterprises are not the only state
corporations to perform poorly in Kiribati. For example,
Throsby (2001) notes that, out of 27 public enterprises,
only the Bank of Kiribati and Telecom Service Kiribati
Limited – both joint ventures – have performed better
than the Revenue Equalisation Reserve Fund.
5. One Australian dollar (A$) equals approximately 0.76
United States dollar (US$) in January 2005.
6. Some analysts have also suggested that the I-Kiribati
tradition of frugality, as manifest in traditional saving
and storage of food against drought conditions, is a factor
in the successful management of the fund (Macdonald,
1998).
7. Although Campbell et al. (2000) provide evidence that
the fisheries rent could be increased to 40 per cent of
gross revenue, we use a more conservative estimate of
20 per cent here. All nations listed in Tables 5.1 to 5.3 are
independent countries except for Tokelau, which is a selfgoverning territory of New Zealand.
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6.
The catch in trading fishing
access for foreign aid1
In Chapter 3 it was argued that an appropriate
fishery management policy for some governments
(including the Pacific islands) might be to focus
on maximizing resource rents derived from
access fees from both distant water fishing
nations and local fishing nations, and re-orienting
government spending of the revenue into indirect
support of the domestic market. Such indirect
support might include governance, institutional
strengthening, broad policy change and investment
in education and health – initiatives to encourage
an overall economic climate conducive to private
investment.
This advice has been criticized by fishery managers
in the Pacific islands region for three main reasons.
First, the pressing need for job creation has led to
the exchange of cheap (or free) fishery access for
domestically-based activities. Second, frustration
at what has been perceived to be the use of access
fees for wasteful consumption expenditure and
poor quality investments has led some fishery
advocates to require some of the returns to be
spent in the industry, perhaps through subsidizing
117
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Institutional economics and fisheries management
domestically-based fishing activity (this issue was
addressed in Chapter 5). Third, the Pacific island
countries depend heavily on bilateral aid provided
by distant water fishing nations in exchange for
cheap access.
The purpose of this chapter is to address the last
of these criticisms. It is argued that subsidizing
access to fishing grounds in exchange for aid
is detrimental for any economy, as it decreases
the transparency of fishing treaties (access fees
forgone may exceed the sum of aid received),
decreases the flexibility of government spending,
exposes countries to financial risks associated with
possible aid withdrawal, and can stifle a country’s
own efforts for fisheries, and broader economic,
development. The structure of the chapter is as
follows. Section 6.1 briefly reviews the theory of
the impact of aid on economic development. Some
background information on the exchange of aid for
access to the Western and Central Pacific tuna fishery
is provided in Section 6.2. Section 6.3 provides a
comparison between access fees and foreign aid
received by the Pacific island countries. Japan is
the focus of the comparison. Currently Japanese
access fees are equivalent to about five per cent of
total Japanese aid to the region. However, if access
fees were maximized (rather than traded cheaply
for foreign aid or domestically-based activity),
there is potential for access fees to at least equal,
possibly double, the total amount of aid received.
A brief discussion of the role of aid in fisheries
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Trading fishing access for foreign aid
119
development in the Pacific is presented in the
concluding comments.
6.1
Aid and development
The earliest economic model of the role of foreign aid
in development is the Harrod-Domar model where
foreign aid, as one form of foreign savings transferred
to less well-off countries augments domestic
savings to increase investment and accelerate
growth (Perkins et al., 2001). This model argues
that the volume and the cost of capital are critical
for economic development. However, no strong
correlation has been found across countries between
aid receipts and economic growth, suggesting that
either aid is not always used effectively, or that there
are limitations in the model.
A view of foreign aid’s macroeconomic impact
that has gained prominence since the mid 1980s
is the booming sector or Dutch Disease effect.
Proponents of this view assert that large aid
flows cause certain sectors to boom with adverse
consequences for the international competitiveness
of other sectors and the economic structure as a
whole. The non-booming tradable sectors find
their performance hindered by the growth of the
booming sectors as resources are drawn away by
the booming sectors bidding up their prices (for
example, van Wijnbergen, 1986; Weisman, 1990;
White, 1992; and Younger, 1992).
More recently, studies have argued that good
governance, not capital, is most critical to
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Institutional economics and fisheries management
development. Good governance relates to the
need for strong and effective economic institutions
(such as secure property rights and impartial
enforcement of contracts) and good policies (such
as macroeconomic balance, free trade, flexibility
in labour markets, and the concentration of
government on regulation to ensure competition
rather than becoming involved in the production
of goods and services). The World Bank recently
found that foreign aid is effective in supporting
investment, growth and poverty reduction in
countries with good economic institutions and
policies, but has little effect in countries with a poor
institutional and policy environment (Burnside and
Dollar, 1997; Dollar and Easterly, 1998; Tungodden
et al., 2004).
What appears to matter most for the effective use
of aid is not its form or the terms on which it is
donated, but the extent to which aid is successfully
integrated by the recipient country into its
development (Meier, 1989).
6.2
The case of the Western and Central Pacific
tuna fishery
Fisheries ministers gain much public support when
announcing aid packages (such as the funding of
infrastructure or hospitals) that have been negotiated
as part of the access agreements. Moreover, much
of this aid has been used in direct support of the
domestic fishing industry, in almost all cases with
poor results. In 1986 the United States government
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Trading fishing access for foreign aid
121
signed the ‘Compact of Free Association’ with the
Federated States of Micronesia and the Marshall
Islands (both former US colonies). Under the
agreement, these countries received US$6 billion
in US aid over a 15-year period, most of which was
received in the first five years of the agreements.
Schurman (1998) notes that this aid facilitated overlarge investments in the tuna industry. Anxious to
establish a tuna industry, the Federated States of
Micronesia used aid money to buy purse-seiners
from an Australian businessman at three times
their value, with Yap state buying five purse-seine
boats before it had time to acquire experience in
the sector. These are sizeable investments; the
market value of a new purse-seine boat is US$12–
15 million, and a used one, US$6–9 million. All
these investments have made significant financial
losses. Tuvalu, Kiribati and the Solomon Islands
are other Pacific island governments that have been
investing aid money into purse-seine vessels with
poor results. Another example of the poor use of
foreign aid is the building of a transshipment port
in Majuro, Marshall Islands, which was donated by
Japan but was empty for close to a decade owing
to the lack of domestic or foreign boats to service
(Schurman, 1998).
The quantity of foreign aid received in exchange
for cheap access to the Western and Central Pacific
tuna fishery is not so large as to warrant the aid
dependency that has developed. Furthermore,
this aid dependency decreases the transparency of
fishing treaties, decreases flexibility in government
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Institutional economics and fisheries management
spending, exposes the Pacific island countries to
large financial risks associated with the possibility
of aid withdrawal, and is stifling the region’s own
efforts in fisheries development, and indeed broader
economic development.
6.3
Comparing foreign aid with tuna fishery
access fees
Of the distant water fishing nations active in the
Western and Central Pacific tuna fishery, only Japan
and the United States donate significant amounts
of foreign aid to the region (Table 6.1). Large block
donations of foreign aid to the region reflect political
ties. The United States provides generous financial
support to the former colonies of the Federated
States of Micronesia, the Marshall Islands and
Palau through the Compact of Free Association.
Australia donates large amounts of aid to Papua
New Guinea, a former Australian territory. France
is a generous benefactor to its overseas territories,
French Polynesia, New Caledonia, and Wallis and
Futuna. Japan provides similar amounts of foreign
aid to the region as the United States, although this
aid is spread over a larger number of countries
– possibly reflecting the exchange of foreign aid
for cheap fisheries access. Japan is the focus of the
remainder of this section.
Japan started donating aid to the Pacific islands
region in the early 1970s at a time when world aid
flows increased significantly (Figure 6.1). Scepticism
about the effectiveness of foreign aid in generating
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0.3
18.0
–
8.0
10.9
9.9
2.3
0.1
0.1
28.5
45.4
Japan
–
–
–
90.0
0.6
46.2
–
–
–
15.4
4.0
United
States
0.9
10.9
0.2
0.7
4.7
0.5
3.4
0.3
0.6
0.2
177.0
2.6
3.5
0.2
0.3
2.0
0.1
–
0.3
2.8
0.1
8.0
New
Australia Zealand
0.1
0.9
399.7
–
–
–
–
346.3
–
–
–
0.1
2.0
2.3
–
0.9
–
–
1.7
–
–
12.0
Other
France bilateral
1.4
3.4
–
5.3
1.5
7.3
0.1
0.1
0.2
0.1
10.0
Multilateral
Foreign aid donated to the Pacific island countries by donor, 1998–99 average, US$
million
Cook Islands
Fiji
French Polynesia
FSM a
Kiribati
Marshall Islands
Nauru
New Caledonia
Niue
Palau
PNG b
Table 6.1
124
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continued
7.0
9.2
–
6.2
0.9
5.9
–
152.7
Japan
Sources:
0.7
0.8
–
–
–
0.7
–
158.4
United
States
7.0
10.1
0.1
5.4
1.3
9.9
–
233.2
5.0
5.1
3.9
4
1.2
4.1
–
43.2
New
Australia Zealand
OECD DAC database and Petersen (2003)
Notes:
a
Federated States of Micronesia
b
Papua New Guinea
c
European Commission
Samoa
Solomon Islands
Tokelau
Tonga
Tuvalu
Vanuatu
Wallis and Futuna
Total
Table 6.1
–
–
–
0.2
0.3
7.7
51.1
806.3
3.1
25.3c
–
2.8
0.1
3.7
0.2
28.9
Other
France bilateral
4.9
7.1
0.2
3.6
1.7
10.0
–
56.9
Multilateral
125
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1965
1975
World to world
1970
1980
1990
1995
Japan to Pacific Islands
1985
2000
0
50
100
150
200
250
Figure 6.1
Aid donated by Japan to the Pacific island countries and total worldwide aid flows
through time
OECD DAC database and Petersen (2003)
The bold line relates to the right-hand axis and does not include Japanese foreign aid to Fiji, Samoa, Tokelau or Tonga
0
1960
10 000
20 000
30 000
40 000
50 000
Sources:
Note:
US$ million in 1999 terms
60 000
US$ million in 1999 terms
126
Institutional economics and fisheries management
economic growth led to the scaling back of world
aid flows in the 1990s. However, aid flows from
Japan to the Pacific island nations remained high
in the 1990s, although they experienced large
fluctuations. Total Japanese aid decreased in the
early to mid-1990s, though it rebounded to late1980 levels in the late 1990s (Figure 6.2).
There is little consensus in the literature regarding
the size of the access fees negotiated by the Pacific
island countries. Negotiations are made mostly
through bilateral treaties with the distant water
fishing nations, although one multilateral treaty
has been negotiated between the United States and
the 16 Pacific island countries. Some studies cite
access fees in the order of five per cent (Schurman,
1998; Cartwright, 1999; NCDS, 1997; Hunt, 1997).
However, more recent publications cite lower
figures. Gillett et al. (2001) indicate that access fees
have fallen from an average of four per cent in 1982
to three per cent in 1999. Moreover, the World Bank
(1996) indicated substantial differences between
access fees paid by distant water fishing nations as
presented in Table 2.3. In a later study, van Santen
and Muller (2000) gave evidence of a decline in
access fees paid by Japan but slight rises by other
major distant water fishing nations.
The gross revenue from Japan’s catch can be
calculated by multiplying the quantity of fish
harvested (Table 6.2) by the price of the fish (Table
6.3). Purse-seining is Japan’s major method of
harvest, which targets skipjack tuna, and to a lesser
extent, yellowfin and bigeye. Pole-and-line fishing
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1965
1970
1975
1980
1985
Figure 6.2
1990
1995
2000
Total aid donated by Japan through time in 1999 terms
OECD DAC database and Petersen (2003)
0
1960
1000
2000
3000
4000
5000
6000
7000
8000
9000
10 000
Sources:
Aid donations (US$ million)
128
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a
Sources:
Note:
SPC (2000) and Petersen (2003)
Percentages are shown in brackets
113 147
163 190
276 337 (73)
Skipjack
19 836
3 772
40 722
64 330 (17)
Yellowfin
3 456
23 682 (6)
20 226
Bigeye
15 788 (4)
15 788
Albacore
Tuna catch by Japan by major species (average 1993–98, metric tonnes)
Longline
Pole-and-line
Purse-seine
Total
Table 6.2
55 851 (15)
116 919 (31)
20 7368 (55)
380 137
Total
Trading fishing access for foreign aid
129
is also frequently used, which targets skipjack
tuna. As a result, skipjack harvests represent threequarters of Japan’s tuna harvest. The proportions
of each species in the tuna catch are similar to those
taken by all distant water fishing nations: skipjack,
67 per cent; yellowfin, 19 per cent; bigeye, 5 per cent;
and albacore, 3 per cent (SPC, 2000).2 Tuna prices
differ according to species and harvest technology
– mainly depending on whether the tuna is sold
for sashimi or canning purposes. Bigeye, which
represents approximately six per cent of total catch,
is the most valuable tuna species, its main market
being the lucrative Japanese sashimi market.
Skipjack, the fastest growing and hence most
prevalent species, is used for canning purposes and
is the least valuable tuna species.
Table 6.3
Tuna prices by major species and harvest
technology (average 1993–98, US$/metric
tonnes)
Skipjack Yellowfin Bigeye Albacore
Longline
Pole-and-line 1960
Purse-seine
1174
Source:
3770
1960
1579
6830
2100
6830
van Santen and Muller (2000)
It is important to note that most of the catch
data presented in this section are based on vessel
logsheets. Access fees paid by distant water fishing
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Institutional economics and fisheries management
nations are calculated on catch rates that are in turn
based on previous catch. There is, therefore, a direct
incentive for fishers to under-report catch rates
so as to reduce the cost of access. Hence the data
presented here are likely to be underestimates.
The estimated gross revenue from Japan’s catch is
presented in Table 6.4. Owing to uncertainty about
tuna harvests and prices through time, sensitivity
analysis on the expected gross revenue of the catch
is included. The ‘standard’ calculation measures
the gross revenue of Japan’s tuna catch in the
Western and Central Pacific to be US$807 million.
This compares favourably with the estimate of van
Santen and Muller (2000) of US$789 million. For
perspective, this is approximately equal to the total
GDP of Kiribati, the Marshall Islands, the Federated
States of Micronesia, the Solomon Islands and Tonga.
Access fees of 1, 3 and 5 per cent of the standard value
are presented. At the lowest end of this scale, access
fees of US$8.1 million also compare favourably with
the estimates of van Santen and Muller (2000) of
US$8.5 million in 1996/97 and US$9.0 million in
1997/98. If Japan’s access fees have decreased from
5 per cent to 1 per cent as reported in Table 2.3, this
represents a sizeable decrease in monetary value
of the access fees – approximately US$32 million.
Fluctuations in tuna yields and prices also have
a marked effect on revenue generated from the
fishery (as represented in Table 6.4 by a 10 and 20
percentage increase and decrease in gross revenue
and access fees). Estimates presented suggest that
gross revenue could be between US$0.6 billion
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Source:
645.3
726.0
806.7
887.4
968.0
Expected gross revenue
from catch
(US$ million)
6.5
7.3
8.1
8.9
9.7
19.4
21.8
24.2
26.6
29.0
32.3
36.3
40.3
44.4
48.0
Access fees (US$ million)
1% of gross 3% of gross 5% of gross
revenue
revenue
revenue
Sensitivity on the expected value of Japan’s tuna catch and access fees
Petersen (2003)
–20%
–10%
Standard
10%
20%
Table 6.4
132
Institutional economics and fisheries management
and US$1 billion, and access fees could fluctuate
between US$6 million and US$10 million if Japan
is paying access fees of 1 per cent of gross revenue,
or between US$32 million and US$48 million if it
is paying 5 per cent.
Table 6.5 presents estimates of the value of these
access fees captured by each of the Pacific island
countries. Gillett et al. (2001) report that 60 per cent
of Japan’s harvest is taken in the exclusive economic
zone of the Federated States of Micronesia, 18
per cent in the exclusive economic zone of the
Marshall Islands, and much smaller proportions
in Kiribati, Nauru, Tuvalu, Palau, the Solomon
Islands, Fiji and Papua New Guinea (column 2).
Note that the proportion of Japan’s catch in each
of the Pacific island countries exclusive economic
zones is similar to that of all distant water fishing
nations, except that 18 per cent of the total catch
of all distant water fishing nations is taken within
Papua New Guinea’s exclusive economic zone.
In the late 1980s Papua New Guinea tried to raise
the value of access fees to a minimum of six per
cent. In reaction, Japan ceased fishing in Papua
New Guinea’s exclusive economic zone, fishing
instead in other countries exclusive economic
zones at lower cost (van Santen and Muller, 2000).
This reflects the problems Pacific island countries
have when they negotiate bilaterally with distant
water fishing nations, competing with one another
in providing access. Distant water fishing nations
realize this and encourage bilateral treaties. The
success of the Pacific island countries in attracting
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Source:
Petersen (2003)
0.00
0.60
0.10
0.18
0.07
0.00
0.00
0.00
0.04
1.00
Proportion
of total catch
188
486 845
83 160
145 822
54 728
375
163
33
35 371
806 684
Proportion of expected
net revenue
($US thousand)
2
4868
832
1458
547
4
2
0
354
8067
6
14 605
2 495
4 375
1 642
11
5
1
1 061
24 201
9
24 342
4 158
7 291
2 736
19
8
2
1 769
40 334
Access fees
(US$ thousand)
1%
3%
5%
Tuna catch and access fees paid by Japan in Pacific island country exclusive economic
zones (1999)
Fiji
FSM
Kiribati
Marshall Islands
Nauru
Palau
PNG
Solomon Islands
Tuvalu
Total
Table 6.5
134
Institutional economics and fisheries management
higher access fees will depend on their success in
working collectively in allocating access rights. The
will to work collectively (for sustainability or rentgenerating reasons) is increasing with the signing
of the Multilateral High Level Convention.3 The
design of an institutional structure that would
maximize access fees in the Western and Central
Pacific tuna fishery is presented in Chapter 4.
Assuming Japan pays each country access fees
in the order of one per cent, the monetary value of
these fees would be approximately US$5 million for
the Federated States of Micronesia, US$1.5 million
for the Marshall Islands, and lesser amounts to
the other Pacific island countries. Proportionately
greater amounts are received if access fees are 3 or
5 per cent of gross revenue.
A comparison between Japanese foreign aid to the
region and fishery access fees is presented in Table
6.6. The exact amount of foreign aid exchanged
for fishing access is uncertain as not all aid is used
directly in support of the fishing industry. For this
reason and because the size of the true resource rents
in unknown, the size of the effective public subsidy
paid out for this foreign aid in exchange for cheap
access is also unknown. Hence this comparison is
made with total aid received. While not all of this
aid is exchanged for cheap access, it is possible that
donating countries may withhold a large proportion,
if not all, foreign aid if Pacific island countries choose
to pursue policies of maximizing access fees, in which
case this comparison is valid. Japan has stated that its
foreign aid is given with conditions; it is dependent
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on the existent of bilateral treaties (Schurman, 1998).
Access fees have been estimated up to a level of 40
per cent of gross revenue, which has been described
as possible (if effort levels were decreased and fleet
structure were optimized) by Campbell et al. (2000)
and has been reportedly received from European
fishers by African nations (Iheduru, 1995).
Current access fees of between 1 and 5 per cent
of gross fisheries revenue represent between
US$8.1 million and US$40.3 million. This revenue
is comparable to between 5 and 26 per cent of
total Japanese aid to the region. Access fees of
approximately 19 per cent of gross fisheries revenue
would approximately match total Japanese aid.
When accounting for seasonal uncertainty in tuna
harvests and prices (bottom two rows of Table 6.6),
access fees would need to increase to between 16
and 24 per cent of gross revenue to match Japanese
aid. When considering each Pacific island country
individually, access fees of 5 per cent of gross
revenue are larger than Japanese aid donations
to the Federated States of Micronesia, Nauru and
Tuvalu. Where access fees are 12 per cent of gross
revenue, all countries with significant levels of
Japanese fishing activity would generate more
money through access fees than through Japan’s
aid programme. The fisheries literature reviewed
earlier indicates that access fees in the order of 12
per cent of gross revenue are realistic. The literature
indicates that access fees up to 40 per cent of gross
revenue are possible, which represents more than
double total Japanese aid to the region. Note that
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0.3
18.0
–
8.0
10.9
9.9
2.3
0.1
0.1
28.5
Aid donated
(US$ million)
48.7
8.3
14.6
5.5
0.0
0.0
24.3
4.2
7.3
2.7
0.0
0.0
4.9
0.8
1.5
0.6
0.0
0.0
146.1
24.9
43.7
16.4
0.1
0.1
0.1
97.4
16.6
29.2
10.9
0.0
0.2
194.7
33.3
58.3
21.9
0.1
Access fees as a percentage of gross revenue
(US$ million)
1%
5%
10%
20%
30%
40%
Aid donated by Japan to Pacific island countries (1998–99 average), and sensitivity on
access fees
Cook Islands
Fiji
French Polynesia
FSM
Kiribati
Marshall Islands
Nauru
New Caledonia
Niue
Palau
Table 6.6
137
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Source:
Petersen (2003)
PNG
Samoa
Solomon Islands
Tonga
Tokelau
Tuvalu
Vanuatu
Wallis and Futuna
Total
Sensitivity –20%
Sensitivity +20%
45.4
7.0
9.2
6.2
–
0.9
5.9
–
152.7
40.3
32.3
48.4
1.8
0.4
8.1
6.5
9.7
0.0
0.0
80.7
64.5
96.8
3.5
0.0
161.3
129.1
193.6
7.1
0.0
242.0
193.6
290.4
10.6
0.0
322.7
258.1
387.2
14.1
0.1
138
Institutional economics and fisheries management
access fees presented in Table 6.6 are likely to be
underestimated owing to the incentive for underreporting catch.
For countries with minor levels of Japanese fishing
activity (Fiji, Palau and Papua New Guinea), it is
not likely that access fees will ever match current
aid donations. These countries, and countries with
no Japanese fishing activity (the Cook Islands, Nuie,
Samoa, the Solomon Islands and Vanuatu), could
stand to lose considerable amounts of aid if they were
to cooperate in governing the fishery. However, this
must be balanced against the knowledge that access
fees from other distant water fishing nations which
are not aid donors (that is, Korea and Taiwan) will
increase, providing large benefits for countries with
significant tuna fisheries: Papua New Guinea, the
Cook Islands and the Solomon Islands. Countries
that lose Japanese aid owing to cooperation in
fisheries management with no counteractive
benefits from access fees must be compensated by
benefiting countries if they are to have incentive
to cooperate. This issue has been addressed in the
multilateral institutional framework presented in
Chapter 4. Lastly, also note that donor countries
might not withdraw all aid from the region, as their
motivation behind aid donations is not centred on
gaining cheap fishing access alone.
Concluding comments
There is little evidence that foreign aid has
encouraged development in the Western and
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Central Pacific. The region receives large amounts
of aid in per capita terms compared with other
developing areas (Laplagne et al., 2001). Despite
this, the Pacific island economies have achieved
highly variable, and often unsatisfactory, growth.
For example, the Marshall Islands, the Federated
States of Micronesia and the Solomon Islands all
averaged negative GDP growth rates in the late
1990s despite large aid per capita inflows (OECD,
2002). Some studies argue that aid donations to the
Pacific island countries are having Dutch Disease
effects, where the booming sector is the public sector,
which, because of the abundance of aid money, has
taken over many private sector activities in addition
to expanding its traditional activities (see Hooper,
1993; and Laplagne, 1997).
There is compelling evidence that foreign aid has
had a detrimental impact on the fisheries industry
through diminishing the transparency of fishing
right allocations, placing Pacific island governments
in weaker bargaining positions, and reducing the
flexibility of government spending. Effectively,
foreign aid can disempower a country’s own
efforts towards development. Fishery managers
in the Pacific island countries exchange cheap
fisheries access for foreign aid and domesticallybased industry. Because it is difficult to measure
the cost of fishing effort, it is difficult to estimate
the true resource rent of the fishery, and therefore
the size of the public subsidy paid out in the form
of exchanging cheap access for foreign aid and
domestically-based industry. The comparison
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Institutional economics and fisheries management
undertaken in the previous section suggests that
this subsidy could be extremely large. Currently
Japan is paying access fees to the region that
are approximately equal to five per cent of their
foreign aid donations. However, if access fees were
maximized, it is likely that they could at least equal,
and possibly double, the quantity of aid given by
Japan. Moreover, if access fees were maximized,
revenue from all distant water fishing nations, not
just Japan, would increase. If the Pacific island
countries pursued policies of maximizing access
fees, the lack of capital would not be a constraint
on development.
The distant water fishing nations encourage the
lack of transparency through bilateral treaties,
in which the Pacific island countries have little
negotiating power, and through side-payments to
agree to reduce access fees. This negotiating power
is further weakened by the terms and conditions on
which aid is offered, and the risk of aid withdrawal.
If the Pacific island countries relied on access fees,
rather than foreign aid, they would not be vulnerable
to the risk of aid withdrawal. However, they could
face the risk of boycotts of the fishery by distant
water fishing nations, or restrictions on imports
of tuna products. Yet competition for access to the
fishery is increasing with the European Union and
other distant water fishing nations seeking entry
to the fishery, as over-capacity in other regions
increases. Moreover, it is likely that boycotting
nations would re-enter the fishery in time.
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While short-term efforts to maximize access fees
may cause short-term financial losses, the potential
for development of the industry is large and is
likely to lead to significant and sustained economic
rewards. Furthermore, decreased aid dependency
will strengthen the Pacific islands’ bargaining
position, further increasing the opportunity for
increasing access fees. Strong political will is
required for such a change in fisheries policy to
occur. Planning for a decline in aid funds now will
ease the pain of the restructuring process associated
with aid withdrawal.
In the past, the policy and institutional
environments of the Pacific island countries
have been characterized by heavy protection
against imports, inflexible labour markets, large
public sectors and poorly developed institutional
arrangements offering little support of private
sector activities (Duncan et al., 1999). However,
this picture is changing with greater experience and
understanding of the benefits of ‘market-friendly’
institutions and policies. With these improvements
in the investment environments of the Pacific island
countries, development will occur. Development
financed through fisheries revenue will be stronger
than aid-funded development, and will avoid much
of the political constraint associated with foreign
aid. The fishing industry will only reach its growth
potential with a programme of liberalization, selfhelp and governments, both domestic and foreign,
playing appropriate roles. Fisheries development
will take time and cannot be forced.
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Notes
1. Adapted from Petersen, E.H. (2003), ‘The catch in trading
fishing access for foreign aid’, Marine Policy, 27, (3), 219–
28, with permission from Elsevier.
2. The remaining 6 per cent of catch represents other tuna
species.
3. The need for cooperation in managing highly migratory
fish stocks, as outlined in the UN Fish Agreement, led to
the September 2000 signing of the Multilateral High Level
Convention on the Conservation and Management of
Highly Migratory Fish Stocks in the Western and Central
Pacific Ocean (MHLC, 2000). All coastal and distant water
fishing nations (except Japan) signed the Convention,
which requires the establishment of a Commission
that will be responsible for promoting cooperation and
coordination between members to ensure the conservation
of fish stocks. Japan is expected to sign on soon after the
writing of this book. The first meeting of the Commission
was held in December 2004.
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7.
The contribution of fishery
resources to economic
development1
Good economic policy and strong institutions for
the governance of a fishery are two factors necessary
for fisheries development. The cod fishery is an
example of where the absence of these two factors
led to the collapse of the fishery (Grafton et al.,
2000). However, these factors are not sufficient and
alone are unlikely to lead to sustainable fisheries
development. The strengthening of economic
policies and institutions for governance of a fishery
must be coupled with the broader strengthening
of economic policies and institutions for social
and economic governance. In this chapter the
contribution of natural resources, especially
fisheries, to a country’s economic development
is reviewed. In Sections 7.1 and 7.2 the impact
of natural resources on economic growth and
conflict is outlined. The importance of strong broad
institutions for economic and social governance is
discussed further in Section 7.3.
7.1
Natural resources and economic growth
Classical economics theory predicts that natural
resource endowment raises a country’s wealth and
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purchasing power over imports. If the resource
wealth is invested wisely, this leads to economic
growth. Historically many resource-rich countries
have experienced strong economic growth, such
as the United States, Australia, New Zealand,
Denmark and the Netherlands. However, a number
of studies have provided empirical evidence to
suggest that, over the last two decades, relatively
resource-rich countries have not grown faster than
relatively resource-poor countries. In fact, they have
grown less rapidly (for example, Rodriguez and
Sachs, 1999; and Sachs and Warner, 2001), including
most OPEC members, Angola, Bolivia, Colombia
and Mozambique. Auty (1990) first coined the
term ‘natural resource curse’ with reference to this
paradox.
A number of hypotheses regarding the resource
curse thesis have been suggested, in both the
political and economic spheres. First, resource-poor
countries have historically pursued export-led trade
policy earlier than resource-rich countries (Auty,
1990). Resource-deficient countries pursuing import
substitution strategies encounter foreign exchange
shortages (due to protected manufacturing sectors
and international uncompetitiveness) sooner than
resource-rich countries, causing policy reform to
occur earlier and allowing them to pursue their
natural comparative advantage with less distortions
in their economies. The longer a country pursues
import substitution policies the more difficult
trade reform becomes, owing to the entrenched
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and powerful vested interests of groups that have
benefited from the rents of protected industries.
Tornell and Lane (1999) argue that a shock
(for example, a terms of trade, foreign-aid or
natural resource endowment windfall) perversely
generates a more-than-proportional increase in
fiscal distribution, causing a reduction in growth.
This discretionary distribution occurs in the
absence of strong institutional barriers as noncooperative powerful groups struggle for resources,
and a greater share of resources ends up in nontaxable inefficient activities. Tornell and Lane
show that redistribution increases are greater than
proportional to the windfall, so that the growth rate
declines as the raw rate of return increases.
Isham et al. (2002) argue that the rentier effect
of natural resources – where national budgets
based on resource revenues allow governments to
mollify dissent (through ‘buying off’ critics with
infrastructure projects or outright graft), avoid
accountability pressures (because taxes are low),
and repress civil society organizations, opposition
movements and independent business groups –
simultaneously ‘strengthens states’ and ‘weakens
societies’, thus yielding (or at least perpetuating)
slow economic development. Access to large and
relatively easy resource revenues can give host
governments a false sense of economic security that
undermines the need for responsible economic fiscal
management. An influx of easy resource revenues
into a non-transparent system invites corruption, in
turn creating incentives to further limit transparency
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and accountability. Such ‘looting’ of a country’s
natural resources by its governing elites can provide
the incentive and means to remain in power.
Another hypothesis for the resource curse is the
Dutch Disease analysis of adjustment to terms
of trade windfalls. The Dutch Disease model
divides an economy into three sectors: a tradable
natural resource sector, a tradable (non-resource)
manufacturing sector, and a non-traded sector.
A resource boom leads to a contraction of the
manufacturing sector, owing to either the crowdingout effect of the expanded natural resource sector
or a positive wealth effect that raises demand for
non-tradables. Tornell and Lane’s work argues
that an endogenous increase in redistributionary
activity from a resource boom causes a negative
effect on wealth. Hence the Dutch Disease effect
should be confined to the crowding-out effect of
manufactures due to the expansion of the natural
resource sector.
The Dutch Disease model infers that there is
something different about the manufacturing sector,
when compared with the natural resource sector,
which leads to stronger (or simply positive) growth.
Hirschman (1958) stresses that the manufacturing
sector has more ‘forward and backward’ linkages
than the resources sector, leading to a more complex
division of labour and hence to a higher standard
of living. Van Wijnbergen (1986) and Matsuyama
(1992) stress that manufacturing is characterized by
learning-by-doing that induces economic growth.
This learning-by-doing is external to the firm but
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internal to the sector as a whole. An increase in
resource abundance causes the manufacturing sector
to shrink and the economy loses the benefits of the
learning-by-doing externalities of manufacturing.
This latter argument is yet to be proven in the
literature. Gylfason et al. (1999) and Gylfason (2001)
argue that natural resource abundance crowds out
education (rather than the manufacturing sector as
is argued in the Dutch Disease model).
One shortcoming of the empirical literature on
the natural resource curse is that most analyses
treat all natural resources as equal. One welcome
exception is Isham et al. (2002) who separate natural
resources into ‘point source’ resources such as oil,
diamonds and plantation crops; ‘diffuse’ resources
such as wheat, rice and animals; and cocoa/
coffee.2 They argue that point source resources
can easily be captured by an elite, ‘simultaneously
exacerbating social tensions and weakening
institutional capacity, thereby undermining the
ability (and willingness) of governments to respond
promptly and deftly to economic shocks’ (p. 10).
Isham et al. provide empirical evidence that being
a point-source economy is associated with having
weaker institutions, and having weaker institutions
translates to a GDP per capita that is almost a third
lower, 25 years after the oil shock, than countries
with stronger institutions.
It is important to introduce an element of caution
regarding the natural resource curse. Firstly, the
economic methodology of the empirical work
has shortcomings. These shortcoming include the
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possible exclusion of factors that are correlated with
primary exports, the fact that total GDP includes
the production in the resource sector that has been
declining in the last thirty or so years, and the
static assumption of historical determinism that
provides little allowance for cultural changes or
the effects of other shocks over the time period.
Manzano and Rigobon (2001) corrected for the
first two of these ‘concerns’ and found that
resource abundant countries took advantage of
high commodity prices in the 1970s to use them
as implicit collateral and found themselves on a
debt overhang when commodity prices fell in the
1980s. Manzano and Rigobon argue that, rather
than facing a natural resource curse, these countries
faced a curse associated with asset price bubbles
– where credit market imperfections were the
reason for poor growth. Lederman and Maloney
(2002) found that the natural resource curse thesis
was sensitive to time (the negative effect holds
only between 1950 and 1980, and the effect was
positive, though statistically insignificant, during
1820–70 and 1913 and 1950), that it is probably
due to unaccounted country-specific effects, and
that dealing with endogeneity issues (that afflict
the traditional cross-country growth regressions)
significantly weakened the empirical evidence for
the natural resource curse.
7.2
Natural resources and conflict
Collier (2000) notes that popular perceptions see
rebellion as a protest motivated by genuine and
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extreme grievance while economic analysis sees
rebellion as more like a form of organized crime
– large-scale perdition of productive economic
activities. Economic theory of conflict argues that
the motivation of conflict is unimportant; what
matters is whether the organization can sustain itself
financially. It assumes that perceived grievances
and the lust for power are found more or less
equally in all societies. Therefore it is the feasibility
of predation that determines the risk of conflict.
Collier and Hoeffler (2000) tested two simple
rational choice models of rebellion: firstly, that
rebellion is motivated by greed, that is, the predation
of natural resources subject to an economic calculus
of costs; secondly, that rebellion is motivated
by grievance, that is, motivated by hatreds
which might be intrinsic to ethnic and religious
differences, or reflecting objective resentments such
as domination by an ethnic majority, or economic
inequality. Using data on conflict over the period
1960 to 1999, Collier and Hoeffler found very
poor significance and explanatory power on the
grievance–rebellion model, and good significance
and explanatory power on the greed–rebellion
model, with the extent of natural resource rents
being the single largest influence on the risk of
conflict. It was found that the powerful risk factor
is where countries have a substantial share of their
income (GDP) coming from the export of primary
commodities, with dangerous levels of primary
commodity dependence being at least 26 per cent
of GDP. While natural resource abundance is the
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largest risk factor for civil wars, other risk factors
include geography (if a population is highly
geographically dispersed, the country is harder
for the government to control), history of war (if a
country has had a recent civil war, its risk of further
war is much higher), economic opportunities (low
education, fast population growth and economic
decline increase the risk), and ethnic and religious
composition (one dominant ethnic group which
constitutes between 45 per cent and 90 per cent of
the population leads to a doubling in the risk of
conflict). In contrast, inequality, lack of democratic
rights, and ethnic and religious diversity all make
a society safer. In a separate study, de Soysa (2002)
produces remarkably similar findings to those of
Collier and Hoeffler (2000).
7.3
The importance of strong institutions for
broad economic growth
Since Matthews’ presidential speech to the Royal
Economic Society in 1986 (Matthews, 1986),
economists and other social scientists have become
increasingly aware of the importance of institutions
(such as rule of law, bureaucratic quality, freedom
from government expropriation, and freedom from
government repudiation of contracts) for economic
growth, leading to the rapid growth in the field
of new institutional economics. Olson (1996)
emphasized this importance in his ‘Distinguished
lecture on economics in government’. He argues
that the only plausible explanation for the great
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differences in the wealth of nations is the difference
in the quality of their institutions and economic
policies. Olson suggests that ‘big bills’ can only be
picked up through coordinated individual actions
that require a prudent structure of incentives. With
the emergence of cross-country growth models of
the 1990s, further empirical evidence points to
the overwhelming importance of property and
contractual rights, and the efficiency with which
governments manage the provision of public
goods and the creation of government policies
are significant determinants for the speed with
which countries grow (for example, Knack and
Keefer, 1995, 1997; Dollar and Kraay, 2002; and
Barro, 1991).
Easterly (2000) argues that high quality institutions
mitigate the adverse economic consequences of
ethnic fractionalization, lessen war casualties
and lessen the probability of genocide for a given
amount of ethnic fractionalization. Collier (1998)
found that the detrimental effects of medium
levels of diversity (such as reduced public sector
performance, increase patronage, and lower levels
of trust among individuals) is highly damaging in
the context of limited political rights, but is not
damaging in democracies. This literature points to
the overwhelming importance of strong institutions
for broad economic governance. This is even more
important in resource-rich countries, where natural
resources provide incentives for poor economic and
political governance, the wealth to fight over, and
the wealth to fund such conflicts.
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Toatu (2001) compared three explanations of the
poor performance of the Kiribati economy during
the 1980s and 1990s: the neoclassical approach, the
policy approach and the institutional approach. He
found that the lack of economic growth had little
to do with the lack of natural or capital resources
(the neoclassical approach), nor did it have much to
do with poor policies. Rather the lack of incentives
to accumulate and acquire those resources, and to
formulate good policies, was the important factor.
This brings to bear the importance of institutions
in providing these incentives.
Figure 7.1 illustrates the nexus between economic
policy, institutions and economic and social
outcomes. Institutions provide the incentive
structure which, together with the transaction
costs of the institutions and the general functioning
of the state, determines the social and economic
performance of the economy. Institutions are of
two types: informal norms and traditions that
are determined by culture; and formal rules and
laws that are imposed by the state for social and
economic coordination. State-endorsed institutions
are designed to achieve state-endorsed policy. The
formal institutions function on a number of levels.
For simplicity, these institutions are presented in
Figure 7.1 on two levels: broad institutions for
economic and social governance, and specific
institutions for sector governance. The literature
generally cites broad institutions for social and
economic governance as the security of property
and contractual rights, a competent and honest
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Specific policy for
sector governance
Specific
institutions for
sector governance
FORMAL
INSTITUTIONS
Broad institutions
for economic and
social governance
Technology
Transaction costs
INCENTIVES
INFORMAL
INSTITUTIONS
Figure 7.1
Economic
and social
outcomes
The nexus between institutions, economic policy and economic performance
Sources: Adapted from Stoeckel (2001) and in Petersen (2002b)
State
Broad policy for
economic and
social governance
Culture
154
Institutional economics and fisheries management
bureaucracy, and a reliable and independent
judiciary. In the absence of these institutions, the
full potential of natural and capital resources
cannot be realized and private investors do not
have the security to invest and apply their skills
and technology.
A great advantage of the off-shore fishing industry
is that the property right structure for the exclusive
economic zones has been well defined. Hence the
property rights are not subject to compensation
claims, a rapidly growing business in other sectors
of some countries (for example, Melanesia (Chand,
2001)). Moreover, foreign direct investment does
not need to be made in joint ventures with the state.
Hence market institutions which allow voluntary
exchange and specialization need not be impeded
by poorly defined property rights, which is the
major concern for so many developing countries.
However, the contractual rights for local and
distant water fishing nations must be secured
by government and protected and enforced by
the judiciary.
Bureaucrats require appropriate incentives for
them to carry out their required tasks efficiently,
effectively and responsively, with clear strategic
focus and appropriate participation. Inadequate,
or inappropriate, incentives are likely to lead to
corruption, dishonesty and incompetence. This is
especially important in many developing countries
where the public sector can be relatively large,
compared with the private sector. Gillett, Preston
and Associates (2000b), in commenting on Papua
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New Guinea’s National Fisheries Authority, say that
there are insufficient internal and external controls
applied; the licensing process is obscure, subject to
manipulation and internal delays; record keeping
is problematic; trust accounts are mismanaged;
and influence rather than merit determines
management decisions. Such lack of governance
capacity not only leads to poor policy-making but
also leads to substantially higher transaction costs
for investment, discouraging both domestic and
foreign investment. If the bureaucratic institutions
are strong and effective, it is likely that the
performance of the bureaucrats will be strong and
effective, and vice versa.
The reliability and independence of the application
of law is as important as the law itself (Toatu, 2001).
Moreover, a judiciary can only be reliable and
independent if the rules and policies governing its
operation are credible and if the resources allocated
to it are adequate and efficient. Without a strong
and consistent judiciary, the whole system of law
collapses. A number of studies have highlighted
the importance of law and order on economic
performance (for example, Chand and Levantis,
1998; and Levantis, 2000).
While the importance of sound policy-making
and the implementation of institutions for the
governance of the fishery are necessary, they are not
sufficient for fisheries development. Development of
any sector in an economy needs to be coupled with
strong institutions for broader economic and social
governance: security of property and contractual
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rights, a competent and honest bureaucracy, and
a reliable and independent judiciary. Without
a strengthening of these broader institutions,
individual sectors in an economy will be unable
to fully develop. The full potential of a fishery
(and indeed any natural and capital resources)
will remain unrealized as private investors, local
or foreign, will not have the security to invest and
apply their skills and technology.
Notes
1. This chapter uses material from Petersen, E.H. (2002),
‘Economic policy, institutions and fisheries development in
the Pacific’, Marine Policy, 26, (5), 315–24, with permission
from Elsevier.
2. Isham et al. (2002) note that defining coffee and cocoa
as either ‘point source’ or ‘diffuse’ resources proves
problematic since these crops can be grown either on
plantations or small family farms.
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Economics of Transaction Costs, Cheltenham, UK
and Northampton, MA, USA: Edward Elgar
Publishing.
World Bank (1996), Pacific Island Economies: Building
a Resilient Economic Base for the Twenty-first Century,
Washington, DC: the World Bank.
World Bank (2000), Cities, Seas, and Storms:
Managing Change in Pacific Island Economies, vol.
III: Managing the Use of the Ocean, Washington,
DC: the World Bank.
World Bank (2002a), World Development Report 2002:
Building Institutions for Markets, Washington, DC:
the World Bank.
World Bank (2002b), World Development Indicators,
Washington DC: the World Bank.
Young, M.D. (1992), Sustainable Investment and
Resource Use: Equity, Environmental Integrity and
Economic Efficiency, Carnforth: Parthenon Press
and Paris: UNESCO-MAB.
Younger, S.D. (1992), ‘Aid and the Dutch Disease:
macroeconomic management when everybody
loves you’, World Development, 20 (11), 1587–97.
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access fees
benefits from 50
comparison with aid
122–38
per capita 110–15
rent potential 31–5
returns from 42, 48, 63
subsidization of 117–19
terms and conditions
59–60
access, competition for
51–2, 140
administrative allocation
systems 11, 19–20
Africa 135
Agreement for the
Establishment of the
Indian Ocean Tuna
Commission (IOTC) 58
Agriculture, Fisheries,
Forestry–Australia
(AFFA) 10
aid
comparison with access
fees 122–38
and development 119–22,
138–41
Alaska, revenue distribution
policy 107–8
albacore tuna 27–9, 34,
129
allocation/adjustment
mechanisms 11–12
choice of mechanisms
19–20
Arnason, R. 71, 79
Asian Development Bank
45, 49, 90, 91, 103, 104
asset price bubbles 148
auctions 12, 77–9
Australia 9, 10, 26, 87, 122
Australian Fisheries
Management Authority
(AFMA) 34–5
Auty, R.M. 50, 144
Bailey, E.M. 77
Balassa, B. 41
Baldry, J. 139
Banaba (Ocean Island) 101,
102
Barro, R.J. 151
Batty, M. 91
Bernacchi, Michael 101–2
Bertignac, M. 33–4, 72, 135
Bertram, I.G. 99
bigeye tuna 27–30, 58, 126,
129
bilateral aid
dependence on 51, 91,
118
for low-cost access 63–4
175
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Institutional economics and fisheries management
bilateral treaties 63, 78–9,
126, 132–4, 135
bluefin tuna 35, 87
booming sector see Dutch
Disease effect
Bosworth, M. 41, 94, 106,
141
Brasao, A. 79
broad institutions 152–4
Bromley, D.N. 2
bundles of rights 5
Burtrow, D. 78
Busby, G. 145, 147
buying nations, control of
subsectors 92
Campbell, H.F. 7, 33–4, 72,
135
Canada, quotas 10
canning sector 33–4, 92,
106
capacity, absence of 64
capital
protection of 97–8
trust funds 95
Carlson, C. 78
Caroline Fishing
Corporation 44
Cartwright, I. 60, 126
catches
data 126–38
limitations on 9–10, 75–6,
81
rates 15
size 11, 25–7
under-reporting 63, 130,
138
Central Pacific Producers
Update 101
Challen, R. 2, 5, 19, 65
Chand, S. 154, 155
Clark, L. 35
classification problems 4
closed season, impact of 8
Coase, R.H. 2, 13
Cobb-Douglas production
function 66–7
collective
goods 95, 96
property regime 14–16
Collier, P. 149, 150
common property
regime 14–16
rights 3–5
Compact of Free
Association 121, 122
comparative advantage
40–41, 45–6, 49, 52,
90, 144
compensation claims 154
compulsory port
transhipment 47–8
conflict, and natural
resources 148–50
conservation 58–9, 108
consolidated revenues 91,
94, 109
Cook Islands 44, 138
cooperation, potential
benefits 66–71, 72–4
cooperative
governance structure
71–81, 83
management 58–60, 138
Costa-Duarte, C. 79
Cropper, M. 78
cross-country growth
models 151
Cunha-e-Sa, M.A. 79
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Cuthbertson, R.S. 41, 94,
106, 141
de Soysa, I. 150
demand elasticity 33–4
Demekas, D.G. 106
dependency on aid 121–2
developing countries,
exports promotion 37
development
and aid 119–22, 138–41
determinants of 93–4
‘diffuse’ resources 144
direct
controls 5, 7
public investment 89–90
discretionary distribution
145
distribution
profitability 92
revenues 109–16
trust fund profits 95–6,
107–8
diversity, detrimental effects
151
dividends, trust funds 96,
107, 108, 109–15
Dollar, D. 120, 151
domestication 43–4, 46–9,
50–52, 89–93, 120–21
drawdowns, trust funds
103
Duncan, R. 16–17, 41, 48,
81, 94, 106, 141
Dutch Disease effect 119,
139, 146–7
dynamic transaction costs
13–14, 17
Easterly, W. 96, 120, 151
177
economic
benefits of cooperation
72–4
benefits of domestication
47–8
development,
determinants 93–4
governance 50
institutions 120
multiplier effects 96
rents 42–3, 78
returns 39
shocks 145, 147, 148
economic growth 35, 37
importance of strong
institutions 150–56
and natural resources
143–8
economy, Kiribati 100–101
effort creep 8
Emberson-Bain, Atu 106
employment 46–7
enforcement 18, 80–81
entitlements 72–3, 75–6
allocation/adjustment
11–12, 76–80
institutions 62–4
mechanisms 19–20
systems 5–10, 16–18, 20
European Union, access 35,
51, 135, 140
exclusive economic zones
25, 46, 56–7, 111–12
policing 75
property-rights structure
154
export-led trade policy 144
exports 30–31, 37
external
controls 155
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Institutional economics and fisheries management
fund custodians 98
institutions 1–2, 152–4
transaction costs 19
extractive policies 40, 97
Federated States of
Micronesia (FSM)
access fees 134
aid packages 121, 122
exclusive economic zone
132
fishing fleet 44
fishing revenue 31, 112,
114, 135
fishing market 26
growth rates 139
Fiji 44, 106, 138
financial
failure 90, 91
investment policy 94,
96–8
fines 35
fisheries
characteristics 40
policies 42–8
revenue 30–37, 110–14
size 25–7
Fisheries Management Act
(1991), Australia 10
fishers 87
fishing effort
reduction in 76
and rent potential 34, 35
fishing-related ventures
33–4, 47, 48–9, 91–2,
106
Food and Agriculture
Organization (FAO) 9,
30, 39
foreign direct investment 154
foreign exchange, need for
90–91
foreign labour 105–6
formal institutions see
external institutions
formal sector employment
105
Forum Fisheries Agency 35,
47, 60, 63
France, aid from 122
free access
exchange of 117–18
prevention of 81
French Polynesia 92–3, 122
Futuna, aid packages 122
game-theoretical models 71
gear restrictions 7–8, 10
geographic information
systems (GIS) 8
Gerlagh, R. 97
Gibson, K. 109
Gilbert and Ellice Islands
Colony (GEIC) 99, 101,
102
Gilbert Islands 99
Gillett, Preston and
Associates 35, 47, 154
Gillett, R. 45, 48, 89, 100,
112, 126, 132
Gillis, M. 119
Goodlad, J.H. 9
Gordon, H.S. 2, 4
governance
good 119–20
trust funds 103, 104–5
graft 145
Grafton, R.Q. 71, 76, 80,
143
‘grand-fathering’ policy 97
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greed–rebellion model 149
grievance–rebellion model
149
Grynberg, R. 46
Gulland, J.A. 7, 8–9, 10
Gylfason, T. 147
Hampton, J. 33–4, 72, 135
Hand, A.J. 33–4, 72, 135
Harrington, C. 106
Harrod-Domar model 119
Hartwick, J.M. 19
harvesting
costs 60–62
profitability 92
seasonal uncertainties
135
techniques 27–9
Hedley, C. 58
Herbertsson, T.T. 147
Hirschman, A. 146
historical
determinism 148
participation, allocations
11
Hoeffler, A. 149, 150
Hooper, A. 139
humanly-devised rules 1, 20
Hunt, C. 41, 94, 106, 126,
141
Iceland, quotas 9
Iheduru, O.C. 35
import-substitution
strategies 144–5
In the Name of Growth–Fiji:
A Story of Fisheries
Development,
Indigenous Woman and
Politics 106
179
incentive structures 152,
154–5
independent investment
advisors 97–8
indirect
controls 7
support 90
individual
dividends 109, 110
tradable quotas 9–10
informal institutions see
internal institutions
informal norms 152
information
asymmetry 79
gathering costs 18
infrastructural projects 95
input controls 7–8, 17–18,
62
institutional
choice 12–20
environments 93, 141
frameworks 41
precedence 65
reform 64–6, 83–4
structures 55–6
institutions
allocation/adjustment of
entitlements 62–4
importance for broad
economic growth
150–56
of natural resource
management 3–12
Inter-American Tropical
Tuna Commission
(IATTC) 58
intergenerational
distribution, entitlements
97
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180
Institutional economics and fisheries management
internal
controls 155
institutions 1–2
international treaties 60,
63–4
investments, transparency
of 97
Isham, J. 145, 147
Japan
access fees 43, 118–19
aid 51, 122–38, 140
fishing fleet 45
fishing market 26
harvesting techniques 27
job creation 50, 90–91,
105–9, 117–18
joint ventures 44, 46
Joskow, P.L. 77
Keefer, P. 151
Keyzer, M.A. 97
Kiribati
economy 152
fishing fleet 44
fishing revenue 31, 112,
114
investment of aid money
121
pollution 108
trust fund 95, 98–105, 110
Kiritimati (Christmas Island)
99
Knack, S. 151
Kolstad, I. 120
Kontolemis, Z.G. 106
Korea 26, 27, 43, 45
Koskela, E. 106
Kraay, A. 96, 151
Krieckhaus, J. 98
Kuk, R. 91
Lane 145, 146
Laplagne, P. 139
Larmour, P. 41, 94, 106, 141
law, application of 155
Lawson, R.M. 7, 9
‘learning-by-doing’ 146–7
Lederman, D. 148
Levantis, T. 155
Libecap, G.D. 79
licensing 62–3
limited entry 8, 62
Lindner, R.K. 7
Line Islands 99
locally-owned enterprises
106, 108
long-term economic rents
72, 74
longline 27–8
companies 46–7
development 48
fleets 35, 93
lottery-based allocations 11
low-cost access 42, 50, 51
for aid 63–4, 91, 117–18,
139
Macdonald, B. 102
Majuro 121
Malley, J. 106
Maloney, W. 148
manufacturing sector 146–7
Manzano, O. 148
market-based allocation
systems 11–12, 19–20
marketing costs 60
markets 2–3
Marshall Islands
access fees 134
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aid packages 51, 121, 122
exclusive economic zone
132
fishing revenue 31
growth rates 139
joint ventures 44
public subsidies 47
Masten, S.E. 2
Matsuyama, K. 146
Matthews, R.C.O. 2, 150
McCoy, M.A. 45, 48, 89,
100, 112, 126, 132
Meier, G.M. 120
microeconomic impact of
aid 119
migratory fish stocks 57, 65,
71
MIRAB economy 99
monitoring 10, 18, 48,
80–81, 92
Moutos, T. 106
Muller, P. 34, 112, 126, 130,
132
multilateral fisheries,
analysis of rent
generation 66–71
multilateral governance
56–62, 72, 73–4
and proposed Tuna
Commission 74–6
Multilateral High Level
Convention on the
Conservation and
Management of Highly
Migratory Fish Stocks in
the Western and Central
Pacific Ocean 58–9,
79–80, 83, 134
multilateral treaties 63,
78–9, 126
181
Munro, G.R. 75, 77
National Centre for
Development Studies,
Australia (NCDS) 126
National Fisheries Authority,
Papua New Guinea
154–5
National Fisheries
Corporation, FSM 44
nationalization 89
‘natural resource curse’
144–8
natural resource
management
institutional choice 12–20
institutions of 3–12
natural resources
and conflict 148–50
and economic growth
143–8
Nauru 104, 112, 114, 135
Nauru Agreement
Concerning Cooperation
in the Management of
Fisheries of Common
Interest 59–60
Nauru Group 59
Ncube, M. 106
negotiating power 140
Netherlands, quotas 10
New Caledonia, aid
packages 122
new entrants, restriction of
72
New Institutionalism 1–3,
150–51
New Zealand, quotas 9
no-fish zones 76
non-licensed vessels 92
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182
Institutional economics and fisheries management
non-property see openaccess
non-traded sector 146
North, D.C. 1–2
Northwest Atlantic Fisheries
Organization (NAFO)
75
Nuie 138
offshore investment 93–9,
102, 105
Olewiler, N.D. 19
Olson, M. 93, 150–51
Organization of the
Petroleum Exporting
Countries (OPEC) 144
open-access 3, 4, 56
operating controls 5, 7
opportunity costs 46
optimal institutional
hierarchy 12
Organization for Economic
Co-operation and
Development (OECD)
139
Ostrom, E. 65
output controls 7, 8–10,
17–18
Ovalau 106
over-capitalization 4
over-exploitation 4, 30, 57,
58, 62, 72
Pacific Islands 23–4
Palau 122, 138
Palmer, K.L. 78
Papua New Guinea
aid packages 122
exclusive economic zone
132
fishery value 112
fishing market 26
fishing revenue 31, 35,
138
Perkins, D.H. 119
Philippines, fishing market
26
Phoenix Islands 99
phosphate mining 100, 101,
102
‘point source’ resources
147
Poirine. B. 99
pole-and-lining 27–8, 33–4,
126, 129
policy
changes 93
environments 141
instruments 42
objectives 39–48
reform 48–52
political ties 122
pollution 108
Poole, G.R. 94
Pretes, M. 94
primary
commodities 149–50
exports 145
prisoner’s dilemma game
14–15
Pritchett, L. 145, 147
private investment 44–5,
106–7
encouragement of 87–8,
114–16
lack of 49
success of 91
private property
regime 14–16
rights 3–5, 60
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processing
domestic-based
investment 48–9
facilities 47
production function 17–18
property rights 3–5, 20
choice of 14–16
land 46
multilateral governance
56–62
public investment 43–4,
92–3
failures 45–6, 91, 105–7
fishing industry 105–6,
120–21
public savings 98
public subsidies 42, 46–7,
50
purse-seining 27–8, 30
data 126, 128–9
fleets 33–4, 35
vessels 93, 121
Radelet, S. 119
raw tuna, demand elasticity
33–4
region-specific harvesting
rights 73
Regional Fisheries
Management
Organizations 57–8, 71
regulators 17, 107
remittances 107, 108, 109
rentier
effect 145–6
policy 108
research and development
58
resource
entitlements 97
183
exploitation 4
generation 66–71
management 56–62, 64
rent maximization 49,
51–2, 60–61, 65–6,
87, 90–91, 140–41
rent potential 31–5
‘resource curse’ 50
‘resource nationalism’ 89
resource revenues
access to 145–6
distribution 109–16
fisheries 30–37, 130–32
investment of 105
management of 88, 89–93
see also trust funds
resource-poor countries 144
resource-rich countries 144,
148, 151
retailing, profitability 92
Revenue Equalisation
Reserve Fund (RERF),
Kiribati 101, 102, 110
Rigobon, R. 148
risk diversification 96–7
Robinson, M. 107–8
Rodriguez, R. 144
Rodwell, L. 48, 89, 100,
112, 126, 132
Roemer, M. 119
Royal Economic Society
150
Sachs, J.D. 144
Samoa 44–5, 138
Sandal, L.K. 76, 143
sashimi (raw fish) market
26, 129
Schmalensee, R. 77
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Institutional economics and fisheries management
Schurman, R.A. 25, 43, 44,
47, 51, 76, 89, 90, 92,
121, 129
Secretariat of the Pacific
Community 23–4, 76
self-enforcing institutional
mechanisms 17
self-enforcement 80–81
self-governed fisheries 18
self-instituting institutional
mechanisms 17
self-policing mechanisms 75
sensitivity analysis 130
side-payments 79
Sinding, K. 94
single species fisheries 8
skipjack tuna 27–9, 126,
129
Smit, W. 10
Snodgrass, D.R. 119
social governance 50
socio-economic allocation
considerations 11
Solomon Islands
fishing fleet 44, 46
fishing market 26, 138
growth rates 139
investment of aid money
121
Solomon Taiyo Limited 44,
46
South Tarawa 99
Soviet Union, fishing fleets
43
specialization 40–41
Stackleberg leader 68
state-endorsed institutions
152
state-owned fishing
enterprises 18, 44, 87,
100–102
state-property
regime 14–16
rights 4–5, 46, 56–7
static transaction costs
13–14, 17
steady-state-shock 66–71
Steinshamn, S.I. 76, 143
Stern, N. 120
Stevenson, G.G. 2, 17
straddling 57, 71
sulphur dioxide allowances
77–8
supporting institutions 64,
65
sustainability 4, 30, 73–4,
76
Taiwan 26, 27, 43, 45
Taiyo Gyogyo Kabushiki
Kaisha 46
Tamate, J. 48, 89, 100, 112,
126, 132
Tarawa 101
tax exemptions 42
Te Mautari Ltd, Kiribati 44
Teaiwa, K. 101
technology costs 18
Temu, I. 16–17, 48, 81
tenders 12, 77–9
‘threat points’ 79
Throsby, D. 100
Tiller, S. 91
Tinbergen Principle 40–42,
47–8, 52
Toatu, T. 100, 102, 152
Tokelau, fishing revenue
112, 114
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Tonga 31, 44
Tornell, A. 145, 146
tradable natural resource/
non-resource sectors
146
trade
boycotts 51, 140
shocks 96
trading entitlements 11–12
‘tragedy of the commons’
56
transaction
choice theory 12–14
costs 16, 17–18, 19–20,
64–5
transhipment 47–8
ports 51, 121
transparency 140
Treadgold, M. 139
trust funds 88, 93–9, 101–5
and job creation 105–9
and revenue distribution
109–16
tuna
population dynamics
model 33–4
prices 129, 135
species 27–9, 35
stocks 29–30, 39, 57
Tuna Commission
monitoring/enforcement
role 80–81
multilateral governance
74–80
proposal for 73–4, 82–3
Tungodden, B. 120
Tuvalu
fishing revenue 31, 112,
114, 135
185
investment of aid money
121
trust fund 95, 102
uncertainty 78
United Kingdom, quotas 9
United Nations
Convention on the Law
of the Sea (1982) 25,
46, 56–7, 81
Development Programme
105
Economic and Social
Commission for Asia
and the Pacific 37
Fish Stocks Agreement
57, 71, 81
United States
aid from 120–21, 122,
126
catch 43
electric utilities 77
fishing fleet 45
fishing market 26
joint ventures 44
van Santen, G. 34, 112,
126, 130, 132
van Wijnbergen, S. 119, 146
Vanuatu, fishing market 26
138
Veblen, T. 2
vessel costs 93
vessel monitoring system
(VMS) 80
Viren, M. 106
voluntary cooperation 72
Wallis, aid packages 122
Warner, A.M. 144
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Institutional economics and fisheries management
Watters, R. 99
Weisman, E. 119
Wespac, FSM 44
Western and Central Pacific
Tuna Commission 59,
83
White, H. 119
Williamson, O.E. 2, 13
Willock, A. 60
Woolcock, M. 145, 147
work conditions 106
World Bank 25, 93, 120, 126
Wuttunee, W. 107–8
Yap Fishing Corporation,
FSM 44
yellowfin tuna 27–9, 126,
129
Young, M.D. 4
Younger, S.D. 119
Zoega, G. 147
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