Lynham 2013 01 07

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1 How Have Catch Shares Been Allocated? by John Lynh a m Working Paper No. 2013-8 Januar y 2013 University of Hawai‘i at Manoa , Hawai‘i 96822 oo M 540 • Honol 2424 Maile w l U ay, r U www. UH ero. H awaii.ed U w orking papers are preli M inary M aterials circ U lated to sti MU late disc ssion and critical co MM ent. tH e views expressed are t H ose of U ors. H e individ U al a U t H t

2 How Have Catch Shares Been Allocated? a * John Lynham a noa, 2424 Maile ā Department of Economics, Saunders Hall 542, University of Hawai‘i at M Way, Honolulu, Hawai‘i, U.S.A. 96822 Abstract A unique database was created that describes the methods used to allocate shares in nearly every 54% of the major catch share fisheries in major catch share fishery in the world. Approximately s Allowable Catch (TAC) the world allocated the Total on the basis of historical catch olely records, 3% used auctions, and 6% used equal sharing rules. 37% used a The remaining based - combination of methods, including vessel - held rules. These results confirm the widely belief that nearly all catch share programs have “grandfathered” private access to fishery 91% of the fisheries in the database allocated some fraction of the TAC on the basis of resources: historical catch. available database should be a useful reference tool for This publicly policymaker s, academics, and others interested in catch shares management in Hawai‘i and across the globe. shares, ITQ, allocation, grandfathering catch Keywords: 808 - 808 4347 - 956 - - - 8280, Fax +01 - 956 *Corresponding author: Tel. +01 [email protected]

3 1 .0 Introduction The debate over catch shares management academic and policy has intensified recently, in both economic [1, 2 3] . Most commentators agree that catch shares improve the aggregate , circles performance of a fishery, especially in terms of measures such as total profit generated. However, in terms of other (often more fine - scale) metrics, such as total jobs, crew agreement over the remuneration, number of active vessels or processor profit, there is little impact of catch share systems: both in terms of the direction of the impact and its desirability. a of the i ntroduction of catch shares to the Bering Sea/Aleutian Island crab For example, study [ 4 fisheries find s that the number of individuals employed in the fishery declines but that the ] total crew - hours dedicated to fishing activities remains roughly constant. In terms of ecol One study [5] find s that catch ogical impacts, the evidence is also conflicting. share fisheries are less likely to be collapsed compared to all other fisheries grouped together ; [6] corroborate the findings in using similar data but a different empiri cal strategy. In a similar [5] vein, [7] finds that catch shares have largely positive effects on target species, but mixed or unknown effects on non , and [8] target fisheries and the overall ecosystem finds that biomass - increased in 60 per cent of a sample of catch share fisheries but continued to decline in the remaining 40 per cent. In an evaluation of 15 North American catch share fisheries, [9] find that for a variety of ecological indicators, no change in means was observed after switching to catch shares (except for a decline in the discard rate). There was, however, a significant reduction in the variability of all ecological indicators leading to the conclusion that the primary effect of S catch shares was greater consistency over time. imilar results using expanded databases of catch are presented in [10] and [11] . share fisheries elements to emerge from the often acrimonious debat e over catch shares is One of the positive important. One of the key the recognition that the design of a catch share program is critically design features in any catch share program is deciding how to allocate the shares. Until recently, the role of allocation in cap and - tra de programs generally and catch shares specifically has been - largely ignored by economists. The Coase theorem predicts that the aggregate outcome of a cap - - trade system should be independent of the initial allocation, which may explain why and s generally considered by economists as merely a distributional, political issue” “allocation i , [12 p. 159]. But recent theoretical and empirical research has suggested that the allocation process , may play a pivotal - and - trade pol icy [13 role in the actual performance of a cap 14 , 15 ]. Since allocation often determines who are the winners and losers under a new catch share program, perceptions of how catch shares will be allocated will strongly influence which parties support or block the transition , 17, 18 ]. [16 The a im of this paper is to simply present some empirical data on how catch shares have been allocated, where and when this has happened and, why a particular approach was adopted. In some cases, attention is drawn to where particular outcomes may have been due to the allocation method chosen. In order to do this, a unique database on catch share allocation mechanisms was created. Section 2 explains how the database was constructed and presents some general discussed in Section summary statistics. The four main method s used to alloc ate catch shares are 3 and the entire database is presented in an online appendix. The paper concludes with a discussion of how the lessons learnt from the global experience with allocation might apply to 2

4 the two Hawai‘i - fisheries sometimes considered for catch shares management: the longline based - pelagic fishery and the nearshore deep water bottomfish fishery. .0 2 Material and methods The starting point for constructing the database was information on catch share fisheries from around the world used in [5] . Consequently the database is restricted to large fisheries using ITQs (Individual Transferable Quotas) as a form of catch shares management and it only 8 fisheries in the includes catch share programs adopted by 2004 (there are currently 15 database). The allocation method used when each fishery initially switched to catch shares management was determined and linked to each fishery. A variety of sources were used to make this determination but most sources were either acade mic articles or government reports. The main methods used to allocate catch shares include: (i) auctions, (ii) equal allocation , (iii) historical catch records , and (iv) vessel - or gear - based rules. Due to difficulties with verification, a category for all ocations to indigenous peoples was not created but this has been a feature of a number of catch share programs and will be discussed later. Based on estimates obtained using the database, 54% of the major catch share fisheries in the world allocated all or nearly all shares on the basis of historical catch, 37% used a combination of methods, 6% used equal sharing rules and 3% used auctions (see Figure 1). Figure 1: Proportion of major catch share fisheries in the world by allocation methods: 54% allocated on the basis of historical catch, 37% used a combination of methods, 6% used equal sharing rules, and 3% used auctions. Decomposing the combination of methods category reveals that 91% of the fisheries in the database allocated some fraction of the TAC on the basis of historical catch, 30% allocated some fraction using auctions, 9% used vessel - or gear - based rules, and 7% used equal sharing rules fisheries used a (see Figure 2). Obviously, t hese percentages do not sum to 100% since many 3

5 combination of methods to allocate the TAC. This provides support for the contention that — — are given away free (gifted) to “Catch shares portions of a fixed total allowable catch (TAC) members of a specific fishery based on certified catch history over a politically determined time period” , p. 281] but there are clearly many exceptions to this rule. Grandfathering is not the [1 only way to allocate shares but, to date, it has been the most popular approach. The database should hopefully pro ve to be a useful reference tool for policymakers interested in the types of allocation systems used to assign catch shares. Figure 2: Catch share allocation methods by frequency: 91% of the fisheries in the database allocated some fraction of the TAC on the basis of historical catch, 30% used auctions, 9% used vessel - or gear - based rules, and 7% used equal sharing rules .0 Results 3 Auctions 3.1 Most economists would advocate that the best method for allocating a publicly held resource to priv ate individuals is through an auction. This position has been strongly advocated by professional economists for resources such as ai The r, oil, water and grazing lands [19]. arguments in favor of auctions in a fisheries context include compensating the gen eral public for allowing private individuals to profit from exclusive access to a public resource; allowing all interested parties the opportunity to enter without favoring incumbents; and encouraging competition and efficiency, especially if the transacti ons costs associated with trading permits are high or there are tight restrictions on trading permits. Finally, the revenue from catch share auctions can be used for a number of government programs that would be of benefit to all in the fishery and also th e general public such as stronger enforcement and record keeping or providing recycling - incentives to reduce high - grading, by - catch and habitat damage [20 ]. This revenue 4

6 argument leads [20 to conclude that both the fishery and the environment can be sign ificantly ] better off with a mixture of auctions and historical catch allocations. Table 1 summarizes the data on where and when auctions have been used to allocate catch te initial shares. To date, only a handful of catch share fisheries have used auctions to alloca shares, mainly in Chile, Estonia and the Russian Federation. In Chile, auctions were used to Pleuroncodes monodon ) and black cod ( Dissostichus allocate catch shares in the squat lobster ( ) fisheries in 1992, and the yellow prawn ( Cervimunida johni ) and orange roughy eleginoides The Chilean method of auctioning quota can be [2 1 ] . ( ) fisheries in 1997 Hoplostethus atlanticus loosely summarized as follows. Initially, 90 % or 100% of the TAC is allocated through an auction and the remain der is alloc ated based on historical catch. The corresponding catch shares last ten years but are reduced by 10% each year. Consequently, 10% of the total TAC (which has been made available by reducing every ITQ by 10%) is re - auctioned annually. The decision ther to auction 90 or 100% of the TAC is based on whether a fishery is in the “under about whe % recovery” or “infant development” stage and whether there are established fishermen in the fishery. Table 1: Summary Statistics for Auction Allocation Fisheries Country No. of Fisheries Subsequently Revised Earliest Adoption Most Recent Adoption Estonia 9 9 2001 2001 Chile 4 0 1992 1997 New Zealand 6 1996 2004 25 10 2001 2001 Russian Federation 10 48 25 1992 2004 Combined auctions to allocate all or part of the TAC. Column 2 lists the number of Notes: Summary of fisheries that have used fisheries by country, Column 3 lists the number that subsequently revised the initial allocation method, Column 4 lists the year the first fishery in each country adopted auctions to allocate shares and Column 5 lists the most recent use of this mechanism. [2 2 ] . Estonia switched to a form of catch shares management in 2001 Since all of the fishing enterprises in insufficient Estonia were relatively new at the time, it was felt that there was history to give fishermen a real ‘‘historical right’’ for the exclusive use of fish stocks. Catch shares were allocated in part by auction and in part on the basis of historical participation (eventually, 10% by auction and 90% by catch histor y). In a similar fashion to Chile, all catch by 10% each year (except in a geometric fashion) and the recovered quota is shares depreciate re - auctioned every year by the Estonian government. From 2001 to 2003, fish quotas in the Russian Far East were alloc ated by auction using a very similar system to the Estonian one [ 23 ] . The purpose of the auctions was to divert some of the resource rent to the state budget and to increase the transparency of the quota allocation mechanism. Auctions have also been used in New Zealand. Prior to 1996, most catch shares in New Zealand were allocated purely on the basis of historical catch. However, starting in 1996, the option to auction quota for new catch share species has been available and has sometimes been executed. Q uota is first allocated to M ā ori (20% of any new species) and then allocated to fishing operations on the basis of average historical catch. If there is any quota remaining after this is unallocated catch allocation, then the New Zealand government has the option to auction th 5

7 [ 2 4 ]. As a result, a small but not insignificant amount of quota for some species has been auctioned. Outcomes 3.1.1 The auction in Estonia generated significant revenue for the Estonian government. In terms of changes in the fleet structure, bigger vessels are more profitable in most Estonian fisheries so, not surprisingly, there was an increase in the amount of fishing rights held by bigger vessels after the same quota the introduction of the quota auction, since they were willing to pay more for relative to smaller vessels. In terms of the amount of quota bought by any one enterprise, the 0.137% (of the 10% of the TAC largest amount bought was 38.5% and the smallest amount was that was auctioned). It is generally accepted that the auction led to greater concentration in the industry. However, it did not lead to a concentration of quota away from remote areas to more central areas. In the Russian auctions, a lot less of the TAC ended up being sold than was ctions provided substantial income for the Russian government but originally intended. The au they led to a decline in industry profits, greater indebtedness of the industry and may have [23] . encouraged greater illegal fishing the re - auctioning system in Estonia has subsequently been abandoned It is interesting to note that because of pressure from the fishing industry. In 2004, the auction system was also abandoned in Russia. New Zealand has also run in to difficulties with the auctioning of quota. Auctions were held for some of th e quota for post - 1996 species in 2001, but the government decided to not distribute this quota after concerns were raised about the inequity of the process [2 ] . It is also 4 e appear to be interesting to note that although the catch share systems based on auctions in Chil working well, auctions have not been used in subsequent catch share allocations. Based on the experiences of Chile, Estonia, New Zealand and the Russian Federation, it appears that some of the most important design factors to consider when c rafting an auction allocation system include: - bid, etc.), (ii) the size of the shares sold at the (i) the type of auction used (English, sealed consolidation limits, and (iv) whether bids are paid up front or when fish are landed. auction, (iii) These fact ors will have a critical influence on who can participate in the auction and the degree of concentration among shareholders. It also appears that the effect of auctions on industry profits and the lobbying strength of the fishing industry play a key role i n the success of auction allocation mechanisms. 3.2 Equal allocation Equal allocation of catch shares is, like auctions, a mechanism that is often advocated (particularly by parties outside of the fishery) but fiercely resisted (usually by parties insid e the fishery). The standard argument in favor of an equal allocation mechanism is that it is, by definition, “equitable”. A secondary argument is that equal allocation avoids contentious decisions about how to use historical catch records to assign shares . However, equal allocation mechanisms are often based on historical catch records since these are used to determine who has participated in the fishery and is therefore eligible for an equal share of the TAC. This can create a whole new set of disagreemen ts but it is usually easier to determine who has participated Summary information on fisheries in a fishery as opposed to the degree of participation. 6

8 allocated using equal allocations is included in Table 2. Table 2: Summary Statistics for Equal Allocati on Fisheries Earliest Adoption Country No. of Fisheries Most Recent Adoption Subsequently Revised 3 0 1985 Australia 1994 Canada 4 0 1989 1996 3 0 1975 1988 Iceland USA 1 0 1992 1992 Combined 0 1975 1996 11 Notes: Summary of fisheries that have used equal shares to allocate all or part of the TAC. Column 2 lists the number of fisheries by country, Column 3 lists the number that subsequently revised the initial allocation method, Column 4 lists the year the first fishery in each country adopted equal shares to allocate shares and Column 5 lists the most recent use of this mechanism. Although the standard practice in Iceland has been to allocate shares on the basis of historical catch, there are at least three fisheries in Iceland that initially used an equal allocation mechanism to assign part or all of the TAC [25]; i t should be noted that one of these allocations occurred over 35 years ago and may not be relevant to many modern catch share programs. For the herring ( Clupea harengus ) and inshore shri mp ( Pandalus borealis ) fisheries that switched to catch shares were allocated equally to all eligible vessels. ITQs in 1975 and 1984, respectively, The same methodology was used for the capelin ( Mallotus villosus ) fishery in 1980, except that a of allocated on the basis of vessel hold - capacity (see Section third the TAC shares were initially 3.4 for a discussion of this type of approach). and [26] Equal allocation systems have also been used to assign catch shares in Canada Canada’s geodu ck ( Panopea generosa ) fishery switched to catch shares in When Australia. 1989, each license was granted an equal share of the TAC (this turned out to be 1.8% for each license). This allocation method was again used in 1995/6 when the Canadian government ares for the green sea urchin ( ), red sea approved catch sh Strongylocentrotus droebachiensis S . franciscanus ) and sea cucumber urchin ( Parastichopus californicus ) fisheries on the Pacific ( Coast. The government directed that 2% of the TAC in each fishery would be reserved f or First Nations while the remaining 98% would be split equally among the licenses in the commercial fishery. For the green sea urchin fishery this amounted to each license receiving 2% of the commercial TAC, 0.91% for red sea urchin, and 1.18% for sea cuc umber. In the Western Australia abalone fishery, equal allocation methods have also been used. Switching to catch shares was a gradual process starting in 1985, but was formally adopted in 1999. Historical tch shares because the fishery participants saw catches were not used as a basis for allocating ca equal shares as a more equitable and acceptable allocation method. Likewise, in the Southern Haliotis laevigata and H . rubra ) and pilchard ( Australia abalone ( ) Sardinops neopilchardis fisheries, allocation wa s done on an equal basis among all existing license - holders. There’s only one example in the database of an equal allocation approach in a US marine fishery and that’s the wreckfish ( ) fishery in the south Atlantic, which switched to Polyprion americanus catch shares in 1992. This fishery used a mix of historical catch and equal shares to make the initial allocation. The first 50% of the catch shares were allocated in direct proportion to catch recorded from 1987 to 1990. The remaining 50% was divided equa lly among all eligible . participants [2 7 ] 7

9 3.2.1 Outcomes For most of the fisheries mentioned above, the majority of the participants agreed to equal sharing of the TAC as the best way to allocate quota and so there was no subsequent appeals - holders who disagreed with the allocation formula. A number of process to de al with license fisheries without trading and this was subsequently these fisheries started out as catch share changed but, as for a government - mandated reallocation of quota, there are no rec ords of this ever occurring in a catch share fishery that allocated shares equally (for the sample of fisheries in 10% of the TAC the database). However, the US wreckfish fishery did set an individual cap of ocation formula used because of concerns over the fairness of the all ] . In the Icelandic [2 7 fisheries, it appears that equal allocation was not particularly controversial because boats were all roughly the same size with equal catch history. ʻ i - based longline fishery, where [28 ] Equal allocation methods appear relevant to the Hawai speaks of sentiment for egalitarian distribution of certificates in the swordfish certificate program. The most critical decision in any equal allocation system is deciding which vessels are “eligible” to receive an allocation. For example, in the Icelandic herring allocation in 1975, all vessels with a history of catching herring from the late 1960s and still in operation were eligible uite straightforward for a catch share. Beyond the eligibility issue, the design of the allocation is q have been de facto compared to other options. In many ways, equal allocation mechanisms historical catch allocations since they have mainly been adopted in fisheries where most participants had very similar catch histories. Histor ical catch 3.3 The most common method used globally to allocate quota when a fishery initially switches to an ITQ system is to grandfather quota on the basis of historical catch records. In fact, 91% of the fisheries in the global database used this approach Table 3 to allocate some portion of the TAC. includes information about fisheries where I T Q s w ere allocated in proportion to historical catches. The arguments in favor of using historical catch records include using the free allocation of quota to existing fishermen as a “ carrot” to get agreement on a new catch share system as well as recognizing the investment and effort that existing fishermen have put into a fishery. A further argument has been made recently by [15] that grandfathering increases dynamic efficiency compared to the alternatives. Some of the arguments against historical allocation include many of the arguments in favor of auctions as well as the concern that, if fishermen uce a race for catch history. anticipate a catch allocation based on historical catch, this may ind 8

10 Table 3: Summary Statistics for Historical Catch Allocation Fisheries Country Subsequently Revised Earliest Adoption Most Recent Adoption No. of Fisheries 21 0 1983 2000 Australia 19 0 Canada 1989 1997 Estonia 9 9 2001 2001 23 7 1975 2001 Iceland Netherlands 5 2 1976 1996 New Zealand 36 1986 2004 61 Russian Federation 10 10 2001 2001 USA 4 0 1990 1995 USA and Canada 2 0 1990 1991 Combined 154 64 1975 2004 Notes: Summary of fisheries that have used historical catch to allocate all or part of the TAC. Column 2 lists the number of fisheries by country, Column 3 lists the number that allocation method, subsequently revised the initial Column 4 lists the year the first fishery in each country used historical catch to allocate shares and Column 5 lists the most recent use of this mechanism. The two global leaders in catch share adoption, New Zealand and Iceland, have generally used historical catch as the metric for allocating shares. Nearly all of the ITQ systems in New Zealand were established this way. New Zealand’s catch share system was formally launched on 1 October 1986 for 26 different species, comprising 156 different stocks. The guiding principle for For the near - shore fisheries, the metric allocating quota was to use “commitment” to the fishery. year time horizon (1982 - 84). The - for estimating commitment was catch history over a three catch history assessment involved an initial estimate by the New Zealand Ministry of Agriculture and Fisheries for every rel party for the three qualifying years; this information was then evant reported to each fisherman in 1985. Fishermen were then asked to select two of these three years o years to establish their entitlement. Each fisherman was then allocated the average of these tw as his or her “provisional” ITQ. were also Because of a serious need to reduce catch levels in some of these fisheries, fishermen notified how their provisional ITQ would be reduced if there was a uniform reduction in all ITQs. However, instead of a unilateral reduction of ITQ in a fishery, the government set out to reduce the total amount of ITQ through a buy - back scheme. This was initially done through an auction but the bids by fishermen were too high to achieve the necessary reductions within budget. At bid prices, the government would have achieved only 60% of the required reductions. About 25% of the required cuts were obtained using auctions. The government then set fixed prices for quota and coupled this with the threat of unilateral reduct ions if the necessary reductions were not achieved. A strong response was received, but all TACs were not yet across - the - board cuts. As satisfied so any remaining reductions were achieved with 9 ] point [2 out, the buy - backs cost the government more than the real catch reductions achieved were worth. For deep - water species, the overall process was similar to the near - shore fisheries but involved a combination of historical catch with the amount of investment a firm had placed in processing, ital. There was no buy - back of quota in this instance. employment and cap In the demersal (for example, Gadus morhua and Melanogrammus aeglefinus ), lobster - ( ), scallop ( Chlamys islandica ) and deep Nephrops norvegicus sea shrimp ( Pandalus borealis ) fisheries in Iceland, the c atch share allocations were based on the vessel’s historical catch record the vessel’s average during certain base years [ 30 ] . In the demersal fisheries this usually equaled 9

11 share in the total of catch shares in 1984. catch during the three years prior to the introduction There were exceptions to this rule, for example, if a vessel had not been operating normally - share was adjusted upwards. Nowadays, the accepted 1983 then the calculated during 1981 fisheries on the basis of the three most practice in Iceland is to issue shares in new catch share recent years of historical catch. 31 Allocations on the basis of catch history have also occurred in Australia . The allocation of [ ] Jasus edwardsii ) fishery the TAC into catch shares for the Southern Australia rock lobster ( generated considerable debate and a number of allocation models were discussed with existing license - holders. Eventually, a process known as the “adjusted preferred method” was selected. were allowed to choose their preferred allocation method. The choices were limited to Fishermen a number of set options such as on the basis of average catch over the past 3 years, 2 years, current pot entitlement, etc. After each fisherm n chose an allocation method, his/her catch share a the chosen method. The catch shares were then summed to give a total was then computed using shares were then uniformly scaled back to match the desired TAC. The catch and the individual resultant share was the individual’s assigned catch share. Historical allocation has also bee n used . S .A. in a number of other countries, including Canada, Estonia, the Netherlands, Russia, the U . S and Canada. Every single U - based fishery in the database has used historical catch to .A. allocate some portion of the TAC. 3.3.1 Outcomes Assigning ca tch shares on the basis of historical catch has been a smooth process in some cases and highly contentious in others. In New Zealand, there was a lengthy appeals process following the initial allocation in the 1980s. The introduction of catch shares in New Zealand assumed that there would be no effect on M ā ori fishing claims, which were established in the Treaty of Waitangi. But subsequent claims and reports by the Waitangi Tribunal disputed this, leading to a significant and lengthy settlement process betw ā ori and the Crown government of New een M Zealand. A new allocation process was introduced in the 1996 Fisheries Act. owners complained about their initial In Iceland’s demersal fishery, several vessel - quota shares in 1984 and subsequent changes were made . Interestingly, from 1985 to 1987 it was possible to modify a vessel’s catch share by opting for effort restrictions instead of vessel quotas and then demonstrate high catches during this period. In Iceland, a large part of the general public now . question allocation of catches [2 5 ] This reconsideration is apparently s the fairness of the initial not due so much to the fairness of the allocation itself but the allocation of the shares without fees or rentals paid to the Icelandic government [25] . Villages a nd towns from which quotas have been transferred are typically critical of the initial allocation process and argue that their the industry, a subset of community should have received its own spatially specific quota. Within fishing labor remains critical of the allocation process, especially crew members who have to [2 5 ] . contribute to the cost of quota purchases by vessel owners In the Netherlands, catch shares were initially allocated in 1976 on the basis of historical catch period 1972 - 74 [ 30 , 3 2 , 3 3 ] . over the However, in 1977, due to widespread dissatisfaction, the allocation rule was altered to be based partly on historical catch and partly on the engine power but one of the vessel. This vessel - based allocation rule is explained in more detail in Section 3.4 10

12 of the contributing factors to the dissatisfaction with the historical catch allocation was the decision to assign catch history to a vessel instead of an individual. In the British Columbia in 1997, vessel owners who had entered groundfish trawl fishery, which switched to catch shares the fishery in the late 1980s and early 1990s were obviously unhappy with the decision to use catches from 1986 to 1989 to determine catch records. Based on global experiences, it appears ant design factors to consider when crafting an allocation system that some of the most import based on historical catch include: (i) addressing individuals or groups who may not have catch n used history records but have historically caught fish in the fishery, (ii) deciding the time horizo be used, deciding whether averages or “ best of ” metrics will to calculate historical records, (iii) who to assign the catch history to, and (iv) the vessel, the captain, the owner, the crew, the i.e. processor? - - 3.4 or gear based allocati on Vessel Vessel or gear based allocation methods are similar in spirit to equal allocation approaches but try to account for the fact that different vessel types may have caught more fish in the past, Table 4 r “commitment” to the fishery. anticipate catching more in the future or represent a greate and gear - based allocations of I T lists information about vessel s . In this sense, they can be - Q considered a hybridization of equal and historical catch allocations. The arguments in their favor include avoiding conten tious debates over deciding catch history and having a more “equitable” allocation of catch that still recognizes differences within the fleet. Vessel based allocations have hare allocations. been rare to date and occur in only 9% of the fisheries in the database of catch s Table 4: Summary Statistics for Vessel/Gear Based Allocation Fisheries No. of Fisheries Subsequently Revised Earliest Adoption Most Recent Adoption Country 10 0 1997 Canada 1997 Iceland 0 1980 1980 1 1976 2 Netherlands 1994 3 Combined 14 2 1976 1997 Notes: Summary of fisheries that have used vessel - or gear - based rules to allocate all or part of the TAC. Column 2 lists the number of fisheries by country, Column 3 lists the number that subsequently revised the initial allocation - or gear - based rules to allocate shares method, Column 4 lists the year the first fishery in each country used vessel and Column 5 lists the most recent use of this mechanism. The plaice and sole fisheries in the Netherlands switched to a form of catch shares management in 1976. Holland’s national quota was allocated as individual quotas to vessels on the basis of historical catch shares and vessel capacity measured in terms of engine power. As mentioned in shares wer e allocated in 1976 on the basis of historical catch over the Section 3.3.1, the initial period 1972 - 74. However, in 1977, due to widespread dissatisfaction, the allocation rule was altered to be based 50% on historical catch and 50% on the engine power of the vessel. Similar alloca tion rules applied to the cod fishery, which switched to catch shares in 1994. One of the reasons for the Netherlands adopting a vessel - based system was due to catch shares d by existing being assigned to a particular vessel. Under this type of system, new vessels owne fishermen would have no catch history. Therefore, the relationship between engine power and the landings of sole and plaice in the reference years was derived from fisheries data. Some 11

13 owners who had changed their vessels complained that one should account for their fishing results being better than the average for their engine power group during the reference period. This was one of the reasons for settling on the 50/50 rule. ird of the shares were When the capelin fishery in Iceland switched to ITQs in 1980, a th As outlined in [34 ], the allocated on the basis of vessel capacity, in particular the size of the hold. British Columbia groundfish fishery allocated catch shares using a combination of historical catch and vessel based rules. 70% of each licensed - vessel’s initial allocation was based on 1986 to 1989 catch history (the switch did not occur until 1997) and 30% was based on vessel length. This allocation method accounted for 80% of the TAC, the remaining 20% is allocated by the governme nt to programs designed to aid regional development, attain market and employment objectives, support sustainable fishing practices, and ensure fair treatment of crew members. 3.4.1 Outcomes Catch shares management in the Dutch plaice and sole fisheries got off to a rocky start due to a lack of effective control and punishment. In the initial years of the program, evidence mounted that total landings actually exceeded the TAC 3 ] . However, once monitoring and enforcement [3 were improved, perception of the system among participants and the general public improved considerably. One particular problem which remains is the high cost of establishing a new business in the Dutch demersal fisheries. Because the catch share is tied to a vessel, new entrants must fin ance both a vessel and harvesting rights. In the British Columbia groundfish trawl fishery, small vessels opposed the allocation formula stating that small boats often focused on it favored large boats and did not recognize that ct rather than large volumes [34 delivering a quality produ ]. Based on the experiences of Canada, - or gear - based Iceland and the Netherlands, some of the key design factors to consider in a vessel vessels are eligible to receive an allocation, (ii) creating a allocation include: (i) deciding which links vessel size or gear type to a particular catch allocation, (iii) deciding whether formula that the catch share is tied to the vessel, the owner or the crew and, (iv) dealing with retirement of vessels or gear from the fishery, i.e. at happens to the catch shares associated with a particular wh vessel? 4 Discussion In terms of the link between allocation mechanisms and subsequent outcomes, it should be difficult to pointed out that there is no serious analysis in this paper. It would be extremely establish causality between an allocation mechanism and fishery outcomes using observational data. The aim of this paper is to create the first global database of catch share allocations and present some basic facts on how catch shares have be en allocated in different fisheries around the world. However, there are some obvious correlations that we can draw attention to and there are some general points that could be relevant to future allocation decisions in Hawai‘i and elsewhere. as In very gene ral terms, the global experience with catch share allocation can be summarized 12

14 follows. Nearly every single fishery has used historical catch numbers to allocate some of the TAC. This is typically necessary to garner support from incumbent fishermen and to recognize financial investment in the fishery. If historical catch forms the basis of the allocation decision in the Hawai‘i the data necessary to do this should be - based longline fishery, then most of lly suited to the allocation of catch shares [35] . , although it may not be in a format idea available be extremely However, establishing historical catch records for the bottomfish fishery will portion of the catch has been historically unreported [36] . difficult since a simply in terms of subsequent revisions, auctions have been the most It is interesting to note that, contentious method, followed by historical catch. 52% ) of the fisheries in the database Over half ( ially that used auctions to allocate part of the TAC subsequently revised how the TAC was init allocated and 41% of historical catch allocations were later revised. None of the equal share were ever revised after the fact. The same is true for vessel - or gear - based rules; in allocations fact, some historical catch allocations have been revised - based rules. Auctions to include vessel appear to work only in newly developed fisheries and for species that are not migratory, suggesting that they will face serious opposition in Hawai‘i. In terms of lessons from specific allocation processes, relevan t fisheries for Hawai‘i include New Zealand’s bigeye ( Thunnus obesus ) and yellowfin tuna ( Thunnus albacares ) fisheries as well as the Gulf of Mexico red snapper ( Lutjanus campechanus ) fishery in the US. Following a review New Zealand government decided to switch its tuna of management options in 2003, the fisheries to catch shares. These fisheries are relevant since a portion of the catch is caught on the - based longline fishery. Catch high seas, much like the Hawai‘i shares management now applies to all maj or tuna fisheries within New Zealand waters and, where a national allocation is agreed through the relevant Regional Fisheries Management Organization, for tuna species taken by The allocation of catch shares New Zealand fishers outside New Zealand waters. in New Zealand’s tuna fisheries was based on historical catch records and this proved contentious with different fishers promoting the use of different catch history years as a basis for quota allocation. Given that historical catch is fairly well documen ted in the Hawai‘i longline fishery, and the capital - intensive nature of this fishery, historical catch records will probably play a large role in any future allocation process. The Gulf of Mexico red snapper fishery switched to catch shares in 2007 after an unsuccessful attempt in the 1990s. This fishery is different to many other catch share fisheries in that there is a large recreational component and the catch shares are for one species in a multi - species fishery. es with the Hawai‘i bottomfish fishery. These represent two obvious similariti One of the major issues in both the initial and actual catch share allocation process in the Gulf of Mexico was how to accommodate the large recreational sector [3 7 ] . Concerns were raised about the appropriateness of catch shares for the commercial sector when the recreational sector was not bound to its share of the TAC. Another issue was how to deal with commercial catch shares being purchased by recreational fishermen. In an effort to increase its share of the TAC, it was possible that the recreational sector could “buy up” catch shares. The Hawai‘i bottomfish fishery would appear to share a lot of similar characteristics to fisheries that have used equal share or vessel - based rules, although there is fairly strong opposition to any form of catch shares management in this fishery. 13

15 One obvious weakness of the current study is that we have not included a category for allocations to indigenous peoples. This data proved much more difficult to track down and verify but i t has been a feature of allocation in Alaska, parts of Canada and New Zealand. For example, 20% of every new ITQ program in New Zealand is allocated to the M ā ori community. This type of allocation would obviously be very important for Hawai‘i (especially f or the culturally important bottomfish fishery) and deserves further study. Nevertheless, it is hoped that the breadth of experiences represented in the current version of the database will make an intellectual contribution to discussions about catch share allocation in Hawai‘i and across the world. Acknowledgements and Chaning Jang for valuable research assistance. The author wishes to thank Andrew Salazar The Sustainable Fisheries Division, Pacific Islands Regional Office, National Marine Fisheries Ser vice provided support for this project under Award No. AB133F09SE4857 "Strategic Planning for Administering Catch Share Programs" from the National Oceanic and Atmospheric Administration (NOAA). The views expressed herein are those of the author and do not necessarily reflect the views of NOAA or any of its sub - agencies. 14

16 References [1] Bromley DW. Abdicating responsibility: the deceits of fisheries policy. Fisheries 2009; 290. 34:280 – Diverse fisheries require diverse [2] Lynham J, C Costello, SD Gaines, RQ Grafton, J Prince. 339. solutions: response. Science 2009; 323:338 – Costello C, J Lynham, SE Lester, SD Gaines. Economic incentives and global fisheries [3] sustainability. Annual Revue of Resource Economics 2010; 2:299 – 318. [4] b ott JK, B Garber - Yonts, JE Wilen. Employment and remuneration effects of IFQs in the Ab Bering Sea/Aleutian Islands crab fisheries. Marine Resource Economics 2010; 25:333 – 354. [5] Costello C, SD Gaines, J Lynham. Can catch shares prevent fisheries collapse? Science 2008; 321:1678. [6] Heal G, W Schlenker. Sustainable fisheries. Nature 2008;455:1044 – 1045. [7] c h TA. How do individual transferable quotas affect marine ecosystems? Fish and Bran – Fisheries 2009; 10:39 57. C h u C. Thirty years later: the global growt h of ITQs and their influence on stock status [8] in marine fisheries. Fish and Fisheries 2009; 10:217 – 230. [9] Essington TE. Ecological indicators display reduced variation in North American cat c h share fisheries. Proceedings of the National Academy of Scien ces 2010; 107:754. [10] Mel n y ch uk MC, TE Essington, TA Branch, SS Heppell, OP Jensen, JS Link, S J D Martell, M A M P arma, J G P o p e, A D Smith. Can cat c h share fish eries b etter tra c k manageme n t targets? Fish and Fisheries 2011; - 290. 13:267 [11] Essington TE, MC Melnychuk, TA Branch, SS Heppell, OP Jensen, JS Link, S J D Martell, M P arma, J G P o p e, A D M Smith. Cat c h shares, fisheries and ecological st e w ardship: a A comparati v e analysis of resource res p onses to a rig h ts - based p olicy instrume n t. Conservation Letters 2012; 5:186 - 195. [12] Cason TN. What can laboratory experiments teach us about emissions permit market design? Agricultural and Resource Economics Review 2010; 39:151 – 161. Journal of Environmental Economics [13] Stavins RN. Transaction costs and tradable permits. and Management 1995; 29:133 – 148. [14] Montero JP, JM Sanchez, R Katz. A market - based environmental policy experiment in 287. Chile. Journal of Law and Economics 2002; 45:267 – 15

17 [15] Anderson TL, R Arnason, GD Libecap. Effi - ciency advantages of grandfathering in rights – based fisheries management. Annual Review of Resource Economics 2011; 3:159 179. [16] T urner M, Q Weninger. Meetings with costly participation: an empirical analysis. Review of – 26 8. Economic Studies 2005; 72:247 [17] Hilborn R. Managing fisheries is managing people: what has been learned? Fish and – Fisheries 2007; 8:285 296. [18] Smith MD, J Lynham, JN Sanchirico, JA Wilson. Political economy of marine reserves: - standing the role of opportunity costs. P roceedings of the National Academy of under Sciences 2010; 107:18300 – 18305. [19] Cap & Trade Economist Statement, Southern Alliance for Clean Energy. on Accessed 01.12.2013 http://www.cleanenergy.org/images/position_statements/SACE_EconStatement_FullLis < t.pdf > [20 ] Ledyard JO. Market design for fishery IFQ programs. California Institute of Technology, Social Science Working Paper No. 1301, 2009. [2 1 ] Peña - Torres J. The political economy of fishing regulation: the case of Chile. Marine Resource Economics 1997; 12:253 – 280. [2 2 ] Vetemaa M, M Eero, R Hannesson. The Estonian fisheries: from the Soviet system to ITQs 102. and quota auctions. Marine Policy 2002; 26:95 – [23] Anferova E, M Vetemaa, R Hannesson. Fish quota auctions in the Russian Far East: a failed exp 56. eriment. Marine Policy 2005; 29:47 – 4 ] Anderson CM, DS Holland. Auctions for initial sale of annual catch entitlement. Land [2 – 352. Economics 2006; 82:333 ] Runolfsson B, R Arnason. Initial allocation of ITQs in the Icelandic fisheries. In R Shotton , [25 editor, Case studies on the allocation of transferable quota rights in fisheries. FAO Fisheries Technical Paper 411. Rome: FAO, 2001. [26 ] S p orer C. Initial allocation of transferable fishing quotas in Canada’s pacific marine fisheries. In R Shotton, ed itor, Case studies on the allocation of transferable quota rights in fisheries. FAO Fisheries Technical Paper 411. Rome: FAO, 2001. [27 ] Gauvin JR, JM Ward, EE Burgess. Description and evaluation of the wreckfish ( Polyprion americanus ) fishery under individual transferable quotas. Marine Resource Economics 1994; 9:99 – 118. 16

18 [28] Ikehara W. Hawaii shallow set (swordfish) certificate program. Marine Policy (this volume) . ity. [29 ] Sissenwine MP, PM Mace. ITQs in New Zealand: The era of fixed quota in perpetu – Fishery Bulletin 1992; 90:147 160. ] Arnason R. A review of international experiences with ITQs. Annex to Future Options for [30 UK Fishing Management, Report to the Department for the Environment, Food and Rural Affairs, CEMARE, University of Portsmo uth, UK, 2002. [31 ] Morgan GR. Initial allocation of harvesting rights in the fisheries of South Australia. In R Shotton, editor, Case studies on the allocation of transferable quota rights in fisheries. FAO Fisheries Technical Paper 411. Rome: FAO, 2001. [32 D a vidse WP. The effects of transferable property rights on the fleet capacity and ownership ] the Dut c h demersal North Sea fisheries. In R Shotton, editor, Case of harvesting rights in s. FAO Fisheries Technical studies on the allocation of transferable quota rights in fisherie Paper 411. Rome: FAO, 2001. ] Smit W. Dutch demersal North Sea fisheries: initial allocation of flatfish ITQs. In R [33 Shotton, editor, Case studies on the allocation of transferable quota rights in fisheries. nical Paper 411. Rome: FAO, 2001. FAO Fisheries Tech ] T urris B. A comparison of British Columbia’s ITQ fisheries for groundfish tr a wl and [34 jecti similar results from programmes with differing o b v sablefish: es, designs and pr o In R Shotton, editor, Use of property rights in fisheries management, pages pp cesses. – 254 261. FAO Fisheries Technical Paper 404/1, 2000. Catch share programs in the Western Pacific — a solution in search of a problem? [35] Allen S. . Marine Policy (this volume) [36] Hospital J, Beaver s C. Catch shares and the Main Hawaiian Islands bottomfish fishery: . Marine Policy (this volume) . linking fishery conditions and fisher perceptions [37 ] Keithl y WR. Initial allocation of ITQs in the Gulf of Mexico red snap p er fishery. In R Shotton, editor, Case studies on the allocation of transferable quota rights in fisheries. FAO Fisheries Technical Paper 411. Rome: FAO, 2001. 7 1

19 John Lynham How Have Catch Shares Been Allocated Highlights • allocate shares in nearly every major A database created to describe the methods used to catch share fishery in the world • A summary of results on the main approaches, (historical catch, auction, equal sharing, vessel based rules) to allocate catch shares. access. • Findings in the relationship between catch share al location and “grandfathered” 18

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