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World Bank Discussion Papers:- >- Fisheries Series

FisheriesDevelopment,FilsherlesM\4anagement,and Externalities

Richard S. Johnston

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No. 135 Eduardo A. Loayza in collaboration with Lucian M. Sprague, A Strategyfor Fisheries Development

No. 165 Richard S. Johnston, Fisheries Development, Fisheries Management, and Externalities

W MJfl E World Bank Discussion PapersFisheries Series

FisheriesDevelopment,FisheriesManagement,and ExternalitiesRichard S. Johnston

The World BankWashington, D.C.

Copyright C 1992The International Bank for Reconstructionand Development/THE WORLD BANK1818 H Street, N.W.Washington, D.C. 20433, U.S.A.

All rights reservedManufactured in the United States of AmericaFirst printingJuly 1992

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ISSN: 0259-210X

Richard S. Johnston is a professor at Oregon State University in the Department of Agriculture andResource Economics.

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Library of Congress Card Number: 92-22791

v

FOREWORD

The accelerating global debate on environment and development is generating a newinterest in "integrated" approaches and inter-sectoral linkages. This paper examines fisheriesdevelopment and fisheries management in this context, with particular reference to "externalities"within the fishery sector and those that occur between fisheries and other sectors. It providesinteresting insights to policy planners, fisheries administrators, community developers, thefishing industry and others, in both developing and developed countries.

In light of the growing interest in sustainable development, a fresh look at the frameworkof fisheries in a system-wide sense is a welcome exercise. Identifying and understanding"externalities," and devising policies to mitigate their effects, is essential in state-of-the artfisheries development.

It is my hope that the concepts and analyses contained in this paper will be studied withinterest, and prove useful to those searching for creative approaches in dealing with complexdevelopment and management issues in the fisheries sector.

GERSHON FEDERChief

Agricultural Policies DivisionAgriculture and Rural Development Department

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TABLE OF CONTENTS

ABSTRACT ........................................... viii

INTRODUCTION .. 1...................... I.a. EXTERNALITIES ................................... 1I.b. EXTERNALITIES AND THE FISHERY ..................... 3

HI. EXTERNALITIES WITHIN THE FISHERY . . . 6II.a. EXTERNALITIES AND THE OPEN ACCESSS NATURE

OF THE FISHERY .. 6II.b. EXTERNALITIES AND GOVERNMENT . . 8

Il.b. 1 Development Policies When Fishing Externalities are notRecognized .................................. 8

ll.b.2. An Exception ................................. 9II.b.3. Government Policy to Correct Open Access Externalities ... ... 9II.b.4. Fishery Management as a Development Strategy .... ....... 10II.b.5. Public Investment in the Fishery .................... 11II.b.6. Industrial and Artisanal Fisheries .................... 12II.b.7. Cost Reductions in the Fishery ........ ............. 13

II.c. INCOME LEVELS AND DISTRIBUTION IN THE FISHERY .. 13II.c. 1. Open Access and Income from Fishing .13II.c.2. Conditions of Unemployment Elsewhere .14II.c.3. Distribution of the Gains from Fishery Management .15II.c.4. Community Development vs. Fishery Development .16II.c.5. Strengthening Property Rights: The Case of Aquaculture .17

II.d. FISHERY MANAGEMENT AND COLLECTIVE ACTION . .18II.d. 1. Is There Necessarily an Open Access Problem? . 18II.d.2. Private (Collective) Action in Fishery Management and

Development .19II.d.3. Establishing a New Fishery .20II.d.4. Fishery Management and Fishery Development Under Extended

Fishery Jurisdiction .22II.d.5. Use of Foreign Partners in Developing a New Fishery .23ll.d.6. The Role of Time Preference .24II.d.7. Reconciling Planning Objectives .25

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HI. INTERINDUSTRY EXTERNALITIES .......................... 27III.a. INTERDEPENDENCIES WITH OTHER SECIONS ............. 27

III.a.l. Development in the Fishery Sector vs. DevelopmentElsewhere . . 27

II.a.2. Decisions in Other Sectors that Affect Those Dependent on theFishery .................................... 28

111.a.3; Transboundary Migration and Multispecies Fisheries ... ..... 29IlI.b. PECUNIARY EXTERNALITIES ......................... 30III.c. FISHERY DEVELOPMENT IN THE PRESENCE OF INTERINDUSTRY

AND PECUNIARY EXTERNALITIES ...................... 32

IV. FISHERY DEVELOPMENT POLICY ........................... 34IV.a. MONITORING FISHERIES DEVELOPMENT ................. 34LV.b. LIMITATIONS OF FISHERY MANAGEMENT ................ 34IV.c. A POLICY AGENDA ................................ 36

REFERENCES ......................................... 38

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ABSTRACT

Extension of fishery jurisdiction during the 1970s has expanded the interest of mostcoastal countries in development of their fisheries. Fishery development, however, has manycomplexities, some of which are similar to agricultural development and some of which arepeculiar to fisheries. For example, strategies designed to encourage fishery development requirean appreciation of the roles of two kinds of externalities: (1) those that exist within the fisherysector and (2) those that operate between the fishery and other sectors of the economy. Theformer dominate most discussions of how to manage a fishery. Because of this, fisherymanagement may be an important component of fishery development. Indeed, many governmentpolicies in the fishery are designed, at least in principle, to correct for so-called "open access'externalities. Efficiency gains may result, leading to higher income for the entire economy,although such income gains need not necessarily accrue to the fishery sector.

Thus fishery management may be an important component of a fishery developmentstrategy. Such management need not necessarily involve government action, however.Collective action involving fishing groups may perform a management function, whether donealone, with foreign partners, or in cooperation with governments. In any event, recognizing thatthere may be gains from internalizing externalities within the fishery may contribute significantlyto meeting the goals of fishery development.

Addressing the second set of externalities requires an understanding of how decisions inthe fishery sector affect outcomes elsewhere and vice versa. These effects may be both "real,"in which output levels in one sector are influenced by decisions in another, or "pecuniary" inwhich the primary effects are on the prices of outputs or inputs in the affected sector. Fisherydevelopment strategies that fail to recognize these interdependencies may have unanticipatedconsequences. A development policy that looks at the potential contribution of the fishery to theentire economy and considers development from that perspective, rather than from a narrow,fishery-only point of view, should minimize frustration and increase the chances of achievingdevelopment goals.

I. INTRODUCTION

Since the late 1970s, following extension of fishery jurisdiction by most of the world'scoastal countries, there has been increased interest in development of these countries' fishingsectors. Public action to encourage this development is complicated by the large roles playedby two kinds of externalities: those that exist within the fishery sector and those that existbetween the fishery and other sectors of the economy. Some of these externalities are addressedby policies to manage the fishery; others are not. Before undertaking a development activity,therefore, decision-makers should familiarize themselves with these externalities and the variousroles they play. This paper reviews many of these roles and, it is hoped, paints a new pictureof how fishery development and fishery management are related through externalities. First, itis necessary to review some key concepts.

I.a. EXTERNALITIES

Actions by individuals have consequences, both intended and unintended, on themselvesand on others. When a ryegrass seed farmer burns his field to remove stubble and control plantdisease, his action may lead to a reduction in the quality of the air breathed by himself and bynearby residents. If dry climate conditions lead him to irrigate with water from a nearby river,the result, especially if other farmers also decide to irrigate, will be less water for fishproduction, recreation, boat transportation, and other river uses. When he increases the amountof product he places on the market, this, if accompanied by similar increases by other farmers,may result in lower prices to all farmers, including himself. These lower prices may, in turn,motivate buyers to switch from other grasses to ryegrass, reducing incomes of sellers incompeting industries.

All of these consequences - effects on the ability to breathe clean air, the adverseimpacts on other water-using industries, the lower prices of ryegrass and the reduced incomesof competing farmers - are examples of "externalities. " They are effects not considered in thefarmer's decision to burn, irrigate, and sell. In these particular examples the consequences arecostly. Some externalities, however, may be of a beneficial nature. The farmer's decision toraise agricultural products instead of, say, building an unsightly factory means that residents onnearby hills have a more attractive view during most of the year.

In general an externality occurs "when one agent's economic decision impinges onanother economic agent directly" (Binger and Hoffman (1988), p. 102). Distinctions are oftendrawn between "real" and "pecuniary" externalities. In the former, the decision of one agentaffects the production level or the satisfaction level of one or more other consumers orproducers. In the case of the ryegrass farmer, reduced air quality, improved view, and lowerwater levels are examples of "real" externalities. On the other hand, a pecuniary externality isa direct consequence on market prices, whether prices paid or prices received. Thus the lowerryegrass price and reduced income levels in the above discussion are examples of pecuniaryexternalities.

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The distinction is an important one because, at least in the case of highly competitivemarkets, pecuniary externalities are viewed as requiring no special attention. Price changessimply reflect the working of markets (Mishan (1971)).

Real externalities are a different matter. These are costs that are not borne and benefitsthat are not realized by the agent whose action generated the externality. They directly affectproduction levels of producers and the well-being of consumers and, as such, cause a divergencebetween private and social costs and benefits. If the decision-maker were required to pay forcosts imposed externally, he or she would probably cut back on the level of activity thatgenerated the externality. If he or she were compensated for external benefits generated,increased production would likely result. Since this is not the case, "too much" of the negativeexternality is produced, from a social perspective, and "too little" of the positive externality isproduced. Such a divergence does not exist in the case of pecuniary externalities: all relevantcosts and benefits are reflected in market prices.'

The distinction is an important one for government policy, which is often motivated byan attempt to address the divergences between private and social costs and benefits. Calls fortaxes on polluters, subsidies for individuals who beautify their property, and changes in rightsand responsibilities are examples. Economists often argue for such government action in thecase of real economies but not for pecuniary economies.

The purpose of the present paper is to examine the role of externalities in the context offishery development. If the paper's ultimate objective were to identify public policies that couldbe used to correct for the presence of external effects, only real externalities would be discussed.However, because pecuniary externalities may play a role in fishery development throughaffecting the likelihood that the goals of particular development policies are realized, theseexternalities are also considered in the belief that recognizing their nature may help account forthem in devising such policies.

Stewart and Ghani (1991) categorized externalities in a number of ways. In addition tothe real/pecuniary distinction, they suggest that externalities may be grouped according to thenature (producers versus consumers) and number (few versus many) of interacting agents. Thusactions by producers may affect consumers and/or other producers (for example, polluted waterused for drinking and as an input for food processing), while consumer decisions may affectproducers and/or other consumers (such as the costs of road congestion imposed by tourists onbusiness travelers and on other tourists). Likewise, with respect to the number of agentsinvolved, externalities caused by any one agent may affect one other agent, a few others, ormany others. Equally, one agent may be affected by externalities caused by one other, a fewothers or many other agents.

'However, Greenwald and Stiglitz (1986) have argued that, where either markets orinformation is incomplete, private and social costs may diverge in the presence of pecuniaryexternalities.

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The externalities caused by one agent may be of very minor significancefor any one other agent (so minor as to be negligible), but the aggregateeffects on a number of agents may be significant. One agent may beaffected to an insignificant extent by externalities associated with any oneother agent, but the cumulative external effects of large numbers of otheragents may again be significant.

Stewart and Ghani, (1991), p. 571

These authors also categorize externalities according to their salience (the extent to whichthe effects are noticed by the affected) and the economic (and political) status of those affected(as a determinant of whether corrective action is likely to occur). The location of the agents isanother categorization scheme where externalities are classified according to whether their effectscross regional or industry boundaries.

The location criterion is particularly relevant in the case of the fishery, where it is usefulto distinguish between those externalities that have important intra-industry effects and those thatare principally inter-industry in nature. While all of the categorization schemes are useful, thelocation criterion, the real/pecuniary division, and the number of interacting agents are the mostuseful in discussing externalities in fishery development.

I.b. EXTERNALITIES AND THE FISHERY

Fish are among those natural resources labeled "renewable" because their stocks arecapable of regeneration as humans consume a flow of services from them.2 They can usefullybe distinguished from "nonrenewable" resources, such as petroleum and coal, whose stock levelsmust fall over time as they are used (V. Smith (1968)).

Industries based on such resources - both renewable and nonrenewable - are oftencalled "extractive" industries. These industries are characterized by properties that, whilepresent in such nonextractive industries as agriculture, are pervasive in the extractive industries.Principal among those properties are intra-industry externalities, which, as indicated above, arecosts and benefits generated within the fishery by individuals or groups of individuals who donot consider these costs and benefits in making decisions. The decision-makers may be unawarethat their decisions are imposing costs upon or generating benefits for others or they may beaware but have no incentive to incorporate them into their decision-making. Such costs andbenefits, then, are the consequences of decisions but are external to the individual decision-maker. In the fishery, they may be small to the individual but their magnitude, when aggregatedover all individuals, may be quite large.

2Others include wildlife and timber.

Examples from the fishery include stock externalities, in which the harvest activity ofeach fisherman reduces the fish population and, hence, increases fishing costs for otherfishermen. A closely related externality is that associated with the selection of harvestingtechniques (e.g., mesh size) which affects the growth and reproductive rates of the fish stock(Tunrey (1964); Gould (1972)). Further, when there are many fishing boats on a fishing groundin which the fish population is highly concentrated, the efficiency of each boat may fall andharvesting costs rise as new vessels enter, a case of crowding externalities (V. Smith (1968)).An externality of particular relevance to the design of appropriate policies for fisherydevelopment is that associated with private investment in the fishery. Because no one has strongproperty rights in the fishery3 the individual investor cannot appropriate the potential benefitsof such investment, most of which accrue in the future (Quirk and Smith (1970)).

These examples of externalities have a common feature: each of them represents a costimposed by each fisherman on all of the other fishermen, affecting the latter's current and/orfuture harvesting success. They are not a consequence of activities in other industries (e.g.,water pollution) and are not directly experienced by individuals outside of the fishery. Rather,they reside within the fishery itself, both resulting from and affecting the fishing activity of itsparticipants.

Underlying these particular intra-industry externalities is the fact that private propertyrights in the fishery are weak. That is, the fishery resource is not readily susceptible to legal4ownership by individuals who may effectively specify how the resource may be used. In thisrespect, fishing and farming differ. In agriculture, the basic resource, land, can be legallyowned by individual decisionmakers. The individual farmer's selection of a harvestingtechnique, production level, location and investment strategy does not affect the production costsof his or her neighbors.5 This distinction between fisheries and agriculture is important to keepin mind when considering differences between development strategies in the two sectors.

There are other kinds of externality associated with the fishery sector, most of which arenot peculiar to that sector. For example, in both extractive and non-extractive industries, thereare external effects on market prices - of both inputs and outputs - resulting from individualproduction decisions, a case of pecuniary externalities. On an individual basis the effects maybe too small to be noticeable but, when taken collectively, they may be substantial. Though not

3Exceptions are discussed later.

4In the sense that the ownership is recognized and respected by other potential users ofthe resource.

5This is an overstatement. Problems of using water from a common pool, pollutionproblems, etc. certainly exist in agriculture. In the fishery, such externalities are simplymore pronounced because of weak private property rights in a key production input: thefishery resource itself.

peculiar to the fishery, these pecuniary externalities should be considered in the design of fisherydevelopment policies to avoid unintended consequences.

In addition, there are inter-industry externalities involving the fishery. A seafoodprocessing plant that dumps its waste into water may be imposing an externality on recreationalswimmers. Similarly, feces from a coastal dairy herd may lead to an increase in coliformbacteria counts in adjacent oyster growing waters, causing a potential health hazard from oysterconsumption.

The purpose of this paper is to review some of the principal externalities in the fisheryand to consider the role they play in the development of that fishery. Unless otherwise stated,it is assumed throughout that there are two primary goals of fishery development: (1) toincrease the contribution of the fishery sector to the output of the entire economy and (2) toincrease the incomes of those in the fishery. While the issues are treated largely at theconceptual level, every effort is made to uncover implications for the design and implementationof development policies and strategies. The next chapter of the paper focuses on thoseexternalities that are generated within the fishery and have their principal effects there. Section(a) identifies the primary reason for these externalities: the "open access" nature of the fisheryresource. The next section looks at the role of government in the fishery and suggests that,because of externalities, development policies that may assist the agriculture sector could havedisappointing consequences in the fishery. On the other hand, fishery management may be anappropriate fishery development policy to the extent that it addresses intra-industry externalities.Section (c) examines income distribution issues in the fishery. This chapter of the paper closeswith an examination of whether private, collective, action, instead of government action, canaddress the open access issue.

Chapter III looks at two different sets of externalities: namely, those that cross industryand geographical boundaries and those that are pecuniary in nature. Section (a) begins with alook at the interdependencies of the fishery sector and other sectors, while section (b) examinespecuniary externalities. This is followed by a discussion of the role of inter-industry andpecuniary externalities in the design of fishery development strategies. The paper concludes witha chapter on elements of development policy. Beginning with a consideration of the need formonitoring, it concludes with two lists: one that outlines some limitations of treatingmanagement as a source of fishery development and a second that outlines some developmentissues that require attention because of externality considerations.

II. EXTERNALITIES WITHIN THE FISHERY

II.a. EXTERNALITIES AND THE OPEN ACCESS NATURE OF THE FISHERY

As indicated above, there are several externalities that arise from fishing activity andwhose consequences fall on those in the fishery. Stock, gear, crowding, and user costexternalities exist in a fishery characterized by weak property rights. What does this mean?

Consider, first, the user cost and gear extemalities. A commonly-held view of thefishery - at least one that is unregulated - is that, because of the pervasiveness of theexternalities described above, there is a serious misallocation of resources in that sector.6 It isargued, for example, that there are "too many resources chasing too few fish." This is ashorthand way of describing the "open access problem" in which, because an importantproductive factor - the fishery itself - is not owned by, but is fully accessible to, privatedecision-makers, (1) there is no incentive to invest in its productivity and (2) its price appearsto be (artificially) low and, hence, (3) the resource is overutilized.7

In the case of (1), private investors have little incentive to invest in productivity-boostingprojects such as fish hatcheries whose outputs are released to lakes, rivers and the oceans. Oncereleased, no one owns these fish and investors cannot prevent non-investors from capturing thefish and reaping the benefits of the investment. Thus, there is relatively low private investmentin the productivity of the fishery resource. On the other hand, (2) suggests that the existingnatural resource will be used more intensively than it would be if it were privately-owned. Thisalso encourages excess8 use of other inputs, such as labor (fishermen) and capital (fishingvessels) in the fishery, diverting them from productive employment elsewhere in the economy.As a consequence of (1), (2) and, hence, (3) the net economic output of the economy is belowwhat it could be.

Here, then, is an example of what Garrett Hardin (1968) has labeled "The Tragedy ofthe Commons." The "tragedy" is by no means peculiar to the fishery, appearing also whereprivately-owned livestock graze on publicly-held land and where environmental pollution ofpublicly-held but privately-used resources accompanies individual decision-making for whom thepollution cost is zero or close to it. These situations often motivate calls for public - orcollective - action.

6Not everyone shares this view, as discussed in subsection II.d.

"''Artificially low" and "overutilized" relative to what would be the case if the fisherywere owned by someone who sought to maximize the economic returns from its use.

8"Excess" relative to what there would be if all resources were privately owned.

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This is the case for the fishery where, as indicated above, the situation to be correctedis called "the open access" problem. Policies to address the problem range from governmentalrestrictions on use of the resource to emergence of private collectives to allocate use rights.Failure to recognize either the role of such policies or the nature of the issue they are designedto address could lead to fisheries development policies and prescriptions whose consequences areradically different from those expected.

It is useful to distinguish between two related, but different, concepts: "open access" and"common property." The two terms are often used interchangeably, with resulting confusion.In the discussion that follows, "open access" will refer to a fishery into which there are norestrictions on entry that stem from ownership of the fishery resource, suggesting an absence ofproperty rights in the resource (res nullius). High seas fishing is an example. Anyone whowishes may engage in a fishing activity on the high seas, free of interference from any personor institutional entity that has both the right and the ability to exclude either the individual orthe activity.9

A common property resource, on the other hand, is one to which a number of ownershave co-equal rights of use, but not to transfer, the entire resource (res communes). A lakefishery to which access is restricted to residents on the shore would be common property becausenon-residents are excluded from use and no single resident can sell the lake. This view suggeststhat Hardin was actually concerned about the "tragedy of open access." See Ciriacy-Wantrupand Bishop (1975) and Hanna (1990) for further discussion.

The other fishery externalities identified above - stock and crowding - are also aconsequence of the fishery's open access nature. Because no-one owns the resource, decisionson the entry of fishing effort is made by the owners of that effort (boats, gear). This contrastswith the situation in agriculture, where decisions on the use of tractors, labor, and other inputsare made by the owners (or managers) of the land resource. In the agriculture case, inputs arehired only to the level at which the rent to the land is maximized. In the open access fishery,rent that could accrue to the resource owner, if there were one, is captured by no-one and, thus,does not serve as a constraint on entry into the fishery. As a consequence, more inputs appearin the fishery than is consistent with rent maximization, leading to both stock and crowdingexternalities. The result is lower efficiency (that is, higher costs) than would be the case withstronger ownership of the resource.

9It is difficult to find "pure" examples. Even on the high seas some activity is restrictedby international agreement or by threats of economic retaliation. An example of the formeris whaling and of the latter, high seas drift net fishing.

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II.b. EXTERNALITIES AND GOVERNMENT

II.b. 1. Development Policies When Fishing Externalities are not Recognized

Because of the externality features of the fishery, techniques sometimes used in otherindustries to promote development may have unintended consequences if used in the fishery.Government programs to reduce artificially the costs of entering agriculture, for example, maylead to increased agricultural output, albeit at an increased cost. A similar program employedin the fishery may stimulate entry into an open access fishery but, even if this led to asustainable output increase, would simultaneously generate an identical rise in costs and aresulting dissipation of any economic gains.

Perhaps this can be best illustrated by an hypothetical example. Consider a country withthe objective of devising a fisheries development strategy to increase the income of fishermen.Suppose a policy is proposed to subsidize the improvement of existing fishing vessels and theconstruction of new ones. Suppose, further, that the fishery is not managed, publicly, privately,or collectively, so that open access conditions prevail. Will the policy increase the productivityof the fishery resource or will it, instead, simply lead to additional, redundant, resourcesexploiting the fishery? That is, should this development strategy be encouraged or discouraged?

Under these conditions, fishermen - both existing and potential - will perceive theirharvesting costs to have declined and, thus, can be expected to prosecute the fishery moreintensively. Thus, these fishermen could realize short run increases in their revenues, resultingfrom reduced costs and increased harvests. Such gains are short-lived, however. New entrantsand increased effort by the existing fleet lead to increased congestion on the fishing grounds and,perhaps, to the harvest of both relatively small (young) animals and those animals necessary toregenerate the stock. Reductions in the sustainable harvest from the fish stock may result.'"Thus, while some short term gains may accrue to early recipients of the subsidy, the longer termconsequences are likely to be that even more resources are devoted to fishing than before, witheach unit earning no more than before the vessel subsidy program. Furthermore part of theirearnings are in the form of the subsidy, which means that, with discontinuation of the subsidy,at least some of these resources would be earning less than before and, in the absence ofunemployment elsewhere," less than they could in non-fishery employment. Thus, the policynot only exacerbates the open-access problem but also fails to meet its own income-generatinggoal.

'0This would be the case, for example, if the fishery were being prosecuted at effortlevels greater than those associated with maximum sustainable yield (MSY). Also, in theshort run, if immature animals are harvested and if supplies increase dramatically, ex-vesselprices could fall.

"Use of such a policy to "solve" unemployment elsewhere is discussed in section II.c.2.

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II.b.2. An Exception

There is a situation in which a different result could emerge. Consider a fishery that isnot prosecuted for commercial purposes because there is no private incentive to do so. If avessel-subsidy program attracted private boat-building capital which would remain even after thesubsidy program was withdrawn - not because the private capital is locked in but because theprogram has made investors aware of the potential economic return - the resources attractedto the fishery could generate increased economic benefits to the investors and to the economy.'2

In this case, the vessel subsidy program will have served to aid in the discovery of economicopportunity.

Once the discovery has been made, however, there is no need to retain the subsidyprogram. Indeed, if it is retained, the consequences identified in the previous section emerge.Once entry to the fishery is made attractive, resources may be bid away from other uses suchthat the total rents that could accrue to this fishery are dissipated and the potential economicbenefits from the fishing activity are not realized. Here is a case where a public investmentactivity leads to the uncovering of economic opportunity but the full potential is not realizedbecause resources are not (voluntarily) allocated as they would be in the absence of the openaccess externalities.

II.b.3. Government Policy to Correct Open Access Externalities

These features of renewable resource industries lie behind the large role often played bygovernment in the extractive industries. They also lie - at least in part - behind the particularnature of that role. Even in market economies government often performs managementfunctions in the resource industries. Programs to regulate the number of participants in afishery, the nature and level of public expenditure, the timing of the fishing activity, the kindsof harvesting techniques permissible and the size, age and gender of animals harvested have theirrationales in resource conservation or in the desire to "correct" the economic efficiency problemsbelieved to accompany the presence of externalities.'3

Thus any policy to develop the fishery sector must be sensitive to both the externalitiesissue and the role governments play in addressing them."4 Indeed, fisheries management andfisheries development are intimately linked. An examination of their interdependencies is crucial

"2This is similar to the "infant industry" argument of international trade theory (seeMunro (1985)).

"Some of these regulations have close relatives in agriculture but their justification inthat sector generally lies in calls for higher and/or more stable farm prices, higherproductivity through technological change, etc.

"4Collective action by non-government groups may also play a role. This is discussed insection II.d.

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to the selection of appropriate development and management policies if frustrated expectationsare to be avoided. Further, an examination of the interdependencies helps to relate the fisheriessector to the rest of the economy, thereby offsetting a tendency to view development in thefisheries sector as being independent of events elsewhere.

II.b.4. Fishery Management as a Development Strategy

An important feature of the open access nature of the fishery is that recognizing its naturemay suggest fishery development opportunities. This could be the case, for example, if a changein institutional arrangements can provide investment incentives or where public investments canstep in where private investors are reluctant to enter.

Reconsider, then, the case of a vessel subsidy program. Suppose a fishery is beingprosecuted at a level such that additional effort (labor, capital) would generate an increase insustainable harvest, rather than the decrease postulated earlier."5 Here the situation is similarto the case in which increased effort leads to reduced yields; however, the consequences of avessel subsidy program may not be as apparent. In this case, increased harvest levels followingimplementation of the program may mask the loss of an opportunity to increase net benefits tothe fishery (and the economy) that would result from cutting back, rather than expanding, theuse of resources in the fishery. Instead, subsidization once again leads to increased resource usein the fishery and the diversion of resources from other sectors. Had the government, instead,adopted a fishery management program that led to reductions in effort, total revenue in thefishery would have fallen - but not by as much as total cost."6 Hence gains in net benefitscould have been realized. With the subsidy program, they are not. Increases in total revenuesin the fishery do not necessarily lead to increases in the net output of the economy becauseresources artificially devoted to the fishery are likely to be more productive elsewhere.

What, in fact, would happen is an empirical question, depending on both biological andeconomic relationships. However, the example serves to highlight an issue of fundamentalimportance in fisheries development. "Overfishing" in the open access fishery is not purely abiological issue. From the economist's perspective, public management for resource reallocationin an open access fishery need not necessarily result in increased harvests. Rather, from aneconomic efficiency perspective, the objective of resource management is to utilize resourcessuch that they are employed in their "highest and best" uses. If the costs of increased harvestsexceed the associated benefits, lower harvest levels may represent greater economic efficiency.

"That is, fishing activity has not achieved MSY. See footnote 10.

"6This is because, while sustainable (i.e., year-after-year) harvests fall with reductions ineffort, the decrease is less than proportionate to declines in effort. Implicit in this discussionis the assumption that the natural growth of the fish population, in the absence of fishing, canbe approximated by the logistic function.

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Prior to embarking on a development plan, decision-makers should have a thoroughknowledge of the resource, economic conditions in the fishery and elsewhere, and thelegal/institutional environment. This requires an understanding of production relationships inthe fisheries, at a minimum, in order to estimate the differences between existing and potentialcost and revenue levels. In an unmanaged, open access fishery, fishery development can, andoften should, take the form of fishery management.

In the example just discussed, the country's economic output is more likely to beexpanded through effort reduction than through the proposed vessel subsidy program."7 On theother hand, for some species it is possible that stock sizes - and thus, future harvests - arelittle affected by fishing activity. The issue requires understanding of the physical, biologicaland oceanographic relationships. In any event it is imperative that any fishery managementprograms that are in place be well understood and that development and management programsbe designed in concert. This, in turn, requires that those responsible for fishery developmenthave an appreciation of the economic perspective underlying the fishery management argument.This does not require full agreement with all of the elements of this perspective. However, theinsights it provides should prove to be invaluable and, at the very least, may spawn a healthydegree of caution in advocating specific development strategies.

II.b.5. Public Investment in the Fishery

As indicated earlier, because property rights in the fishery resource are weak, there existfew incentives to invest in its productivity. Thus development of the fishery sector may bepossible either through creating these incentives by changing institutional arrangements orthrough public investment. Illustrations of the former are discussed in section II.d. Examplesof the latter include programs to improve infrastructure, port facilities, and banking facilities.It is likely, however, that development incentives are weakest at the harvesting level. Thus fishhatchery programs, programs to improve weather forecasting, and those that reduce waterpollution levels, could increase productivity but would be unlikely to find financial support inthe private sector. This is because, in an open access fishery, the benefits of the investmentcannot be claimed by the investor. Thus, the public sector may have a role here. Again,however, such programs should be coordinated with appropriate management programs to beeffective in generating economic gains to the fishery sector and the rest of the economy.

Public investment programs serve to illustrate, once again, the interdependencies betweenmanagement and development policies in the fishery. Development strategies employed in theabsence of management considerations may have unanticipated consequences. By the same

"7With the exception of the unexploited fishery, as noted. Even here, however,development and management should work hand-in-hand. Only if the vessel subsidyprogram can be shown to generate greater benefits than costs - perhaps through realizingscale economies in vessel construction - can an argument be made that such a program willincrease net economic output.

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token, management strategies that fail to consider development activities may also be frustrated.For example, efforts to expand markets for fish products may frustrate a management policydesigned to reduce harvest activity. In short, fisheries management and fisheries developmentshould be considered together.

II.b.6. Industrial and Artisanal Fisheries

The economic consequences of a vessel subsidy program in an open access fishery werediscussed in the example of subsection II.b. 1. Similar consequences can be expected from otherprograms to subsidize the use of inputs. This includes provision of low-cost financial credit,subsidized fuel, and publicly-funded mechanization programs and marketing services. From adeveloping country's perspective, however, there are circumstances in which such policiesappear to make economic sense. This was especially true prior to the 1970s; that is, prior towhen most countries extended their fisheries jurisdiction. After all, with fish on the high seasavailable on a first-come-first-serve basis, an expanded, faster and more mechanized fleet meantthe potential for a greater share of the harvest for that country. Developing programs with thisobjective would be the expected behavior of any participant in an international open accessfishery. Greater gains could have been realized through international management of the fisherybut, without such management, efforts to capture as large a share of the international oceans aspossible undoubtedly appeared to be rational.

As a result, those individuals able to take advantage of such programs became membersof the country's mechanized (industrialized, large scale) fleet. Fishermen unable to do so madeup the small scale (artisanal, traditional) fleet. In other words, the dual structure alreadyexisting in the fishery of many developing (and some developed) countries became even morepronounced (Panayotou (1985), Sakiyama (1982)). This has led to conflict over the resourcebase. Ian Smith (1979) cites examples of violent clashes in Southeast Asia between traditionaland industrial fishermen. Conflict also occurred - and continues to occur - in themarketplace, where those in the industrial sector, with greater access to capital markets (oftensubsidized), bid up input costs to the smaller-scale fleet. The problem can be worsened if theindustrial fleet, because of scale economies and lower input costs, is able to deliver fish at lowerprices than can its rival in the traditional sector. Finally, if the large scale fleet competes withthe small scale fleet and if the former is encouraged to expand through various subsidy programs- all in the name of fishery development - the traditional fishery may witness declines in theshare of incomes accruing to it. Lawson (1984) and I. Smith (1979) are among those who reportthat this has, in fact, happened on a widespread basis.

The problem has not gone unnoticed. Concerned governments have addressed it byproviding access to the subsidy programs available to the industrial fleet (Panayotou (1985)).In many cases the results of this policy, however, have been those discussed in Subsection II.b. 1above: failure to generate increased net benefits and, thus, frustrated expectations. Again, anunderstanding of the consequences of the many intra-industry externalities in an open accessfishery may have prevented this result.

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II.b.7. Cost Reductions in the Fishery

The world's fisheries contain many examples of management policies that, however well-intended, serve to reduce rather than increase economic efficiency and, thus, may retarddevelopment of the fishery sector. Management schemes that make the fishery more costly toprosecute (e.g., gear restrictions, time and area closures) may not increase the economy's outputbut, rather, may simply erect artificial costs with questionable benefits (Crutchfield andPontecorvo (1969)). Resources are not transferred to productive employment elsewhere.Rather, existing resources are simply rendered more inefficient.

Some cost reductions may be possible in a developing fishery, however. Gearimprovements may increase the fishing ability of the individual fishing unit. By itself, thiswould not address the open access issue. However, when accompanied by an appropriate andeffective management program, considerable output gains could result. Improvements in vesseloperations, fish-finding techniques and other technical changes that reduce costs of harvesting,processing, storage, etc., if accompanied by appropriate management, can lead to increased netoutput in the economy. Because early adopters will realize the greatest gains, public programsto generate these cost reductions must be sensitive to any dislocations and redistributions ofincome and status that may result. Nonetheless, cost reductions may lead to genuine economicgains and assist the development process.

II.c. INCOME LEVELS AND DISTRIBUTION IN THE FISHERY

II.c. 1. Open Access and Income From Fishing

To this point it has been postulated that the goals of fisheries development are (1) toincrease the contribution of the fishery sector to the output of the economy and (2) to increasethe incomes of those in the fishery. It may be helpful to explicate more fully how incomes aredetermined in an open access fishery, at least as hypothesized by economists.

As indicated above, the problem with the open access nature of the resource is that thenet output of an economy is less than it would be if the resource were owned by individuals.Just as owned agricultural land generates a rent to the owner, so would rent accrue to the ownerof the fishery resource. The agricultural landowner purchases only enough non-land resourcesto maximize the expected return (rent) to his or her land. Without individuals having similar,strong property rights in the fishery resource, inputs are not allocated to maximize resourcerents. Effort (capital and labor) can be expected to enter the fishery until the return to themarginal unit of effort is what it could earn elsewhere in the economy. If the marginal unitearned more in the fishery than it could elsewhere, that unit would enter the fishery; if it earnedless than it could elsewhere, it would leave the fishery in favor of alternative employment.Because there is no fishery resource owner "hiring" these units of effort, they enter until returnsto the fishery resource itself are driven to zero.

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Despite this, the returns to effort in the fishery are, essentially, determined by conditionselsewhere in the economy. If incomes are low in the fishery the culprit is not open access: itis the lack of opportunity elsewhere. Correcting the open access "problem" will not, by itself,raise incomes to fishermen or other units of effort. Further, as pointed out by Emmerson(1980), non-labor incomes may be low because of lack of ownership of any resource, not justweak ownership rights in the fishery. Panayotou (1985) reviews many cases in which personalincomes in the fishery are higher than those in agriculture.

Indeed, one appropriate development strategy for increasing incomes of those in thefishery - even an open access fishery - would be to devise policies that improve opportunitieselsewhere. This could be accomplished through programs to increase wage rates in those sectorsto which fishermen could move and/or through programs (e.g., education, retraining) thatincrease the mobility of fishermen to other sectors. If successful, such programs would increasethe incomes of both those who do move and those who remain in the fishery."8

While fishery management policies to "correct" the open access "problem" will not bythemselves necessarily lead to increased fishermen's income, such policies are consistent witheconomic development objectives. As argued above, the policies should result in increased netoutput of the society of which the fishery is a part. To whom this output (including theincreased resource rents in the fishery) will accrue depends on the particular policy selected.

For example, if a policy of restricting effort in the fishery is adopted (e.g., throughtransferable catch quotas), those remaining in the fishery would gain ownership of a marketableasset to which an economic return would accrue. On the other hand, any such gains could betaxed away by the government, whose use of the revenue would determine how the output gainsare distributed. Indeed, where a federal government collects such taxes and fails to return anyof the proceeds to the local fishing community, resistance from that community can be expected.Other management policies would have different income distribution consequences. Nonethelessfishery management may be a highly effective strategy to increase the contribution of the fisherysector to the net economic output of society, including the fishery sector itself.

II.c.2. Conditions of Unemployment Elsewhere

Implicit in the discussion to this point is the assumption that the economy is at or nearfull employment - or, at least, that resources removed from the fishery would have productiveemployment elsewhere. Suppose this is not the case. Does it not make economic sense to allowsuch otherwise unemployed effort to enter the fishery freely? Is this not an exception to theargument that fishery management will generate positive economic benefits?

"8Some programs designed to increase incomes for humanitarian purposes or to preservelocal communities may discourage mobility. Schrank et al. (1989) argues that this is the caseof the unemployment compensation programs in the fishing communities of Newfoundland.

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In a word, no. Even here it is generally true that reducing resources in the open accessfishery will permit the remaining resources to be more efficient, reduce externalities, and leadto increased net benefits for the entire economy.

The argument is analogous to the case in which it does not pay a farmer to applyadditional quantities of irrigation water to his or her crops - even if the price of water is zero- if doing so would reduce crop yields. For the fishery, unemployed labor and/or capital willenter the open access fishery as long as net revenues are greater than zero, largely because offailure to consider foregone future yields. In the extreme, the fishery could be driven toextinction."9 Removing inputs from the fishery could increase both the fish population and theflow of output (annual harvest) from that population. The fishery would, thus, be capable ofgenerating an economic rent; i.e., of making a contribution to the economic output of thesociety.

It is tempting to propose as an alternative to restricting effort a program to increase thedemand for, and hence the price of, the fish in question. Unfortunately, this will generate onlytemporary benefits that quickly disappear. Such a program may encourage additional units ofeffort to enter the fishery,20 further pushing the fishery to extinction and resulting in evengreater economic losses, when measured in terms of foregone opportunities. Of course,precisely what will happen in any given fishery will depend on the behavior of the owners ofinputs and on the production relationships in the fishery itself. Nonetheless, even in the caseof less than full employment, we cannot escape the conclusion that an understanding of thebiological, economic, and legal (institutional) characteristics of the fishery is crucial to accuratepredictions of the consequences of development programs.

II.c.3. Distribution of the Gains from Fishery Management

Several respected economists have attacked the notion that open access fisheries shouldbe managed for economic efficiency, arguing that this overlooks the important question of wealthand income distribution (Bromley and Bishop (1977)). It is true that the standard fisherymanagement model is largely silent on this point. This does not mean, however, that those withdevelopment responsibilities should refrain from addressing the issue. On the contrary incomeredistribution may be an explicit goal of fishery development. Indeed Todaro (1985) is amongthose development economists who argue that "greater (income) equality in developing countriesmay in fact be a condition for self-sustaining economic growth" (Todaro (1985), p. 160). How,then, can income distribution be explicitly considered in the context of fishery management?

' 9There are cases where driving a fishery to extinction may be economically rational.However, appropriate circumstances for such a case may require infinitely high discountrates, in which future revenues have no present value.

20Including more intensive application of effort already in the fishery.

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Clearly several aspects of this question would have to be addressed. First, income tofishermen may go beyond compensation for labor. A common remuneration system in manyfisheries is one in which fishermen share in the revenue generated by the vessel on which theywork. Thus a portion of their income is a return to risk. If development results in a highercapital/labor mix in the fishery, this could lead to a redistribution of income.

Second, there is the question of returns to large scale fishermen versus returns to smallscale fishermen. Panayotou (1985) points out that the latter may exceed the former (on a returnto investment basis). A management strategy that restricts effort could change the proportionof small to large scale fishermen and, thus, alter the distribution of income. While economicefficiency criteria may suggest reduction of the most costly portion of the fleet this would haveto be measured against resulting impacts on the distribution of income.

A point related to this pertains to the perceived "foregone option" cost of precluding freeentry to potential fishermen. In communities with a long history of fishing, there may be areluctance to leave the fishery - even for a more financially rewarding occupation - if thosewho move believe that returning to the fishery (at zero private cost) is foreclosed to them.Here, then, is a possible cost of fishery management, one that may lead to strong politicalpressure to preserve a fishery in its open access condition. (See Schrank et al.(1989).)

Income distribution concerns may help determine the appropriate management tool toselect. Copes (1986) argues that a scheme of individual transferable quotas may have severalundesirable properties, including the accumulation of quota (an income-generating asset) in thehands of a few. The resulting distribution of income from fishing could be highly skewed.

Yet another aspect of income distribution pertains to a tendency towards favoring a moreequal distribution of income in times of economic hardship. Thus, policy-makers who usefishery management as a development strategy may need to be sensitive to the occasional needto sacrifice economic efficiency in order to assure survival of economically disadvantagedgroups, at least in the short run (Emmerson (1980)).

If a fishery is managed to generate substantial resource rents, these rents can be"captured" by the regulatory authority for the benefit of the resource owners (the country atlarge). Distribution of these rents - e.g., through direct payment to selected groups or throughinvestment in various employment-generating projects (such as aquaculture) - may haveprofound effects on income distribution. Thus fishery management and income distributionobjectives need not be in conflict and, in fact, may be highly complementary. Indeed, their co-existence may provide a ready-made opportunity both to improve overall economic efficiencyand to realize income distribution objectives.

II.c.4. Community Development vs. Fishery Development

It may be argued that a more appropriate goal of fishery development than increasing theeconomic contribution of the fishing sector is to improve the economic and social conditions ofcommunities in which fishermen reside and in which fishing-related activities take place. That

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is, perhaps a goal of fishery development should not be to increase the incomes of fishermenbut, rather, to increase the incomes of those in fishing communities, even if this means reducing- even eliminating - the role of the fishing activity in such communities. Because fishing maybe only one of the economic activities of such communities, fishery development and fishingcommunity development need not be synonymous. While many coastal communities are highlydependent on the fisheries resource for their economic viability, this may be the result ofresponse to conditions in the past, conditions that may have changed or that could change in thefuture. What, for example, are the costs and benefits of developing an infrastructure that wouldbroaden the economic base to include tourism, small-scaie manufacturing, agriculture, oraquaculture?

This is not to suggest that fisheries should be ignored in devising programs to promotecommunity development. On the contrary fisheries may continue to play an important rolewithin the improved infrastructure and may spawn the development of supporting serviceindustries (a bait fish industry, gear manufacturing, etc.). The point is, however, that to pursuecommunity development requires an assessment of all alternatives available to the community,including - but not limited to - growth of the fishing sector.

II.c.5. Strengthening Property Rights: The Case of Aquaculture

As noted earlier, there are significant differences between fisheries and agriculture,largely because of differences in the strength of private property rights as between the twosectors. Agriculture emerged from hunting when the benefits of defining and protecting rightsin land exceeded the costs of doing so (Demsetz (1967)). Benefits rose with increased demandfor the output of land and costs fell with the invention of devices to exclude others from use ofthe land (e.g., barbed wire fences). Hence farming and ranching became an efficient alternativeto hunting.

This is happening in the case of the fishery. With increases in the global demand forseafood and with the emergence of techniques to rear fish and shellfish in captivity, aquaculturehas grown into a formidable competitor in the production of seafood. There is a large literaturedescribing aquaculture in developing countries. Indeed, a report by the National Academy ofSciences (1978) (NAS) maintains that those countries that are "developed" in other respects -especially the U.S. - lag behind many developing countries where aquaculture is concerned.The reason for this, according to the NAS study, is that aquaculture is actively encouraged indeveloping countries through government lending and technical assistance programs, and throughconcerted efforts to develop new markets and expand existing markets for aquaculturallyproduced products. Further, with fewer competitors in developed countries for the land andwater resources used in aquaculture,2" these countries may have a competitive advantage inaquacultural production. In both developed and developing countries, however, aquaculture may

21Aquaculture often competes with recreation and irrigated agriculture in the developedcountries.

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compete with commercial fishing for both markets and resources (such as estuaries). Potentialconflict must, therefore, be considered in the design of any aquacultural development strategy.

Nonetheless, the transition from a hunting to a farming activity in the fishery sector maybe an appropriate course of action. Aquaculture may be the sector to which "redundant"resources in the fishery move most efficiently and effectively. The "way of life" of the fishfarmer may be significantly different than that of the fisherman, but the differences may be lessextreme than those between fishing and other activities unrelated to seafoods.

Aquaculture has its own set of real externalities; effects on water quality, and the spreadof disease among cultured species are examples. Institutional arrangements should be designedwith these externalities in mind. Nonetheless, here is a potential source of development for thefishery sector. Beyond this, the lessons from development of the agricultural sector can be usedto construct policy for aquacultural development and hence, will not be treated further here.22

Indeed Loayza (1986) has an excellent discussion of many of the key issues.

II.d. FISHERY MANAGEMENT AND COLLECTIVE ACTION

II.d. 1. Is There Necessarily an Open Access Problem?

To re-cap, the open access nature of the fishery results in (1) having resources employedin that sector that could, if employed elsewhere, add to the net output of the total economy,including the fishery sector itself and (2) disincentives to invest in the productivity of the fisheryresource. Development authorities that seek to increase the demand for the products of thatsector or that subsidize entry into that sector, without careful consideration of the open accessissue, run the risks of aggravating the redundant resources problem and failing to increaseincomes of those in the fishery, as suggested earlier. But is there necessarily an open access"problem" in a particular fishery? The question should be addressed for each fishery or groupof fisheries being considered for development. The answer will depend, in part, on the speciesin question and the institutional (including cultural) arrangements of the society, country andregion.

Consider an oyster fishery, for example. If the legal structure is such that oyster landsare "public property" and unregulated efforts to expand the markets for oysters or to decreasethe unit costs of oyster harvesting may not lead to expansion of long run oyster productionbecause the open access nature of the fishery provides few incentives for private investment inoyster producing grounds (Agnello and Donnelly (1975)). Output may increase in the short runwith more intensive harvesting of the existing stock of oysters. However there is little incentiveto invest in the fishery through increased planting or foregone current harvesting. In the absence

22Aquaculture and agriculture may be highly complementary. Indeed the "waste" of onesector may serve as an important input in the production function of the other (see Tagarino(1985)).

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of programs to address the open access issue directly (e.g., through changes in the law) publicinvestment in oyster production may mitigate this tendency, albeit at a not insignificant socialcost.

If, on the other hand, oyster grounds are privately held, where private holdings couldinclude either individual or collective property rights, the externalities generally associated withopen access are no more severe than those found in agriculture. The consequences of an effortto develop markets and reduce costs would be different than in the open access case. Thus, itis imperative, in assessing a development project in fisheries, to determine whether the fisheryis, in fact, characterized by open access features.

If a fishery is found to be open access, a change in institutional arrangements may endowit with private property characteristics. In the case of public oyster grounds, this could beaccomplished by changing institutional arrangements to permit private holdings of long-termleases in oyster grounds.

Movement from public to private ownership of oyster-growing lands is probably not cost-free, however. Indeed, severe dislocations could fall to those unable to acquire leases. Thusefficiency and equity issues must be considered jointly - and in the context of the relevantculture.

Can changes in institutional arrangements lead to changes in incentives in the case of non-sedentary species? Yes. In the absence of fishery management, property rights may be weakat the harvesting level, with fishermen free to enter the fishery. However, decision-making atanother point of the market channel may take place in an environment of relatively strongproperty rights so that the open access problem is mitigated, at least in part. An extremeexample of this is the case of a monopsonistic purchase of fish (Clark and Munro (1980)).Under such circumstances the fishery may be "managed" much as it would be if a governmentauthority were in charge, with fishing resources being employed at a level similar to that deemed"optimal." Furthermore, fishermen themselves may be organized to restrict entry into thefishery. Efforts to expand markets and/or reduce costs may be more likely to lead to increasedeconomic returns to the fishery in such cases. This point deserves careful consideration in thedesign of fishery development policy and is discussed next.

II.d.2. Private (Collective) Action in Fishery Management and Development

In this paper it has been argued that fishery development programs in the absence offishery management may be frustrated and that, indeed, fishery management, itself, may meetsome of the objectives of fishery development. In most of the discussion, fishery managementhas meant central government programs. In fact, fisheries may be effectively managed throughprivate, collective, action. There are numerous examples. Lawson (1984) cites several: theallocation by leaders of fishing communities of beach space and fishing time to seine-netcompanies along the coasts of West Africa; the management of shellfish and seaweed collectionby coastal villages in South Korea and Japan; territorial use rights in some coastal settlements

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of Benin, the Ivory Coast, the Solomon Islands, and Papua New Guinea (Lawson (1984), pp.79-81). Acheson (1975) documents the existence of "fiefs" in the lobster fisheries of the U.S.east coast, while Hanna (1982) describes the role of information and the operations of codegroups in the fisheries. Panayotou (1985) outlines the roles of religion and of fishing rightsbased on custom in restricting entry to some Sri Lankan fisheries. He also suggests that casterestrictions on occupational change and determination of fishing rights by contractualarrangements among merchants, money-lenders, and fishermen contribute to management ofriver fishing in Bangladesh.

Several conditions lend themselves to such collective action. These include relatively lowsurveillance and enforcement costs and the existence of high barriers to entry. Both of theseconditions may be characteristic of some localized, inshore fisheries. Entry barriers may havetheir foundations in restrictions against individuals considered "outsiders" on religious, cultural,and residence grounds. A development strategy that fails to consider the fishery managementrole effectively played by such restrictions, in which the fishery has "common property" but not"open access" features, may fail to meet its objectives if it advocates policies that eliminate theserestrictions. Programs to increase labor mobility, for example, may break down culturalrestrictions that serve to prevent "overfishing." Other social goals may be realized by such aprogram but at the possible costs of some efficiencies in the fishery.

Recently it has been argued that fishery management can often be most effective if itinvolves both government managers and the resource users themselves, an approach labeled "co-management" (see Rettig, et al. (1989), Jentoft (1989), Bailey and Jentoft (1990), andDepartment of Agricultural and Resource Economics, Oregon State University, chapter XIII(1978)). Under this approach, fishery managers work with fishermen, perhaps through theirorganizations, to devise management strategies and monitor enforcement. Among thehypothesized advantages over management imposed from outside are (1) a greater commitmentto success by fishermen who play an active role in the design of management strategies, (2)reduced public costs through use of data provided by fishermen, and (3) a better understandingof fisherman behavior. This joint management approach is not without potential problems,however. Fishing organizations may be reluctant to advocate policies that are perceived todisadvantage some of its members (for example, through restricting entry), leading to internalconflict. It may be possible to address this problem through the appropriate delegation of bothresponsibility and authority (Jentoft (1989)).

The lesson here is the same as before: an appropriate development policy requires thatthe specifics of the fishery in question be understood. This calls for an understanding of legalarrangements, cultural mores, market structure and characteristics of the production relationshipsin the fish stocks themselves.

II.d.3. Establishing a New Fishery

In some regions there exist stocks of fish whose prices are too low or harvesting coststoo high to sustain a profitable fishery. There may, nonetheless, be development possibilities

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for such a virgin fishery if the cost-benefit ratio changes. To determine whether this is sorequires both biological and economic research. Fishing trials may be appropriate to determineactual stock levels and species interactions. Alternative gear types may be tested. Research onthe markets for alternative forms in which the fish may be sold, either locally or in distantmarkets, may reveal untapped potential.

A variety of arrangements for prosecuting the fishery may also be available. Includedhere could be cooperative fishing arrangements with other regions or countries, discussed in theprevious section. The attractiveness will, of course, depend on the costs of services providedby partners as well as whether such partnerships open up new markets. There could be a highpayoff to exploring such options in lieu of "going it alone," although the latter may turn out tobe the preferred strategy.

Development of an "unutilized" fishery also requires the establishment of institutionalarrangements to assure that the resource will be exploited to greatest economic advantage.23

This may entail establishing territorial boundaries within which fishing is permitted. Forexample, a region may specify an area in which the entire community holds the right to useresources and to exclude others. Such territorial use rights in fisheries (TURFs) have a longhistory but have recently attracted attention as devices to manage "remote, scattered, and fluidsmall-scale fisheries" (Panayotou, (1983), p. 154). TURFs are a particularly attractivemanagement tool when there exists the potential for a multispecies fishery employing a varietyof gear types in areas where the costs of policing regulations are high. While TURFs requirethat boundaries be defined and protected from outside, they have the advantage of not requiringthe monitoring of individual fishing units. With the TURF each fishing unit is required toconsider the effects of its actions on the costs and revenues of the others; i.e., many of theexternalities of an open access fishery are internalized, depending on the mobility of the fisheryresource relative to the size of the TURF.

According to Panayotou, "(t)he creation of a TURF might increase local incomes in anumber of ways: (1) by acquiring a larger share of resources following wealth redistribution(through exclusion of outsiders); (b) by generating rents, captured in part or entirely bymembers, through fishery management...; (c) by retaining a higher percentage of generatedincome within the community; and (d) by facilitating more integrated development, i.e.,community control over processing, marketing and distribution, and further enhancing localeconomic linkages" (Panayotou, (1983), p. 158). Here then, seems to be an appropriatestructure for developing a new fishery where development has an income generating andredistribution objective.24

23From the point of view of the entire country.

24In personal communication with the author, Kaczynski argues that some analysts whoearlier defended TURFs no longer do so.

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But it is only one structure and alternatives merit careful consideration. Whateverstructure is fselected, however, development authorities must be sensitive to the possibility thata new fishery will generate conflict with existing fisheries or competing industries. The conflictmay be physical (competing resource use claims, perhaps illustrated by gear conflicts) oreconomic (competition in the market place). The first may be addressed through equityconsiderations in the establishment of property rights, preclusion of certain kinds of economicactivity, or other "rules of the game." The second may require market analysis and judiciousselection of marketing strategies, perhaps to exploit different seasonal patterns of demand.

In any event the decision to exploit a new fishery should not be made lightly. It is notnecessarily true that an underutilized fish stock provides economic opportunity. Whether it doescan be determined only through research on the biological, economic and institutionalpossibilities. Some of the research may be supplemented by lessons from the experiences ofother countries.

II.d.4. Fishery Management and Fishery Development Under Extended Fishery Jurisdiction

Consider the role or fishery management and fishery development in the context of globalextended fisheries jurisdiction (EFJ). With most coastal countries having declared managementauthority - in some cases, even sovereignty - over waters formerly considered the "high seas,"there appears to be an opportunity for such countries to use these newly acquired resources foreconomic gain. Many of these countries, including developing countries, see the bestopportunities for gain to lie in development of the fisheries of these waters. This may lead toopportunities for cooperation with other nations, especially those with developed distant waterfleets. Thus, in contemplating alternative management/development strategies, it is appropriateto review options that include such cooperation, rather than focusing solely on autonomousdevelopment activities. To review the issue in the context of EFJ allows the discussion toembrace options which, for some, may be unrealistic at the present but could be viable at somefuture date.

Consider a coastal country that finds itself with "ownership" of new (to it) oceanresources. There are several alternative - some complementary, some competitive - uses ofthese resources: ocean mining, transportation, fishing, waste disposal, recreation, are examples.In designing a development strategy, one must early ask which of these activities to encourage.If the country's economic objective is improved well-being of all its citizens, estimates of theexpected costs and benefits of the alternative uses of the new resources should be made. Insome contexts, offshore mining, whether undertaken by the coastal country itself or by a foreignpartner (under a royalty, fee, or shared revenue arrangement), may generate the greatest neteconomic benefits to the country. Such activity may preclude expansion of the fishery becauseof interference with the fish stocks through, say, water pollution. Altematively it mayencourage such expansion as, for example, when offshore structures serve as fish attractants(Loayza (1992)). Whatever the case, the decision to develop the fishery should be made afteralternatives have been evaluated. Economic, political and social factors will have roles to playbut, if considered before embarking on a fisheries development program, may reduce the

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probability of frustration in the future associated with having made an incorrect - and, perhaps,irreversible - "wrong decision."

II.d.5. Use of Foreign Partners in Developing a New Fishery

Suppose a country elects to use a foreign partner in developing a new fishery. The nextquestion to address is how.

Suppose, further, that the country's overall development objective is to expand the netoutput of the economy and that the fishery is seen as a sector that can contribute to this. Wehave seen that fisheries management - whether public or private - should be treated as animportant component of a fishery development strategy.

Viewing fishery management and development interdependently suggests that a numberof cost-benefit calculations must be made simultaneously. A coastal country that seeks tomaximize the retums to its fishery resource may find it to its best advantage to importmanagement, harvesting, or processing expertise. This could come in the form of a distantwater fleet that finds it in its best interest to prosecute the fishery such that both coastal (host)and distant water countries benefit (see Munro (1985); Johnston and Wilson (1987)).

Thus, joint venture and other cooperative fishing arrangements with foreign partners maybe seen as more than simply a necessary evil in the transition to a fully domestic fishery. Theremay be compelling comparative advantage arguments for preferring foreign to domesticprovision of some fisheries-related services. These services could include hiring of distant waterfleets to conduct the fishing activity in return for a fee or the establishment of a joint venturein which the foreign partner harvests the fish while the coastal country provides harvesting andmarketing services. Alternatively, fishing could be the responsibility of the host country, withprocessing and marketing services provided by the foreign partner, perhaps on floatingprocessors stationed near the domestic fleet. These arrangements could be particularly attractivein the case of seasonal fisheries, because significant cost advantages may rest with the distantwater fleets that move from one coastal fishery to the next as the seasons change.

A similar argument can be made for management services. That is, with high costs ofmanagement, including enforcement, a country with newly-acquired jurisdiction over resourcesmay find it advantageous to contract with other countries to police the use of its resources.However, in a fishery having open access features, policing the fishing activity and engaging inthe fishing activity itself may be conducted jointly. That is, if the contractual arrangement withthe foreign country is of a relatively long-term nature, that country would have an incentive toprosecute the fishery in a manner that maximizes net returns to the resource. This will be thecase as long as a portion of this resource rent accrues to the foreign partner.'

25Clarke and Munro (1990) demonstrate that, if the two partners value the futuredifferently, they may view different levels of fishing activity as being optimal. They suggest

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On the other hand, distant water fleets may have little incentive to do more thanmaximize short term returns if contracts are short term in nature. Such contracts do, however,provide some flexibility for both parties (Lawson (1984), p. 195). In any event the duration ofthe contract, as well as its other terms, would be crucial in devising an investment strategy thatinvolves partners.

Clearly the issue requires careful assessment of alternatives. Even if economicconsiderations appear to favor the presence of a distant water fleet in the developing country'swaters, there may be substantial resistance to it. This could be the case if the objectives of thecoastal nations differ from those of its foreign partner; if the foreign partner is perceived to havemuch stronger bargaining power and access to more information, either biological or economic,than does the developing country; and if those in the developing country believe that theircountry has a hidden comparative advantage that will be revealed after a short period ofprotection and risk-reducing fisheries management.26

Cooperative arrangements with other countries could contribute to economicdevelopment. The purpose of the present discussion is not to advocate their use but, rather, tosuggest that formulation of a development policy should not preclude consideration of sucharrangements. However, a thorough analysis of alternatives is required to determine which, ifany, yields the greatest payoff to the developing country.

II.d.6. The Role of Time Preference

A complete discussion of economic development requires consideration of the many rolesof time. For purposes of the present discussion an important dimension is the rate at whichfuture costs and revenues are discounted. There may be differences between how the individualdecision-maker discounts the future and how the community of which he or she is a memberdiscounts the future. Collectively, the community (or its public policy-makers) may place arelatively high value on preserving resources for the future while, to the individual, presentconsumption may appear to be more attractive. Selection of the appropriate managementstrategy involves careful consideration of the tradeoff between current and future earnings.Indeed, the measure of benefits from any development program calls for such a determination.

The rate at which the future is discounted may also be an issue between internationalpartners in a cooperative venture, organized to prosecute the fishery. A distant water fleet withmaiy alternative sources of fish and/or a different social/economic structure, differentexpectations, attitudes towards risk, and tenure of government than that of the coastal nation may

tax-subsidy schemes to address this issue. A point they do not address is that competitionamong potential foreign partners may also resolve the issue in favor of the developingcountry.

26See Munro (1985) for further development of this infant industry argument.

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be inclined to exploit a fishery more intensively than would its host.' This may lead to stockdepletion or to harvesting activity at a rate that is inconsistent with the development objectivesof the host country.28 Conflict may result. It is imperative that this be resolved amongnegotiating partners in specifying contractual terms.

The matter of the appropriate discount rate is something to which those who plandevelopment projects in general must be sensitive. Todaro (1985) argues that "(t)here are manyreasons for believing that in developing countries market prices of outputs and inputs do not givea true reflection of social benefits and costs" (Todaro (1985), p. 482). Among the reasons helists are price controls to attempt to curb inflation, artificially maintained exchange values ofcurrencies, factor-price distortions (e.g., minimum wage rates set by labor unions; subsidizedinterest rates), tariffs and quotas, low saving rates, and divergence of market interest rates fromsocial discount rates. For these reasons and because of externalities - a central feature of theopen access fishery - it is important that differences between observed prices and opportunitycosts (i.e., economic benefits foregone) be assessed in designing a development strategy.

II.d.7. Reconciling Planning Objectives

Throughout most of the paper to this point, it has been assumed that the goals of fisheriesdevelopment are to increase the contribution of the fishery sector to the economic well-being ofthe country and to increase the incomes of those in the fishery. However, governments mayhave other goals for the fishery sector. Lawson (1984) (p. 157) presents a partial listing thatcontains fourteen objectives of fisheries development.29 She points out that these objectives canrarely be pursued simultaneously. Indeed there may be substantial conflict among objectives.

27Kaczynski (1983) identifies this as having been a particular problem for developingcountries in dealing with fishing fleets of the former Eastern bloc but it is certainly notrestricted to such cases. More recently, Kaczynski (1991) has observed that it is often thedeveloping country, not its distant water partner, that discounts the future more heavily.

28ln the presence of perfect capital markets, numerous potential partners, and nodiscontinuities, such discrepancies should disappear in the long run. These conditions maynot prevail in a particular fishery.

29Her list contains the following: (1) to increase production; (2) to increase fishermen'sincomes; (3) to increase employment (not necessarily only of fishermen); (4) to developexports; (5) to improve the socio-economic conditions of fishermen; (6) to decrease rural-urban drift or to achieve a better regional balance; (7) to promote general all-roundexpansion of fisheries; (8) to develop fish farming, aquaculture and brackish-water fisheries;(9) to introduce modern equipment and develop distant-water fisheries; (10) to develop co-operatives or fishermen's associations; (11) to increase small-scale fisheries; (12) to promoteprocessing industry; (13) to improve domestic fish marketing and reduce the price paid bythe consumer; (14) to enter into joint ventures as a means of acquiring skills andmanagement.

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For example, promotion of exports from an open access fishery may create incentives to expandfishing effort, resulting in an eventual reduction in the production of fish.

Is reconciliation of objectives possible? It has been a thesis of this paper that fisherymanagement can result in increased efficiency in the fishery, leading to net economic gains.Such gains can be used to address several development objectives, including incomeredistribution, as demonstrated earlier.

This view is supported by Christy (1987),3° who has argued that there are fewopportunities to expand the catch of marine species. According to Christy, "There are numerousindividual stocks of fish that are being fished close to, or beyond their points of maximumsustainable yields. With limited opportunities for increased catches, there are limitedopportunities for investment in additional fish catching capacity. As a corollary to this, thereare significant opportunities for increasing net revenues from fisheries by improved managementand the reduction of excess catching capacity" (Christy (1987), p. 1).

Indeed use of fishery management as a development strategy may permit severalobjectives to be satisfied at once. In the example given above, promotion of exports from amanaged fishery may lead to increased production from the fishery because effort will be "hired"only when the economic contribution of additional units is positive.

The lesson is clear: in the case of intra-industry externalities, fishery management,whether public or private, may be a means for satisfying several development goals; it may alsohelp avoid some of the costs associated with development efforts in the absence of management.

3t am indebted to Dr. Bruce Rettig for bringing this important paper to my attention.

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m. INTERINDUSTRY EXTERNALITIES

11I.a. INTERDEPENDENCIES WITH OTHER SECTORS

III.a. 1. Development in the Fishery Sector vs. Development Elsewhere

To this point the discussion of externalities has taken place in the context of fisherydevelopment. But this begs an important question: should the fishery be developed?

Whether development of the fisheries sector should be encouraged depends on thepotential contribution of that sector to the total economy, relative to the potential contributionof other sectors. After all, public policies to encourage (promote) development requireresources. Whether such resources have a higher payoff if devoted to fisheries than if devotedto other sectors is an empirical question. To answer it requires collection of data on all sectorsand an understanding of institutions. Some appreciation of the interdependencies with othersectors of the economy could be generated via input-output analysis, which permits theidentification of linkages associated with changes in the fisheries sector. A more completeunderstanding may require careful econometric analysis of cause and effect relationships, withcareful attention to institutional arrangements, including relevant market infrastructures (thenature of the transportation and banking systems, for example).

Managing the open access fishery is not cost-free. In addition to the adjustment,dislocation and cultural costs already discussed, there are often significant administrative costsassociated with fishery management. These include the costs of enforcing compliance withregulations, which could be high enough to raise questions about the economic benefits ofmanagement (Sutinen and Andersen (1985)). Management costs vary across fisheries andregions and are different for different regulations. A tax on landings would be more costly toadminister for a fishery in which there were many buying stations in remote areas than one inwhich there are one or two ports of delivery. A local fishery with clearly defined geographicalboundaries, such as a small estuary, would be less costly to manage than one with broadly-roaming pelagic species. The relative magnitudes of these costs are often instrumental indetermining not only what management strategies are employed but whether they will beundertaken by those in the fishery itself: i.e., private, collective, action as opposed tomanagement by a central government.

If management is selected as an appropriate fishery development tool the developmentauthority may find it beneficial to encourage such private, collective action. If so, efforts toreduce the costs of enforcement (patrol boats, etc.) may generate the incentives for local groupsto assume this responsibility. As pointed out by Lawson (1984), such programs require acommitment to resource management by the participants. An understanding of the socialstructure and cultural characteristics of the affected population is a necessary prerequisite togenerating such a commitment.

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Here, then is a central question: does development of the fishery sector appear to be thewisest use of scarce resources in light of the country's overall economic, social and politicalobjectives? In the last chapter of this paper an affirmative answer to this question has generallybeen assumed. In what follows this assumption will be preserved but, having introducedconsideration of development of other, non-fishery, sectors, the paper can now turn to anotherset of externalities: those that involve interdependencies between the fishery sector and othersectors; i.e., inter-industry externalities.

III.a.2. Decisions in Other Sectors that Affect Those Dependent on the Fishery

As indicated earlier, a successful fishery development program requires an understandingof the interdependencies between the fishery sector and other sectors of the economy. Indeed,one of the expected benefits of management of the open access fishery is that it will moveresources from the fishery to more productive employment elsewhere. For this to happenrequires that there be productive employment elsewhere (see discussion on unemployment) andthat its nature (location, duration, etc.) be known.3'

There is a related reason for needing to consider the fishing sector as a component of thetotal economy.32 In many regions fishermen are not employed in the fishery on a full-timebasis. Their work is seasonal, as is the fishery. They may also be employed in agriculture,where their incomes are also considered low. Thus, if a goal of fisheries development isincreased incomes for fishermen, strategies in the fishery sector should be coordinated withstrategies in the agricultural sector.

Furthermore in many countries fisheries receive little attention from the centralgovernment because fishermen have little political strength. While a policy of benign neglectmay be appropriate for sectors in which property rights are strong, growth opportunities maybe missed by such a policy in the fishery sector. If economic development could be encouragedthrough transfer of resources from fisheries to agriculture a coordinated program between thetwo sectors may facilitate such a transfer.

Development strategies may take advantage of this apparent complementarity inproduction between fishing and farming. Indeed, as Emmerson (1980) points out, suchoccupational diversity may serve as a hedge against uncertainty. Some of the apparentadvantages of specialization may be offset by a portfolio of income sources in industries subjectto economic and environmental fluctuations.

31Although see the discussion of fishery management in the presence of unemployment(Section II.c.2.).

32[ am indebted to Dr. Vlad Kaczynski for bringing my attention to the points discussedin this and the following paragraph.

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There is the possibility that the existence of a fishery imposes costs elsewhere in theeconomy and that activities in other sectors are costly to the fishery. An example of the formeris the water pollution sometimes associated with the waste from seafood processing. Industriesthat require clear water as input to their production process may be adversely affected. On theother hand, activities in other industries may damage fish habitat or lower water quality and,hence, reduce the productivity of the fishery.33 In both cases an "externality" is present which,if addressed directly, may generate positive economic benefits to the society at large.

Finally, mention must be made of the role played by macroeconomic forces on conditionsin the fishery. McCalla (1982) and Schuh (1974), for example, have demonstrated that exchangerates play a vital role in determining income levels in agriculture. A similar case can be madefor the fishery (Johnston and Siaway (1985)).3' The most effective development policies forthe fishery sector may involve adjustment of key macroeconomic variables. At the very least,fishery development authorities should be sensitive to whether changes in the economic conditionof the fishery are the result of fishery policy or if, rather, they stem from changes in overallconditions in the economy. To ignore this relationship may lead to misuse of policy instruments.

III.a.3. Transboundary Migration and Multispecies Fisheries

Fisheries management is complicated considerably when fish stocks fail to recognizenational boundaries. Central governments or private collectives attempting to manage a fisheryfor maximum contribution to the economy may fail in their efforts if they do not havejurisdictional control of the areas over which the fish migrate. Restricting effort in the fisherywhile the fish are in domestic waters is likely to be ineffective as a conservation measure ifeffort is not similarly restricted elsewhere. Fishing activity in one area can have a significanteffect on fishing success in another, a case of inter-regional externalities.

One solution is coordinated management among neighboring states. The undertaking mayrequire agreement on the terms of access to the fishery, joint research (e.g., stock assessment),sharing of data (including market data) and coordinated surveillance and enforcement activities.

33Examples include the impacts of agriculture on the fisheries of the Philippines' LakeBuhi (Tagarino (1987)), conflicts between the demands by the fishing and hydroelectricpower industries for water from the Cuiaba River of Brazil (Ferraz de Lima (1987)), thedetrimental effects on milkfish production of pollution from industrial factories discharginguntreated effluent into the rivers of Bulacan province, Philippines (Padilla (1990), and theadverse impact on Trochus fishing of mining activity in New Caledonia (Leblic (1990)).

34McElroy (1990a) reports that, when the Indonesian Rupiah was devalued between 1974and 1985, domestic prices of tambak shrimp, an Indonesian export, increased dramaticallymore than those of more locally marketed fish products.

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This may present some formidable political problems. However if there is potential economicgain for all participants, the incentive to cooperate should be present.35

A similar problem exists in a fishery characterized by the presence of many interactivespecies. Prey-predator relationships among such species, together with species competition forfood resources and habitat must be understood if management is to be successful in generatingeconomic benefits. The problem is compounded if different fleets, perhaps from differentcountries, target on species that are biologically interdependent. The costs of managing suchfisheries may be high. Whether the benefits are even higher is an empirical question.Development of a multispecies fishery or a fishery characterized by transboundary migrationmust, of course, consider both costs and benefits. There is a substantial literature on theunderlying issues (see Anderson (1986), chapter 5).

Christy (1987) points out that this is also true within a single species fishery. He citesthe case of "a sequential fishery where the juveniles of a particular stock are harvested in onearea by a group of users and the adults are harvested in a different area by a different group ofusers. Harvesting of the juveniles may be done at relatively low cost to the economy and mayproduce benefits for artisanal fishermen. But the fishing of juveniles may reduce the quantityof fish available at the adult stage where prices are higher" (Christy (1987), p. 9). Fisherypolicy in one area should consider effects in the other.

III.b. PECUNIARY EXTERNALITIES

It has been argued here that fishery management may be an appropriate fisherydevelopment tool. The argument is that internalizing intra-industry externalities in the openaccess fishery may lead to greater net national product which, in turn, should generate higherpersonal incomes and improved living standards. The externalities discussed to this point areof a technical, or "real" nature.

However, there is a set of externalities that are often overlooked in designing adevelopment strategy: namely, those associated with the effects of increased total output oninput and output prices, despite the negligible role played by individual firms in determiningthese prices. These are pecuniary externalities. In determining the economic feasibility of, say,production of a fishery product through aquaculture, it is customary to calculate benefits andcosts for a representative producer. It is tempting, in such feasibility studies, to treat input andoutput prices as fixed. If the project appears viable "on paper" and private investment isencouraged, however, disappointment may follow. This is because what looks profitable to oneproducer will look profitable to others (indeed, attracting others to profitable ventures is anappropriate goal) and, thus, could lead to increased volume offered for sale in the market. Theresult could be a price lower than that used in the benefit-cost calculations.

35;Gordon (1987) and Munro (1987) discuss this for the coastal nations of the Caribbeanand Pacific Ocean regions, respectively.

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In addition, increased output can be produced only with increased inputs. The expandeddemand for such inputs may increase their prices beyond the levels assumed in the feasibilityanalysis. This may be a particularly severe problem in the case of productive inputs for whichthe supply is relatively price-inelastic, such as land, including land used in aquaculture. Theresult may be that more productive units will try to enter the industry than can survive.Business failure will result and blame may be placed on the development authority thatencouraged the activity.

This suggests that feasibility analysis must consider price effects from expanded output.The presence of pecuniary externalities does not mean that such developments should bediscouraged.' Rather it indicates that, to reduce the risk of frustrated expectations, anunderstanding of market conditions is crucial. In a competitive environment failure is inevitablebut when it results from incomplete information provided by a development agency itundermines the development activity itself and the credibility of its advocates.

There may also be important inter-industry pecuniary extemalities. For example,increased demand for the output of a non-fishing sector may lead to higher wage rates in allsectors, including the fishery.37 Similarly, a program in the fishery that reduces effort levelsmay shift capital and labor from that sector to other parts of the economy, with attendantreductions in their prices and lower incomes for the input owner. Alternatively, for specialized

'Although the number of production units that can be sustained will likely be lower thanthe number predicted by the feasibility study that fails to account for such extemalities.

37Similarly, with declines in the activity in other sectors, there may be spillover effects inthe fishery. Geistdoerfer (1990) reports on the effects of such declines on the ports of SaintPierre and Miquelon, leading to the demise of a local fishing industry that relied heavily onbeing able to export through those ports.

During the past two decades the fishing industry has demonstrated its sensitivity to changesin the oil economy. In Indonesia, for example, when oil prices collapsed in 1986,govemment revenues fell by a third, leading to a restructuring of that country's tuna fishery,including a reduced role of the public sector (McElroy (1990b)). In the Philippines,increased fuel costs led to a movement of the offshore fleet to coastal areas, negativelyaffecting the small scale fisheries there (Camacho (1987)).

When world-wide copper prices fell and a drought reduced opportunity in the agriculturalsector, labor from these sectors of Zambia turned to the fisheries, with devastating impactsthere (Mulala (1987)).

Economic conditions in neighboring countries may also be important. In Djibouti, refugeesfrom nearby countries, fleeing drought, entered the fisheries, leading to conflict there(Kelleher and Tshibanda (1987)).

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resources, such as fishing vessels, movement may be to new fisheries, including those of othercountries. A current example of the phenomenon is the global search for economic opportunityby fishing fleets rendered redundant by extended fishery jurisdiction or domestic managementpolicies.

III.c. FISHERY DEVELOPMENT IN THE PRESENCE OF INTER-INDUSTRY ANDPECUNIARY EXTERNALITIES

In the first part of this paper it was argued that fishery management may play animportant role in the development of a fishery characterized by real, intra-industry externalities.Can fishery management also address externalities that cross industry lines? What aboutpecuniary externalities?

Note that the mere presence of externalities does not necessarily call for correctiveaction. As stated earlier, this is certainly the case for pecuniary externalities. In addition, somereal externalities may be small relative to the costs of removing them. Nonetheless thoseresponsible for fishery development who ignore such externalities may witness unanticipatedconsequences of their actions, ranging from unexpected price changes to water pollution that istoo costly to clean up. Thus, irrespective of whether such externalities should be corrected("internalized"), simply being aware of their existence, both actual and potential, may assist inthe design of development policy.

Suppose the development authority is considering devising incentives to encourage newaquaculture ventures. If it is assumed that such a policy will have no effect on input and outputprices, the number encouraged could be substantially different from the number that would beencouraged if price changes are anticipated, as discussed in the previous section. A similarargument can be made in the case of an open access fishery. If fishery management is used aspart of a development policy, price effects cannot be ignored. Indeed, a thorough understandingof the market implications of any development policy, including fishery management, is crucialin maximizing the fishery's contribution to the output of the economy.

What about real, inter-industry externalities? There are at least two issues here. First,appreciating the nature of such externalities will be valuable in predicting the consequences ofparticular development strategies, as just indicated. Second, it may be appropriate to considerdevelopment policies that address those externalities directly. A policy that encourages thedevelopment of a seafood processing sector but fails to consider the impact of plant waste onadjacent water-using industries may increase the contribution of the fishery but reduce thecontributions of the other industries. Similarly, a policy that encourages extensive tourism mayhave a devastating impact on the fishery.

These matters are sometimes addressed under the heading of "multiple uses" of aresource. This name suggests that the matter can be addressed only by taking a broad,economy-wide perspective. Fishery management alone, although it may make enormous

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contributions to fishery development by correcting intra-industry externalities, must be combinedwith more complex cost-benefit considerations in the presence of inter-industry externalities.

A variety of strategies are available to manage a fishery. These are usually comparedin terms of their political acceptability and the magnitude of enforcement costs. Some strategieswould involve strengthening property rights (through TURFs, individual transferable quotas,restricted access schemes, for example) or imposing direct costs on decision makers (taxes,quotas), so that they behave as if they were considering the external costs (and benefits)generated by their actions. The result would be an economic rent to the fishery and increasedeconomic benefits to the society at large.

But the economic development consequences may be different for the different strategies.An important reason for this has to do with impacts on markets: i.e., pecuniary externalities.For example, restricting access to a fishery may have different effects on the seasonaldistribution of landings than would a transferable quota scheme, with the latter more likely thanthe former to generate higher landings during times when prices are expected to be high.Different seasonal landings patterns could be reflected in different product forms, differentprices, and, potentially, different market structures. This issue has received little attention andis part of a general phenomenon in which resource management strategies are often selected inthe absence of market considerations.

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IV. FISHERY DEVELOPMENT POLICY

IV.a. MONITORING FISHERIES DEVELOPMENT

Numerous authors have pointed to the failure of development authorities to monitor theirprograms and to follow up the results of their investment decisions. The latter is important inorder to determine if the expected return on investment is, in fact, realized and if modificationsare appropriate. It is also important because of lessons that can be learned from both successfuland unsuccessful development experiences.

Monitoring of development programs is important because of the insights generated bythe act of monitoring. Development programs are often based on assumptions about incentives,culture and market structure that may not be appropriate. A monitoring program should bevaluable in determining the accuracy of such assumptions and in identifying any changes neededif the assumptions turn out to be incorrect.

This is especially true in the case of fisheries management. If a management strategy isdevised that assumes mobility of resources (e.g., of labor out of the fishery and into, say,agriculture), failure to monitor attempts to implement such a strategy may mean problemsassociated with sticky movement of factors are not uncovered. For example it has beendemonstrated that mobility of labor into the fishery is much smoother than movement out of thefishery (Aungurarat (1971)). Thus, monitoring the effectiveness of policies designed toencourage movement out of the fishery should permit adaptation of the policy to these conditionsand minimize dislocation problems. The alternative may be a "failed" development program.

Monitoring is also important in addressing the inter-industry externalities discussed in thispaper. Suppose the assumption of smooth mobility of labor to agriculture is accurate. A fisherymanagement program that encourages such movement should consider its consequences not onlyon the fishery but also on the agricultural sector. These consequences may include lower laborcosts associated with agricultural production but, to those already providing labor services there,this may lead to lower income levels. To the economist this chain of events simply suggests thatthe "market works." However there may be considerable adjustment costs involved and thoseresponsible for fishery development policy may wish to include them in weighing the costs andbenefits of alternative courses of action. In any event, there is an important difficulty withfailure to take this global perspective in designing fishery development projects: the potentialadverse consequences on other sectors of the economy of development in the fisheries sector.

IV.b. LIMITATIONS OF FISHERY MANAGEMENT

The author is among those who have expressed reservations about the normativepronouncements of economists under the heading of "fishery management" (see Clark andJohnston (1987)). These reservations stem largely from the conviction that less is known about

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resource allocation under considerations of open access - or even regulation - than is impliedby the usual management presumptions. In addition, little is known about the relationship of thefishery to other sectors. Thus, particular management strategies may have unintendedconsequences that could undermine their use as development instruments. These unknowns andassociated limitations include the following:

1. Does the absence of government regulation of the fishery necessarily mean thatthe fishery is not "optimally" managed? As indicated above, there are manyexamples of fisheries in which effort is restricted by the collective action offishermen or by religious, cultural and geographical constraints on entry. Oftenthese restrictions are subtle and not easy to detect. Thus a fishery that appearsto have the properties of an open access fishery may, in fact, be generatingeconomic rents through self regulation.

2. The absence of resource rents in the fishery does not necessarily mean that theycould be generated through fishery management, whether public or private. Thepresence of monopoly or monopsony elements elsewhere in the market channelmay already effectively restrict effort in the fishery. Attempts to "correct" theopen access "problem" in such circumstances may be counter-productive.

3. Fishery management may be ineffective because fishermen, being entrepreneurs,are often successful in evading controls. If the benefits to the individualfisherman, whether economic or cultural, of "breaking the law" or of concealingthe information required for management, exceed the costs, there are incentivesto do so.

4. Fishery management may be prohibitively costly. Determination of the strategythat maximizes resource rents may require substantial amounts of data. Inaddition, to be effective, the strategy should be monitored over time, a costlyprocess. Finally, the costs of enforcement and surveillance may exceed theirpotential benefits.

5. In addition to the costs of management, there may be costs generated bymanagement. Adjustments by fishermen to new regulations are not costless.Managing a multi-species fishery on a single species basis may generatesignificant biological and, hence, economic costs. Further, some costs aredifficult to measure, including those associated with disrupting interpersonalrelationships, changes in socio-economic status, and failure to adhere to tradition.These costs may be hidden from the policy-maker and, hence, not considered indetermining the economic return to management.

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6. Where significant pecuniary and/or inter-industry externalities prevail, particularfishery management strategies may have consequences - effects on prices,incomes and production levels elsewhere - that reduce their effectiveness asdevelopment tools.

Do these limitations suggest that the fishery management argument must be abandoned?On the contrary. They indicate that there is considerable research, both conceptual andempirical, needed in the fishery. But such research should not confine itself to the fishery.Addressing the intra-industry extemalities within the fishery has occupied biological and socialscientists for years. It is time to expand the agenda to include consideration of thoseextemalities that cross industry lines. They may be significant and they may not be capable ofresolving by fishery management strategies alone. Policy-makers must bear this in mind as theyprepare their agenda. The paper tums next, and finally, to this topic.

IV.c. A POLICY AGENDA

The designer of a fishery development policy faces both opportunity and challenge. Assuggested in this paper, there may exist substantial potential to increase the fishery's economiccontribution through addressing its open access nature via management. However a set ofregulations designed in the absence of careful consideration of the properties of particularfisheries and their relationships to other sectors may be counter-productive. This suggests thefollowing global policy approach:

1. Careful study by development authorities of the literature in fishery economics.This may sound trite. It is not. An understanding of the conceptualunderpinnings of the fishery economics model should generate insights oftremendous value to policy-makers. The central issue has been described in thispaper under the heading of intra-industry externalities. However, only a detailedstudy of the specifics of the argument will reveal whether or not it has applicationto any particular fishery and economy. Such study is not costless but the returnsto public decision-makers should be high, if only to suggest wherein pastdevelopment policies may have failed (see Sfeir-Younis and Donaldson (1982)).

2. Careful delineation of the properties of the fishery under consideration. Thisrequires an understanding of (1) decision-making within the fishery, (2)production relationships (both biological and economic) within the fishery, (3) theculture and socio-economic environment within which those in the fisheryoperate, and (4) the relationship of the fishery sector to the rest of the economy.This is a multi-disciplinary undertaking, involving biologists, economists andsociologists, at a minimum. Unfortunately (4) is often overlooked by thesescientists, especially the biologists and economists. What is needed is a muchmore comprehensive view of the role of the fishery sector in an economy and anunderstanding of interdependencies with other sectors.

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3. Weighing of the economic and social costs and benefits from devoting resourcesto development of the fishery as opposed to development of other sectors. Thisis a data-demanding exercise and requires estimation of the relevant economicrelationships.

4. An assessment of the costs and benefits expected from fisheries management.Numerous management strategies have been proposed historically and some havebeen implemented. What is appropriate for one fishery may be inappropriate foranother. While experiences are limited, they should be studied because of thevaluable insights they may reveal to development authorities (see Mollett (1986),for example). They must also be studied for what they have uncovered aboutinter-industry and pecuniary externalities.

5. Where property rights are relatively strong (as in aquaculture or managedfisheries) development may take the "usual" forms: cost reductions and demand-expansion. Even in the case of an open access fishery, genuine cost reductionswill have economic payoff.

6. Development of employment opportunities outside of the fishery sector may yieldhigh returns. This includes programs that lead to increased wage rates andreturns to capital elsewhere in the economy. Programs to ease movement out ofthe fishery should also be considered.

7. Public investment projects may yield econonlic payoff; for example, fisheryenhancement programs (e.g., hatcheries) may have high benefit-cost ratios.Programs to mitigate the degradation of fish habitats (e.g., through changedlogging practices), may generate economic returns although, again, a cost-benefitanalysis may reveal the contrary.

In short, the fishery may offer opportunities for increased economic returns to a society.To determine whether this is the case for a particular fishery requires careful analysis of thatfishery and an appreciation of the nature of externalities - intra- and inter-industry, real andpecuniary - in this important resource sector.

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The World Bank

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Chiyoda-ku, Tokyo 100japanTelephone: (2D2) 477-1234 Telephone: (1) 40.69.30.00Facsimile: (202) 477-6391 Facsimile: (1) 40.69.30.66 Telephone: (3) 3214-5001 O

Telex: wus 64145 WORLDBANK Telex: 640651 Facsimile: (3) 3214-3657

RCA 248423 WORLDBK Telex: 26838Cable Address: INTBAFPRAD

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ISBN 0-8213-2132-