Challenges for economic policy in sustainable management of marine natural resources

Ecological Economics 36 (2001) 223– 236 www.elsevier.com/locate/ecolecon

SURVEY

Challenges for economic policy in sustainable management of marine natural resources Derrin Davis a,*, Donald F. Gartside b a

Graduate Research College, Southern Cross Uni6ersity, PO Box 157, Lismore, NSW 2480, Australia b Center for Coastal Management, Southern Cross Uni6ersity, Lismore, NSW 2480, Australia Received 17 April 2000; received in revised form 19 September 2000; accepted 20 September 2000

Abstract The sustainable management of marine natural resources presents particular challenges to the managers of those resources. While such management has typically been based on biological considerations, it is argued that this has resulted in overexploitation and destruction of important marine assets in industries such as fishing and tourism. Consequently, it is concluded that other approaches are needed, with the use of economic concepts and management tools particularly relevant. At the same time, the human welfare outcomes of the application of various policy instruments must be carefully considered. While biological information is critical to the formulation and implementation of successful management regimes, it is concluded that the application of economic instruments will become more attractive to resource managers, with these instruments underpinned by consideration of property rights and an appropriate allocation of economic rents. A greater focus on these economic matters will take resource managers further in the direction of sustainable management of increasingly scarce marine resources. The conclusions in the paper are supported by various case studies from fisheries and tourism. © 2001 Elsevier Science B.V. All rights reserved. Keywords: Marine natural resources; Sustainable management; Fisheries; Tourism; Economic instruments

1. Introduction The natural resources of the sea are extremely valuable and, for the most part, are renewable. If properly managed, they should provide continuing returns into the future without diminishing * Corresponding author. Fax: +61-2-66215386. E-mail address: [email protected] (D. Davis).

their productivity. Yet, for many of these resources, including those of importance to industries such as fishing and tourism, efficient management and sustainable exploitation have been the exception rather than the rule. Resources have been depleted and have collapsed due to over-exploitation, with severe economic and social consequences for the humans relying on them. For example, the collapse of cod stocks on the

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banks in the Northwestern Atlantic by the mid1990s resulted in more than 40 000 people being unemployed in the Canadian Maritime Provinces. With Federal Government assistance to these people due to expire after 7 years, the fish stocks still have not recovered (Kurlansky, 1997). On a global scale, the magnitude of the problem is illustrated by global marine fish production estimated to cost $124 billion per year to harvest (the operating cost of the global fishing fleet), but returning revenues of only $70 billion (Mace, 1997). The $54 billion shortfall is thought to represent various kinds of government subsidies to fishing that help entrench both the over-exploitation of resources and the economic inefficiency of the fishing industry. Although there has been considerable development of both economic theory and biological models as they apply to the management of marine natural resources over the past 50 years, policy development for the marine environment is particularly complicated compared with that for many land-based resources. Despite development of increasingly sophisticated and complex policy frameworks, biological, economic and social outcomes often have been poor. Complications range from wider questions of sovereignty at both international and state levels to the difficulty of defining ownership of free-ranging or migratory resources like fish stocks. Establishing property rights in ways that result in the generation and fair distribution of economic rent, along with sustainable utilization of resources, has proved to be extremely difficult. Four major areas of economic policy that have emerged as significant issues for the proper management and development of marine natural resources are discussed in this paper: implementation of appropriate economic instruments; establishment of property rights; generation and distribution of rent; and management of resources for sustainability. While there are obvious overlaps and interactions between these areas, they are separated to some extent in the following discussion to allow easier consideration of their characteristics and potential roles in marine resource management.

2. Economic instruments for managing marine natural resources James (1997) defined economic instruments (EIs) as instruments that operate through market processes or other financial incentives. This contrasts with the traditional approach to managing natural resource problems, which has been to apply regulations, sometimes known as the ‘command-and-control’ approach. ‘Command-andcontrol’ refers to government measures (legislation) with which individuals or corporate entities must comply. Examples of this approach to environmental management include establishing regulations that set standards for air and water quality, prescribing consumer behaviour, and limiting the fishing equipment that may be used in specific fisheries. Economists have, however, long argued that market-based incentives, which apply monetary values, are more efficient for environmental management than those based on ‘command-and-control’ approaches. Yet environmental management has been dominated by the regulatory approach. James (1997) noted that regulations were, until recently, almost the only instrument used by governments in natural resource and environmental management. This began to change to some extent in 1972 when OECD countries agreed to pursue a ‘polluter-pays’ approach as a background economic principle for environmental policy. A recent manifestation of this policy was the introduction, in 1999, of ‘ecotaxes’ on energy sources in Germany. Economic instruments incorporate monetary values for the use of natural resources by, for example, applying taxes, prices or tradable rights. The main attraction of these pricing mechanisms is that they provide clear signals in the market to consumers about the cost of producing a particular product, and to producers about the relative valuations (based on willingness to pay) that consumers place on the resources, i.e. a simple information system is established. Wills (1997) noted that society needs a ‘‘signalling and incentives system to co-ordinate individuals’ production and consumption activities’’. Following Wills, such a system must ‘signal information’ about resource

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availability or scarcity. This information is useful for bringing production and consumption into balance, and for directing scarce resources to their most valued uses. Pricing systems imply that there are rewards and penalties for consumers and producers in relation to their activities. An advantage of EIs is that they allow for adaptive choice and decentralized decision-making by those whose behaviour is to be modified. There are, however, some disadvantages in relying on markets for management of marine natural resources, especially for optimal allocation of scarce resources. To understand these disadvantages, it is important to examine the consequences of inefficient or wasteful exploitation of natural resources. Foremost among these are welfare implications, particularly where future generations are left worse off by the actions of the present generation. Also, market failure can increase potential environmental impacts from the exploitation of natural resources. Market failure occurs where prices do not properly reflect the true value of the good in question. Many of the benefits of, for example, marine protected areas, such as ecological, biological or aesthetic values, are subject to market imperfections. Davis and Tisdell (1995) pointed out that because there is no ‘environmental price’ to be paid by consumers who reap the benefits of, say, a pristine coral reef, then the reef is made available at an inefficiently cheap price (i.e. the net social benefits arising from use of the reef are not maximized) and it may subsequently be overused and degraded. An obvious reason for this is that many of the benefits from being able to use the reef are difficult to measure and express in monetary terms. Setting an appropriate price for marine and other natural resources is a major challenge because of the so-called intangibles. These include values other than those associated with immediate use such as existence, option and bequest values (Munasinghe, 1992). To make matters worse, overuse and damage of the resource is virtually guaranteed because of the open access nature of most marine resources, an issue discussed later in this paper in relation to property. Therefore, as explained by Turner et al. (1994), market failure arises because the price for goods and services

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does not reflect the true value of the resources being used to produce them, including the full cost of degradation of those resources. Many marine environmental goods presently are unpriced and are consequently overused (marine waters used for sewage disposal have traditionally been subject to such overuse). Where the major part of environmental goods and services is unpriced, markets cannot be used for effective allocation. With zero price, they would dissipate all of the resource without regard to its true, but hidden values. This problem is characteristic of the open access and/or public good nature of most marine environmental goods. Davis and Tisdell (1995) explained that, when open access is the case, individuals have no incentive to conserve the resource being exploited. In other words, they do not take account of user costs and, although one user might take care, others will not. They concluded that this supports the adage that the property of all becomes the responsibility of none. Economic instruments are designed to correct market failure — to ensure that real or inclusive costs are signalled to producers and consumers. Turner et al. (1994) noted two ways in which market failure in the context of natural resource services could be overcome. First, markets could be created in previously free services by attaching a price to them. This might require restriction of access to such resource services by, for example, charging entrance fees. The best known pricebased instruments are taxes and user-pays charges. Restricting access might, alternatively, involve changing property rights (an example of changing property rights would be to establish extended exclusive economic zones in the oceans). Second, markets could be modified by centrally deciding the value of natural resource and environmental services, and ensuring that those values are incorporated in the prices of goods and services. This type of approach is known as the market-based incentives approach, and is normally contrasted with the direct regulatory approach. Annual licence fees might provide an example of a centrally determined value for access by commercial tour operators to particular sites or attractions in marine protected areas, although

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those fees — where they are charged — tend to be based on administrative costs rather than environmental values. An example is provided in the whale shark tourism industry in Western Australia’s Ningaloo Marine Park, where daily visitor charges include a fee that is payable to the state’s management agency (Davis et al., 1997; Davis and Tisdell, 1999). Despite growing interest in the application of EIs, many questions still arise. For example, is it not easier to make a rule about resource use and enforce it? The principal problem with this regulatory approach is that it does not work. The cost of effective enforcement, both in monetary and social terms, inevitably is too high. Without effective enforcement and compliance, the resource is likely to become degraded. In addition to being expensive and difficult to enforce, regulations will most likely not result in the most efficient use being made of scarce resources because they take no account of costs, are inflexible and slow to change as technology and production patterns change (for example, see Alder and Haste, 1995), and they provide no incentive for groups such as polluters to continue to improve beyond the set regulatory limit. For example, if pollution (such as effluent discharge into an estuary) is at a high level and pollution represents a direct cost to society (e.g. Fig. 1, Point A), regulations might be introduced requiring polluters to reduce their outputs to a level below a set standard (point B) within a given period of time. But there is no incentive in this system to continue to reduce

Fig. 1. Incentive effects of economic instruments.

pollution to still lower levels — polluters will reduce levels as required, but then continue polluting at a level such as that shown by the line CD. EIs are implemented to provide the incentive for continued reduction in pollution, perhaps following the line ACE. With regulation, there is a loss to society represented by the hatched area. The load-based licensing scheme for effluents released into the atmosphere and water bodies, recently implemented by the state of New South Wales, Australia, is a scheme designed to provide such on-going incentives for environmental improvement. In addition to providing better outcomes for the environment, EIs usually help achieve these objectives at a lower cost to the community than the ‘command and control’ approaches, for the reasons already outlined. In the wider context, as pointed out by James (1997), they are a practical means of implementing the principles of sustainable development. In resolving resource use problems, however, it is essential that any solution adopted should not impose more costs on society than the problem being solved — there should be a net benefit to society from the change. The application of this principle is not always straightforward when there is uncertainty surrounding the true costs of the problem and the costs and benefits of alternative solutions. This uncertainty results in some solutions being ‘second best’. For example, Forsyth et al. (1995) explained that user-charges should be related to costs, either the costs of environmental damage or the monetary costs incurred in avoiding such damage. But the difficulty is that such costs, particularly environmental costs, are often difficult to estimate accurately. The result is that charges are sometimes imposed not on the externality, but as a Pigovian tax on the person or product that generates the externality, meaning that such charges relate only indirectly to the environmental costs being incurred. Social outcomes also comprise an important area of cost. Sustainable communities are an important part of the marine resource management equation, and formulation of policy, including that based on EIs, will require compromises and trade-offs between economic efficiency and social

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and biological outcomes. This is not, however, an argument against the use of EIs. Regulation may also result in welfare losses, but without the attendant gains in economic efficiency potentially available through the use of EIs. And, of course, taking no policy action is almost guaranteed to result in the demise of certain coastal industries and communities as happened, for example, with sardines on the US West Coast and herring in the North Sea. Marine natural resources can also provide more than one service. For example, many fish species have both a recreational and commercial value, and marine parks have a wide variety of different users. Management of these resources will entail multiple objectives and, therefore, a combination of management instruments will be needed. Furthermore, valuation of the resources might be incorrect. Marine protected areas provide an example. There have been a number of valuation studies of protected areas with values based on activities such as tourism. Yet these valuations may overstate the value of protection to the area — many of the tourism activities would have occurred whether or not protected status had been granted. If user-charges were based on the value of major activities in the protected area, they would most likely result in charges being levied that are too high and so over-estimate the ‘addedon’ value conferred by protection. Consequently, economic approaches such as the auction of rights to access certain resources can be used to elicit a more accurate, market-based valuation of those resources. Economic instruments are also subject to a range of other limitations. Markets can distort values when they are based on poor information about resources. For example, stocks of orange roughy, a fish occurring in water over 3 km deep in the Southern Ocean and sub-Antarctic, were greatly over-estimated, resulting in over-capitalization in the industry. Sound market decisions rely on good information. Governments can also distort markets by granting exemptions to regulations that otherwise would impose a cost. This so-called ‘government failure’ is, perhaps, one of the greatest sources of poor resource management around the world. For

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example, sea farming of tuna in South Australia was allowed to proceed with an exemption from the Environmental Protection and Assessment Act, yet such an industry might impose significant economic and other externalities on other users of the areas in which the farms are located. Equity issues might also arise, with an EI having most impact on those who can least afford to pay, e.g. increases in fishing licence fees will most affect the poorest sectors of the industry. Wills (1997) also explained that environmental problems involve uncertainty, and this renders the development of management strategies more difficult. These cases, however, support at least partial adoption of EIs, as these are more flexible than the regulatory ‘command and control’ approach. Two final points can be made about the use of EIs for marine resource management. First, as noted by Davis and Tisdell (1996), EIs are mostly underpinned by technical or biological considerations (such as the desired upper limit on emissions, or the total allowable catch in certain fisheries) and, therefore, the most effective approach is likely to involve a blend of incentivebased approaches and regulation. Second, as Turner et al. (1994) argued, there is little doubt that society will demand increasingly stringent pollution controls in the future and, therefore, costs and regulatory intrusiveness will escalate significantly. Similarly, pressure on scarce natural resources such as fish stocks will lead to society and industry demanding improved management of those resources, involving better biological, social and economic outcomes (such as generation of rent), notwithstanding the biological uncertainties that typify their exploitation. These factors will require increased use of market mechanisms for revealing information, compared with the excess costs and bureaucracy associated with strategies based solely on regulation. Economic incentives, of necessity, will become more widely adopted by government resource management agencies. To achieve desired management outcomes for a range of natural resources using economic approaches relies, however, on improved specification of the property rights governing the use of those resources.

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3. Property rights Designing property rights structures that are in tune with the functions of ecosystems and the economic goods and services they generate presents a major challenge (Costanza, 1999). In considering property in an economic sense, it is important to recognize that definitions are not limited to physical or geographic entities. In economic terms, property is a stream of benefits or income and a property right is a claim to this stream (Bromley, 1992). The general characteristics of property rights have been described in the following terms (Scott and Johnson, 1985): “ exclusivity; “ right to enforce exclusive use; “ transferability to others; “ right to determination of use; “ duration and timing of rights; “ provision for payment. There are, however, several different types of property that more or less satisfy these requirements. Different authors have recognized different categories of property. For example, Scott and Johnson (1985) identified the following categories in relation to resource management: “ freehold (fee simple): characterized by indefinite duration and absence of continuing obligations to the party from whom the interest is derived; “ leasehold: characterized by certainty of duration; “ profit a ` prendre and easement: characterized by rights that are acquired over the land owned by another; “ license: characterized by permission given by the occupier of the land to do something that would otherwise amount to a trespass. On the other hand, Tisdell and Roy (1997) argued that property rights and governance are inter-related because of the importance of knowing who owns the rights (individuals, groups/communities, or governments) and how these property rights could be enforced. Pearce (1992) similarly noted that the ownership of an asset is not unfettered because private contract or law generally imposes some restrictions. Tisdell and Roy identified four broad types of property:

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private property: rights rest with an individual or legal entity; “ state property: rights rest with the government; “ communal property: rights rest with an identifiable community of users; “ open-access property: access is free and open to all. As Tisdell and Roy pointed out, these categories are not mutually exclusive and can overlap or form combinations of ownership rights, such as community and government shared ownership, which commonly occurs in some Indian Ocean countries. There are problems in management of natural resources associated with all types of property ownership. However, in the marine estate, it is open access and community (common property) forms of property ownership that have posed the greatest problems for the application of economic theory and development of policy. These problems have been recognized by economists for nearly 50 years following seminal papers by Gordon (1954) and Scott (1955) who identified the problems of fisheries overharvesting, population collapses and poor economic performance as being manifestations essentially of economic rather than biological factors. Yet problems with poorly specified property rights in the marine estate continue, with Costanza (1999, p. 199) stating that ‘‘the cultural traditions of open access must be replaced with more appropriate property rights regimes and governance structures’’. In fisheries, the pervading biological perspective of resource managers exacerbates these problems. This perspective manifests itself in the application of biological production models for utilization of fisheries, models that provide for a ‘maximum sustainable yield’ to be harvested from stocks. Management then constitutes a series of input and output controls to effect a total harvest, while ignoring the costs of making the catch. When management agencies essentially ignore economic considerations about costs of harvest and revenues produced, they allow fishers to compete with each other in a fruitless endeavour to increase their individual shares of the catch, which results in escalating overall costs, but no corresponding increase in total catch. The resulting

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outcomes of over-exploitation of resources and economic and social hardship have become characterized as ‘the tragedy of the commons’ (Hardin, 1968). At this point, it is worth noting that, notwithstanding the widespread acceptance of Hardin’s ‘tragedy’, this tragedy, as explained by Aguilera-Klink (1994), more correctly relates to open access. Certain forms of common property ownership, as occurs throughout the island nations of the south and west Pacific, serve to protect fisheries (and other) resources and, therefore, potentially comprise a property structure that achieves desirable economic, social and biological outcomes (Thistlethwaite and Davis, 1996). There appears to be ongoing confusion among resource managers about the distinction between common property and open access forms of ownership, with the former not necessarily leading to a tragedy of over-use of scarce resources. An increasingly common response of marine natural resource management agencies to the problems of poorly specified ownership has been to establish and gradually refine individual property rights. In theory, these refinements will remove the competition between individuals that characterizes open access or common property resources (Christy, 1996; Pearse, 1996). In fisheries, the establishment of share ownership is one of the most advanced forms of property rights allocation currently employed. This is a refinement of the quota system and is based on division of a total allowable catch into quotas, with shares that can be traded. The shares effectively divide the fish stock into a form of imperfect private property ownership. The imperfection stems from the reserve powers of ownership of the fisheries retained by the government. This form of management is particularly suited to those fisheries where there have been relatively few licensed operators, the product has a high market price, it is possible to set a total allowable catch each year, and it is possible to restrict illegal sales. The last two points remain contentious because of the difficulties of accurately measuring fish stocks, and because it is believed that in these fisheries illegal sales are usually unacceptably high. Meere (1997) also argued that such approaches to man-

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agement are likely to work best in the case of single-species fisheries, such as the Australian blue fin tuna fishery. Two Australian cases that can be used to illustrate share-managed fisheries are the Tasmanian abalone fishery and the New South Wales rock lobster fishery. The Tasmanian abalone fishery is predominantly an export fishery where high prices are paid for the product (Anonymous, 1999). The price in 1996 was around $25 kg. The commercial fishery is based on two species, Haliotis lae6igata (greenlip abalone) and Haliotis rubra (blacklip abalone), and commenced in 1963. Production in Tasmania in 1994 –1995 was 2269 tonnes, valued at around $59 million. A system of shares of total allowable catch (TAC), termed a ‘deed of arrangement’ was established in 1994. These ‘deeds’ were a formal contract that guaranteed a share of quota that was fully transferable. Initially, shares were allocated to the operators of the fishery in proportion to historic catch levels. Each of the 3500 units of quota entitles its owner to harvest 600 kg abalone and, if the owners of shares are not licensed divers, they must employ a licensed diver to take the allocated catch. There are about 350 holders of quota and numbers of units held by individuals vary widely. The shares may be traded on an open and public market, so that any person can buy a share entitling him/her to a specified quantity of abalone. Shares can be assigned to third parties, thus enabling them to be used as security for financial arrangements. Shares can be traded freely subject to rules specified each year in relation to the biological sustainability of stocks (mainly TAC and size limits). The New South Wales rock lobster fishery is based on a single species, Jasus 6erreauxi. The fishery serves both domestic and export markets, and the product again attracts a high price per kilogram (Anonymous, 1997). The mean price in 1995/1996 was around $35 kg, giving the fishery an annual total value of around $4 million. Although the highest reported catch was 365 tonnes, quotas (TAC) established in 1992 in response to declining catches and catch rates over the preceding 40 years have varied around 110 tonnes. Share management was established under legislation that came into operation in 1995. Shares were,

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again, issued to licensed operators in the fishery based on historic catches. Rock lobster can only be taken by fishers with specially endorsed licenses, with these licenses issued only to fishers who hold shares (or their nominees). Transferability of quota is restricted to selling the entire fishing operation or leasing some or all the quota (a temporary transfer for a year). There are currently 188 endorsed fishers with individual holdings ranging from 12 to 218 shares. The average quota entitles holders to 560 kg, but individual quotas range from 130 to over 2000 kg. Once again, the quantity of catch specified in each share may vary from year to year, depending on the total allowable catch. In the abalone and rock lobster fisheries, introduction of increased size limits, quota and share management arrangements appear to have resulted in increased stocks. In both fisheries, the quota has been increased as stocks have recovered. The report of the NSW Rock Lobster Total Allowable Catch Committee (1997) noted that substantial effort reductions since the introduction of management measures in 1994 were due to: “ exclusion of around 800 fishing operations (out of a total approaching 1000) for failing to meet entry criteria; “ a large number of small holders leasing out all their quota and not fishing; “ some quota holders selling all their entitlement and leaving the fishery; “ remaining operations using fewer traps per boat to catch their entitlements. Although share-managed fisheries might overcome the problems of unrestricted competition between fishers, competition that results in economic inefficiency and waste, this method is still in an early phase of development. It is, however, an innovative approach to natural resource management involving the use of EIs and regulation in combination. Nonetheless, share-based entitlements still suffer from the shortcomings of other quota-based management approaches. The general challenges include: “ providing long-term resource security to share holders;

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refining biological methods for determining the total allowable catch that is acceptable to share holders; “ ensuring accurate reporting of catch by licensed operators; “ reducing catch by unlicensed operators; “ developing a system to provide a share of the resource for the recreational sector; “ ensuring that economic rents are distributed appropriately. There are a number of areas of the marine estate in addition to fisheries, which pose challenges for the development of appropriate economic policy and management measures relating to property. Examples of these areas include tourism, coastal urban and property development, agricultural activities impacting on the marine ecosystem, and general marine activities such as aquaculture/sea farming, transport, waste disposal, mineral exploration and extractive industries. Three tourism-related activities with significant property right implications are visitation and pontoon mooring rights for coral reef tourism operators, recreational scuba diving with dive charter operators, and the special case of tourism and scuba diving to observe whales, other marine mammals and whale sharks. A major issue facing each of these activities is establishing an appropriate form of property right. At present, a range of access arrangements exists, including open access in the case of most scuba dive operators, some form of limited entry licensing regulation for some observational activities, and a more formal form of leasehold property for moored pontoons. We predict that the development of property rights for these activities will follow a similar path to that experienced for fisheries management. The consequences of open (unrestricted) access to reefs and marine animals already appear to be over-utilization and degradation of resources and/or a reduced recreational experience. Concerns for the carrying capacity of tourism resources (Davis and Tisdell, 1995, 1996; Davis et al., 1997) might be addressed by establishing strict limited-entry licensing arrangements for the number of operators and the scope of their activities. These limited-entry controls must include strict controls on ‘ef-

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fort’. Without an inbuilt ‘effort’ reduction scheme, limited-entry systems are likely to result in the collapse of the resource due to the inexorable increase in exploitation rate from adoption of new technology and competition between operators. We predict that this will be a step towards development of more formal property rights that confer more secure license tenure and transferability. Furthermore, where ecotourism operations involve a discrete and defined geographic location, such as a coral reef, the property right will increasingly take the form of tradable private property (albeit leasehold), similar to that which exists for coral island resorts. Steps in this direction have begun in activities such as swimming with whale sharks in Ningaloo Marine Park, Western Australia, and whale watching in Queensland’s Hervey Bay. 4. Economic rent and property The issues of economic rent and property, while defined separately, are inextricably linked for marine natural resources. Economic rent, according to the Pareto definition, is the payment to a factor in excess of what is necessary to keep it in its present employment (Pearce, 1992). World Bank (1996), in discussing fisheries and forestry resources, referred to rent as the economic surplus over and above normal profits earned from the exploitation of those resources. While valuable marine natural resources should be capable of generating considerable economic rent, this usually has not happened, at least for any sustained period of time. The simple reason for this failure, and the ultimate cause of the over-exploitation and collapse of many marine resources, has been the inability to clearly define ownership of individual parts of the resource. This has meant that resources, especially in the open ocean, have been exploited as open access or, in some cases, community or common property. In these circumstances, any rent generated is dissipated in wasteful competition between operators or by new operators continuing to enter the arena, resulting in high costs and over-capitalization until the costs of harvesting the resource equal or exceed the revenue produced from its sale.

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Even when a fishery is fully exploited, additional operators usually will continue to seek entry to the fishery. The new entrants will generate little if any additional catch, but simply divide the existing catch into smaller shares (while increasing the overall effort and costs of harvesting the available catch). They continue to seek entry because they judge their potential catches against those of the most successful fishers, rather than the catches of the average or less successful fishers. For renewable resources like fish stocks, the restraint required for sustainability, leaving some portion of the resources to generate future stocks, cannot be achieved without strict controls on the number of fishers and their fishing effort. Without these controls, any stock not used as soon as it becomes available is taken by one’s competitors. The inevitable result is that the resource becomes depleted and may collapse. These outcomes are remarkably pervasive whenever marine natural resources are exploited without strict controls on the number of participants and their effort — the conditions characteristic of imperfect property rights and dissipation of economic rent. The two key questions in relation to economic rent from marine resources are: (1) how it can be generated over the long term; and (2) how is it distributed (or who keeps it)? It might be inferred from the preceding discussion that the establishment of clear-cut property rights over marine resources should ensure that they would continue to generate economic rent over the long term. This clearly is not the case. Property rights, on their own, do not guarantee that resources will be exploited in a way that will continue to generate rent. For example, in the case of individual transferable quotas for fisheries, the introduction of quotas, while in theory removing much of the incentive for competition between fishers and the tendency to over-capitalize catching capacity, cannot guarantee these outcomes (Copes, 1986). Fishers still must make judgements on when to catch their quota. Should they catch their quota as quickly as possible to be certain of getting it, or should they space out their catches to suit market conditions, to smooth out supply, or improve

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their chances of catching a better size class — and risk not catching their quota? They might risk a poorer market later in the season, or unexpected reductions in quota if managers come to believe that stocks are not as large as previously thought. Such factors mean that there is still competition between fishers. Then there are questions of overquota catches (either incidental or intentional), ‘high grading’ (discarding smaller fish when larger ones are caught), management of by-catch, and the reliability of data reporting and enforcement measures, regardless of the property rights. To improve the chance of generating long-term rent, there still needs to be strict overall controls on the costs of harvesting. In fisheries, once the number of operators has been limited, this usually translates into other controls on effort, such as restrictions on upgrading vessels and gear, areas fished, or duration of fishing. The second major question concerns the distribution of any rents that are generated. The opportunity to appropriate rents is a significant factor in attracting resource users into various marine industries, including fishing and tourism. There is some argument that rents are the only factor, although this argument is complicated by the non-monetary values and satisfactions associated with lifestyle that attach to many outdoor natural resource uses, values and satisfaction that appear to persist long after any ‘surplus production’ rent has been dissipated. The answer to who appropriates the economic rent from marine natural resources usually is not linked to who owns those resources. Most natural resources are in ‘public ownership’. That is, they are the property of the state and are managed by government agencies, supposedly on behalf of the whole community. The 200-mile EEZ, for example, established after the ‘Cod Wars’ between Great Britain and Iceland in the mid-1970s, defines the sovereignty of individual nations over areas of ocean. Nations may then manage fishing rights and exploitation of non-living marine resources, both by nationals and foreigners, within the EEZ. However, where rent is generated, it is mostly appropriated by the resource users, whether they are commercial fishers, tourism charter operators or oil and gas prospectors, with

little or no benefit distributed to the wider community who are the actual resource owners. Furthermore, some rents are transferred overseas when foreign fishing fleets operate (whether illegally or under license) within national waters. Management policies for such resource uses tend, unfortunately, to be reactionary. The resource is already heavily exploited before management strategies are developed. In economic terms, users should be required to distribute the rent back to the owners of the resource, the community, in some way. This might, for example, require users to purchase the rights for exploitation via an auction or tendering process, or require payment of a resource rental tax, with the proceeds returned to the community via government services, taxation rebates or a dividend. But because policy is normally made after a resource is heavily exploited, governments, even if they are willing, find it difficult to recover rents on behalf of the community. Industry groups exploiting the resources, not surprisingly, strongly resist any moves in this direction. In cases such as Australia’s southern blue fin tuna industry, where individual transferable quotas are now employed, the rent was retained by those fishers already in the industry because of the allocation of fishing (property) rights to the participants. At the same time, where fishing communities have built livelihoods based on access to a particular marine resource, such communities have a valid argument for the appropriation of some portion of the rent arising or, at least, some preferential access to those resources. This supports the requirement that sustainability also takes account of social aspects of resource use and management. Similarly, in many parts of the world, e.g. the South Pacific, marine resources are held in a manner akin to private property rights by village or clan-based communities. Clearly, such groups can rightly claim access to the resources in question and to the rents arising from exploitation of those resources. The important feature of this situation is that the property rights are well specified. In this case, the nation gains a benefit through the taxation system and, possibly, through export income.

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Long-line fishing for tuna species in the South Pacific nation of Samoa, however, provides an example where poorly specified property rights is leading to misallocation and dissipation of economic rent. The fishery commenced operations in earnest in late 1993. In that year, the value of exports was (Samoan Tala) ST150 000; this grew to ST45 million in 1999 when more than 5000 tonnes tuna were exported to canneries in American Samoa (mainly albacore) and to the US sashimi market (mainly yellowfin and bigeye). However, for historical reasons associated with the encouragement of local village fishers to undertake commercial activity, export fishers (many of whom operate industrial size vessels) are zerorated for the Samoan value-added goods and services tax, pay few import duties on inputs, and are not subject to either income tax or any sort of resource rental tax. Consequently, these fishers are appropriating all the economic rent from exploiting a resource that belongs to all the people of Samoa. In such a case, there is a strong argument for the introduction of a resource rental tax on fish landings. Four principal outcomes of the Samoan situation arise. First, the appropriation of economic rent totally by commercial fishers, who pay no taxation, is highly inequitable, given that the resources belong to all Samoans. Second, there is now evidence of declining catch per unit effort as more and more fishers enter the industry, leading to greater competition and increasing effort to catch available stocks of fish. Third, tuna stock assessments undertaken by the Secretariat of the South Pacific indicate that, despite the tuna being migratory stocks, there is an approximate sustainable catch to be had in each country’s EEZ. Overexploitation of stocks will result in declining overall catches and associated problems such as reduced fish sizes. Finally, the open access (for Samoan fishers) nature of the fishery results in economic inefficiency in Samoa as investment and other resources are re-directed to the long-line fishery because of the potential, through poorly specified property rights, to appropriate any available rent. In tourism, an example of rent appropriation by commercial interests is provided in Australia’s

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Great Barrier Reef Marine Park. Tourism operators in the Park have, in general, appropriated the economic rent available from access to the reef and its marine life. The Marine Park Authority allocates 6-year permits, but charges only a permit application fee to commercial tourism operators, while users pay a so-called Environmental Management Charge (EMC) of A$4 per day. But a valuable property right is thereby given essentially free-of-charge to permit holders who, subsequently, seek to appropriate rents from exploiting the resources of the Reef. Furthermore, permits are fully transferable. Yet the Marine Park is a public asset: it belongs to all Australians, who pay for management costs that exceed A$25 million annually. EMC collections totalled A$3.58 million in 1997 –1998, and were 19% of total Australian Government appropriations for the Park in that year. So non-users are paying for the management of an asset from which others appropriate rents. There is a strong argument that the wider community, as represented by the Authority and the Government, should appropriate at least a portion of the rent. In the Low Isles off Port Douglas (north of Cairns), a permit is said to have a market value of around A$100 000. This represents a windfall for operators holding the first permits for the area, yet it rightly belongs to the community. In economic terms, users should be required to distribute the rent back to the community in some way. This might, for example, require users to purchase the initial rights for exploitation via an auction or tendering process, with the proceeds returned to the community via government services The southern blue fin tuna case, previously discussed, also illustrates the potential of the economic system to signal information and scarcity value, with the trading price for quota reflecting fisher’s expectations about future rents in the fishery. When quotas were introduced in 1984, quota traded for A$800 to A$1200 per tonne. By 1987, when most of the adjustments in quota holdings and fleet structure had taken place, prices had risen to A$3200 –3500 per tonne. By 1992, prices had reached A$20 000 per tonne. In summary, the reality of most current resource management policies is that those who

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exploit natural resources tend to capture most or all of whatever rent is generated. This might result in resource use that is inefficient from an economic viewpoint when it encourages the diversion of investment funds into the industry until all available rent has been appropriated or dissipated. However, inefficiency does not arise from who captures the rent; for example, a sole owner would be likely to operate an efficient fishery. Rather, it is the way in which the property rights are specified, rather than their allocation, that offers a solution to inefficiency. Conversely, the way in which rents are captured is generally inequitable, resulting in a low or zero return to the owners of the resource, the wider community, and it is likely to lead to overexploitation of the resource in question. Alaska provides some contrast to the normal situation. The government there captures some of the rent via a fisheries landing tax and through license fees for oil production, both of which are economic instruments, and distributes this share directly to all taxpayers each year, similar to the payment of dividends to company shareholders. This is clear recognition of community ownership of the state’s natural resources. If governments were, alternatively, to collect resource rentals and re-distribute those through the provision of community services, particularly to those areas and sectors most in need, then distribution and equity problems would again be addressed. Additionally, resources might be used in a more sustainable fashion if the incentive to overexploit them and dissipate the rent was reduced by an appropriate allocation of the rent. This requires proper management of resources to ensure that rent is produced and clear, and transparent policy strategies designed to return a proportion of the rent to the true resource owners.

5. Sustainability There has been much comment in recent years on the nature of sustainable development and, in particular, on the internal contradictions implicit in this term (for example, Common, 1995; Pirages, 1996). While it is generally accepted that

sustainable use of natural resources means that their exploitation by one generation should not diminish their value for succeeding generations, application of this concept remains elusive and is the subject of much debate. Kirkegaard and Gartside (1998) suggested that a practical time-scale for sustainability for natural resource management broadly equates to 80–100 years. After that time, it would be difficult for people to imagine what society might be like. Even making predictions of what constitutes sustainability within that time period will be difficult because of natural changes beyond human control and changes to the way humans use natural resources. They considered that it was important to question what resource managers are trying to conserve, noting that ecosystems change in composition over time. They pointed out, for example, that the composition of fisheries, even those presently characterized as ‘sustainable’, has changed substantially over the period during which they have been exploited. These issues become more focused when considering different forms of property rights, including those involving exploitation for commercial gain, as in fisheries. In this case, a minimum expectation is that those exploiting the resources would seek commercial returns on capital invested in acquiring access, and in harvesting and developing the resources. As already outlined, open access and some forms of common property ownership result in overexploitation and collapse of resources, rather than in sustainable biological and social outcomes. This is not sufficient reason to argue that renewable natural resources should be maintained in government ownership and commercial exploitation prohibited. In reality, natural resources treated in this manner assume no value to the community, other than their intrinsic ecological and existence values. These resources are even more likely to be degraded or lost. An example of this case is provided by the American alligator, which faced extinction before its management included a regulated harvest program, thus placing a direct value on its continued survival and on maintenance of its habitat.

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Even the responsibility of maintaining a commercially exploited marine natural resource, whether a reef or a fishery, in its present condition over the course of just one human generation may be too onerous for the custodians/owners of that resource because of natural variation and diffuse external influences in marine systems that are beyond the owner’s control. The issue of how commercial exploitation of natural resources can be reconciled with the need for sustainability in variable environments remains a challenging one for economic policy development and management, particularly in marine settings. But it is clear that EIs, used in tandem with regulation and more fully specified property rights, will become increasingly attractive to management agencies seeking to achieve sustainable use of natural resources.

6. Conclusions Many of the challenges for improving the management of marine natural resources in the coming millennium involve development and application of appropriate economic measures. It is essential that biologists, who are the predominant group among natural resource managers, understand these economic issues or we will continue to fail to achieve the potential of our increasingly scarce marine resources. Society will increasingly demand more truly sustainable management of natural resources, along with a greater share of the rent from exploitation of those resources. Well-specified and transparent property rights, coupled with increasing use of economic instruments, will be among the policy instruments that support satisfaction of these demands. Economics has an important role to play in signalling the true value of resources, and in providing incentives for resource users to behave in ways seen as appropriate by society. The careful implementation of EIs will also increase the possibility that coastal communities that rely on marine resources for their livelihood will survive and prosper. Reliance on regulation alone has not, and will not, guarantee either desired social or biological outcomes. A greater focus on eco-

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nomic values and correctly specified property rights will also allow management agencies to collect some of the economic rent generated and distribute it to benefit or improve the social welfare of the owners of the resources. At the same time, significant difficulties remain, particularly for the management of fisheries resources, resources that are usually highly mobile, that are well out to sea, occur across legal jurisdictions, are difficult to monitor, and that co-exist with other species, leading to problems such as effective by-catch management. Based on experience thus far, EIs are likely to work best in single species fisheries, such as the Samoa long-line tuna fishery where a resource rental tax and improved specification of property rights are needed, or for species that are not highly mobile such as certain crustaceans and shellfish. Conversely, in tourism, EIs have the potential to make a far greater contribution to the sustainable management of marine resources. Tourists and tourist operators will almost certainly be asked to return a greater proportion of economic rent to the wider community, while there are sound arguments to introduce systems such as tendering or auctions for licenses and making those licenses transferable. Marine tourism in the Great Barrier Reef Marine Park provides an example where such instruments should be applied. We predict increasingly rapid adoption of such management strategies in the near future as management agencies strive to reduce the costs of managing marine resources, the community demands some return of rent for its ownership of those resources, and as pressure for sustainability of marine natural resources increases.

Acknowledgements The authors thank Harry Campbell, Ian Kirkegaard and Clem Tisdell for guiding us along these paths, Southern Cross University for research funds for Don Gartside, and the Department of Economics, University of Queensland, for a Visiting Fellowship to Don Gartside during the conduct of this work. The useful comments of two anonymous reviewers are also gratefully acknowl-

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edged. The authors alone remain responsible for its content.

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