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Forholdet mellem regulator
(prinsipal) og fiskere (agent)
Niels Vestergaard
Centre for Fisheries & Aquaculture
Management & Economics (FAME)
University of Southern Denmark
“Information critical for efficient management
may be hard to centralize, or be asymmetric
(people have different information), leading to
inefficent management. Broadly viewed, natural
resource problems are problems arising from
incomplete and asymmetric information
combined with incomplete, inconsistent, or
unenforced property rights”
(Hanna, Folke and Maler 1996)
Bergen conference 1997:
•Annual discards of commercial species in the North Sea
fisheries is at least 1/3 of the catches
•Herring, mackerel and cod stocks are depleted
•Sole, plaice, haddock and saithe stocks are close to their lowest
recorded levels
•The present control system has limited effect and does not
prevent misreporting
North Sea cod: fishing mortality
1,2
Mean F
1
0,8
Inteded F
Actual F
0,6
0,4
0,2
0
1980
1990
Year
2000
Another illustration
Fra ACFM rapporten om torsk i Kattegat (2004):
• The TAC is implemented by period rations for
individual vessels. Ration sizes have been low in
recent years and may have created incentives to
discard (high-grade). As ration size has been higher in
the Western Baltic there have been incentives for
writing Kattegat catches into the Western Baltic. The
recovery plan, agreed in 2004, stipulates strict rules
for carrying and landing cod in Kattegat.
• Discards are not included in the assessments, and
their magnitude is unknown. Essential assessment
data (70% of landings) are only available from
Denmark for 2003.
Observations
• Monitoring actual fishing practice is
impossible due to the characteristic of the
fish stock and hence control is incomplete
• Regulator therefore often lacks information,
either information which the fishermen have
or information which is due to uncertainty
• As a result regulation often fail to fulfil its
goals
Observations #2
• As a response, either the current regulation
can be refined or the focus is changed
towards correcting the control policy.
• However, the design of the management
scheme can change substantial if the
regulator decides to take the information
problem explicitly into account.
The importance of uncertainty
and asymmetric information
Uncertainty
Stock size
Important
Asymmetric
information
Not important
Natural growth
Important
Not important
Catches
Not important
Important
Cost function
Not important
Important
Output prices
Important
Not important
Not important
Important
Effort
Asymmetric Information
• Fishermen is better informed about a
variable or a function than regulator
(society).
• Standard instruments can not be used.
• The concepts moral hazard and adverse
selection become important.
• The principal-agent approach can be used,
setting up an incentive scheme.
Catches: Moral Hazard
• Illegal landings and discard as a moral
hazard problem that arises under quantity
regulation, because individual catches are
unobservable.
• Using the Segerson approach from nonpoint
source (NPS) pollution, a tax scheme can be
designed to secure optimal individual
catches using stock size as the tax base.
The Mechanism
Ti(x) =
ti(x* – x)
where:
x is the observable actual size of the fish stock.
x* is the optimal stock size.
Ti(x) is the tax function for fishermen i.
ti is the tax/subsidy rate, which can vary between
fishermen.
Society problem
Max (E(phi – ci(x, hi)))
x, h ,..h
1 n
s.t.
G(x) – E(hi) = 0
where:
G(x) is the natural growth rate. It is assumed that
G´(x) > 0 for x < xMSY and G´(x) < 0 for x > xMSY.
E is an expectation operator.
Fisherman behavior
Max phi – ci(x, hi) – (Ti(x))
h
i
s.t.
x = Ni(hi, h-i)
• Ni(hi, h-i) is an expression for how fisherman i
perceives that the stock size is influenced by
catches.
• h-I are catches for all fishermen than fisherman i.
Fisherman behavior
Max phi – ci(Ni(hi, h-i), hi) – (tix* - ti Ni(hi, h-i)
hi
• The first-order condition with Cournot-Nash
expectations is:
p – ci/Ni Ni/hi- ci/hi + ti Ni/hi = 0
Optimal Tax Structure
The first-order condition for society is:
p = E(ci/hi) + E(ci/x + Σ-i cj/x)
Alignment of the first-order conditions gives:
ti = Q/(Ni/hi)
where
Q = the marginal social benefit of catches beyond
optimal catches (Q<0).
Catches: Moral Hazard
Individual variable tax rates: Trawlers between 50 GT and
199 GT
1200
DKK/tonnes
1000
800
s=1
s=0,8
s=0,6
s=0,4
600
400
200
0
1965
1970
1975
1980
1985
Year
1990
1995
2000
Discussion
• Lump-sum transfer back to the industry
• Information requirements
– Individual biological response function
• Fishermen react to the stock tax
• Alternative to control policy or quota policy
• The analysis is a steady state analyse
Costs: Adverse Selection
• Society tries to collect private information
about the cost function.
• It is possible, throughout inclusion of
incentive compatibility restrictions in
principal-agent analysis, to design a tax or
subsidy mechanism that secures correct
revelation of cost types.
• The price of correcting two market failures
with only one policy instrument is that some
inefficiency must be accepted. In other
words, a second-best optimum is reached.
Costs: Adverse Selection #2
• The inefficiency arises as an information rent that
is given to the most efficient types in order to give
these types an incentive to reveal themselves.
• Because of the resource constraint the standard
Principle-Agent result do not hold for fisheries,
the low cost agent must be allowed a higher effort
level than under full information.
Costs: Instrument choice (result)
• With asymmetric information about cost, it
can be shown that the so-called Weitzman
result holds for a schooling fishery but not
for a search fishery.
• The reason for this result is that there is
interaction in the cost function between
stock size and catches in a search fishery.
Costs: Instrument choice #1
• Fisheries economics: Taxes or ITQs
• With regard to ITQs (property rights) it is often
argued that they are expensive to implement.
• Purpose of the paper: Are taxes better than ITQs
under imperfect information?
• The pollution control literature: Taxes and
transferable permits are not equivalent under
imperfect information. A classical article is
Weitzman (1974).
Costs: Instrument choice #2
The result in Weitzman (1974):
 (B´´C´´)

2C´´
2
2
 is the relative advantage of price over quantity regulation.
 is the variance of the error in marginal costs.
2
C´´ is the curvature of the total cost function.
B´´ is the curvature of the benefit function.
Costs: Instrument choice #3
Four conclusions:
• Under full information it does not matter if taxes and
transferable permits is used
• It does not matter for the choice between price and
quantity regulation if there is imperfect information about
benefit
• If there is imperfect information about costs price
regulation is preferred over quantity regulation, if the
marginal cost function is steeper than the marginal benefit
function
• Transferable permits are preferred over taxes if the
marginal benefit function is steeper than the marginal cost
function.
Costs: Instrument choice #4
Assumptions:
• The fishing fleet is homogeneous and entry and
exit can be excluded
• The fishermen disregards the resource restriction
• Long run economic yield is maximised
• Steady-state is assumed
• q is aggregated catches, x is stock size and p is the
price
• C(q, x) is the cost function, B(q) is the revenue
function and F(x) is the natural growth.
Costs: Instrument choice #5
• Assuming a schooling fishery, i.e. C(q, ) or
Assuming a schooling fishery with search
cost, i.e. an additive separable cost function
C(q, ) + C(x), the Weitzman result can be
generalized to fisheries
• But for a search fishery C(q, x, ) is it not
possible to generalized, hence impossible to
say anything about the instrument choice
Costs: Instrument choice #6
• For schooling fisheries, taxes are preferred
over ITQs, if the marginal cost function is
steeper than the marginal revenue function.
• That there is room for using taxes as an
instrument is a fishery policy
recommendation that can be drawn from the
analysis.
Conclusions
• By introducing asymmetric information in
the analysis of fishery policy, it is possible
to analyse fishery problems in practice
related to illegal landings and discards.
• New types of policy schemes are developed,
incentives contracts, which are menus of
different taxes (multiple market failures).
Conclusions #2
• As many fisheries operate with licenses,
introducing such contracts could be
straightforward.
• However, more empirical work is needed
and development of more realistic teoretical
models are also needed.