Restricted Tradability of Harvesting Rights and Unequal Exposure to Binding Resource Limits:��-Evidence from a Multispecies Fishery in Japan

Takefumi Fujimoto

Specially Appointed Assistant Professor

University of Tsukuba

(Co-authors: Keita Abe, Ryutaro, Kamiyama, Yutaro Sakai)

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Topic: Rights-Based Management (RBM) in fishery

・RBM assigns private rights to harvest resources & emit pollutants

⇒ Private decisions = social benefits (rebuilding depleted stock)

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Area: Individual Quotas (IQ) in Sea of Japan & East China Sea

⇒Large-/medium-scaled purse seiners introduced IQs for two species:

・Horse mackerel (HM)

・Chub/blue mackerel (CM)

​

＊Fishers can harvest HM & CM

under allocated quota limits

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Individual Quota (IQ) in fishery

Two problems in this IQ scheme

(1) Allocated quotas are in shortage ONLY for one species (CM)

⇒ Tight quota limits for one species constrain catch of the other

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(2) Quota transfers are allowed only without monetary transactions

⇒ Quota transfers to other fishers involves no economic incentives

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Quota-Unconstrained species

(HM)

Quota-Constrained species

(CM)

caught together with CM

Violate IQ

tight quota limits

⇒Cannot catch HM any more

Purpose to show:

Constraining effects of tight quota limits are different by:

(1) Whether fishing firms have multiple operational units (fleets)

⇒ Can reallocate quotas internally within firms

(2) Whether fishers can access alternative operating areas

⇒ Can operate outside IQ area

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(1) Internal quota reallocation within firm

(2) Access to alternative operating areas

Inside IQ area

Outside IQ area

(internal transfer)

(switch operation)

1. Background Information

2. Estimation Methodology

3. Analytical Results

4. Conclusion

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Study site

In 2023, large-/medium-scale purse seiners in Sea of Japan & East China Sea introduced IQs for two main species

・horse mackerel (HM)

・chub/blue mackerel (CM)

​

In this purse seine fishery,

a fleet is a single operational unit:

・a light vessel attracts fish

・a net vessel captures fish

・a transport vessel carries fish to port

⇒Quotas are allocated at the fleet level

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Sea of Japan &

East China Sea

Allocation of initial IQs for two species

Management years for two species

・HM: January-December

・CM: July-June

​

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80% of TAC:

Allocated proportionally to

past catch amounts

All Total Allowable Catch (TAC) for each species

in Sea of Japan/East China Sea

20% of TAC:

Equally allocated over fishing fleets

Allocated to individual fishing fleets

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*TAC for CM was equally allocated as emergency measure from January 2023 up to formal start of its IQ (July 2023)

Abundance of CM in Sea of Japan/East China Sea

Average bycatch rate of CM in peak harvest season of HM

​

CM is often caught together

with HM since 2023

⇒ CM became abundant relative

to TAC after IQ

⇒ CM quotas became severely

limited relative to HM quotas

​

(To avoid confusion…)

CM: Quota-Constrained species

HM: other main species

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IQ was introduced

Restricted catch of HM

・Monthly average catch of HM (2022/23/24)

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�・Drop in peak season of HM

(April-May) after IQ (2023/24)

⇒Catch of HM was limited by

tight quota limits for CM

​

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peak season (HM)

Two coping strategies for quota limits

1. Fishers can transfer quotas within a management year

・Monetary transactions are NOT officially allowed in quota transfer

⇒ Quota transfers to other fishers yield no economic incentives

⇒ Fishing firms with multiple fleets avoid quota limits by reallocating quotas internally within firm

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Fishing firm with multiple fleets

(internal transfer)

Fishing firm with single fleet

＊transferred quotas do not carry over to next year

Patterns of internal quota transfer

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Internal quota transfer within same firm

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Internal quota reallocation within same firm

internal transfer

Two coping strategies for quota limits

(2) Access to alternative operating environments

・Some fleets are licensed to operate in Pacific Ocean

＊IQ area: Sea of Japan & East China Sea

・sardine is main species in Pacific Ocean

⇒ Access to Pacific Ocean can reduce

the dependence on IQ area

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Sea of Japan &

East China Sea

Pacific Ocean

Proportion of fleets which operated in Pacific Ocean

Some fleets shifted operations to Pacific Ocean after IQ started

・Operating proportions in Pacific Ocean continue to fall until 2022

・Operating proportion rose suddenly in 2023 (after IQ started)

​

⇒These fleets tried to avoid pressure

from tight quota limits by operating

in Pacific Ocean

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IQ was introduced

1. Background Information

2. Estimation Methodology

3. Analytical Results

4. Conclusion

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Analytical dataset

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Data:

Three types of panel data at fleet level during January 2023 – December 2024 (two years after IQ)

・Daily catches of all species

・Daily records of quota allocations & quota transfers

・Monthly revenues from all species & costs on heavy oil

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Estimation Methodology

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Estimation Methodology

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Estimation Methodology

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1. Background Information

2. Estimation Methodology

3. Analytical Results

4. Conclusion

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Estimation results: HM catch

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(Standard errors in parenthesis; bootstrapped in 200 times)

(p-values in joint significance tests)

Estimation results: Monthly profit (FE-IV regression)

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(Heteroskedasticity-robust standard errors in parenthesis)

(p-values in joint significance tests)

1. Background Information

2. Estimation Methodology

3. Analytical Results

4. Conclusion

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Conclusion

・Tight quota limits for one species (CM) reduce the catch of the other species (HM) & profits

・These negative effects are smaller if

① fleets belong to firms owning multiple fleets

⇒ internal quota reallocation within firm

② fleets are licensed to operate in Pacific Ocean

⇒ access to alternative operating areas

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Implications for rights-based management

Problem:

Market-based reallocation mechanisms are entirely excluded in the trading of harvesting rights

∵Monetary transactions are not officially allowed in quota transfer

⇒ Quota transfers from other harvesters cannot be expected

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Harvesters must rely solely on their own operational options:

① internal quota reallocation mechanisms

② access to alternative operating environments

⇒Harvesters lacking these options are fully exposed to tight quota limits

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Traditionally, tradability of rights involves trade-off: efficiency vs equity

・In trading markets, harvesting rights shift from small to large harvesters

⇒ Market trading of rights is often restricted to ensure equity

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But our findings suggest that a uniform ban on market trading may reinforce inequality among harvesters

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Restrictions on market trading: proportionate to the intended objectives

⇒ Policymakers could leave room for market trading while achieving equity

Ex) imposing caps on annual quota holdings

⇒Outright restrictions on market trading may be excessive for equity

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Implications for rights-based management

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Mechanisms & Welfare Consequences

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Using same empirical framework, we further clarify mechanism & welfare consequences:

① Mechanism

② Main analysis

③ Welfare consequences

Estimation results: ① Fishing selectivity

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(Standard errors in parenthesis; bootstrapped in 200 times)

(p-values in joint significance tests)

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Conclusion

・In this context, fishing selectively between HM & CM does not work

⇒ Fishers try to avoid pressure from tight quota limits through other operational options (if they have)

​

・Tight quota limits for one species (CM) reduce the catch of the other species (HM) & profits

・These negative effects are smaller if

① fleets belong to firms owning multiple fleets

⇒ internal quota reallocation within firm

② fleets are licensed to operate in Pacific Ocean

⇒ access to alternative operating areas

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Relevance for Environmental Economics

This study departs from the traditional view on the trading of harvesting/emission rights in RBM

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Traditional view:

Tradability of rights involves trade-off: efficiency vs equity

⇒ Market trading of rights is often restricted to ensure equity

​

This study:

Restricting market trading of rights may strengthen inequality among harvesters

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Different IQ management years for two species

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January 2023

July 2023

January 2024

July 2024

Management year for CM (Jan-Dec)

Management year for CM (July-June)

Peak season (HM)

April-May

End

IQ for CM is in shortage at the end

⇒Tight quota limits for CM discourages fishers from catching HM

Usage rates of IQ

Histograms of usage rates of IQ for

1. horse mackerel
2. chub/blue mackerel (formal)

in 1^st management year

(including additional IQ)

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Usage rates of IQ

Usage rates of IQ for chub/blue mackerel tend to be close to 100% in many fleets

⇒ IQ for chub/blue mackerel is very tight

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Usage rates of IQ

Usage rates of IQ for horse mackerel are below 70% in most fleets

⇒Large waste of IQ for horse mackerel

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Allocation of initial IQs for two species

IQ for horse mackerel (January-December)

・20% of TAC: equally allocated over fishing fleets

・80% of TAC: allocated proportionally to 3 years’ catch amounts

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IQ for chub/blue mackerel (July-June)

・20% of TAC: equally allocated over fishing fleets

・80% of TAC: allocated proportionally to 5 years’ catch amounts

*Emergently, small IQs were uniformly allocated to each fleet during January 2023-June 2023 (ex 300 tons in East China Sea)

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⇒ Starting periods of IQs for two species coincide overall (Jan 2023)

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Every year, TAC in East China Sea is allocated to JPSA

January 2022

July 2022

January 2023

July 2023

January 2024

July 2024

Horse mackerel

57,600 tons

Horse mackerel

56,700 tons

Mackerel

80,370 tons

Mackerel

82,385 tons

In January 2023, JPSA voluntarily introduced IQ for horse mackerel & mackerel

⇒JPSA allocates TAC to its members as IQ

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TAC in East China Sea is allocated to JPSA every year

January 2022

July 2022

January 2023

July 2023

January 2024

July 2024

IQ was introduced in January 2023

Surge in bycatch rate of chub/blue mackerel

Monthly average catch of chub/blue mackerel (2022/23/24)

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Catch of chub/blue mackerel

in 2023 & 2024 (after IQ) is

higher than in 2022 (before IQ)

⇒ Resources of chub/blue

mackerel became abundant

when IQ was introduced

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Bycatch rate

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Shadow value of quota for CBM

Topic: Rights-based management (RBM) in fishery

・Assign private rights to harvest resources & emit pollutants

・Market trading Harvesting/emission rights enhances social welfare

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Individual Quota (IQ) in fishery

Cap-and-Trade in greenhouse gas

Topic: Rights-based management in fishery

・Assign private rights to harvest resources & emit pollutants

・Economic agents internalize social costs of harvesting/polluting

・Market trading of harvesting/emission rights enhances social welfare

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Individual Quota (IQ) in fishery

Want more

Sufficient

Traded

Caught a lot

Got cash