CommonPoolResources
andPrivateGovernance
ProfessorHannesH.Gissurarson
EpicenterandIEA,Florence
8September2016:16–17
Iceland,Autumnof1980
•  Youngstudent,invitedtoaconferenceon
“Icelandin2000”
•  Speakersallagreedthatoverfishingin
Icelandicwatersshowedthatcapitalismwas
unfeasible
•  Innocentlysuggestedprivateuserights
•  Greetedwithderision
•  Begantostudyfisherieseconomics,and
commonpoolproblems
InspiredbyHayek
CommonPoolResources
•  “Tragedyofthecommons”(Hardin):open
accessleadstoover-uVlisaVonofresources
•  SoluVon:Developmentofexclusiverights,
individual,orsomeVmesofagroup
•  TheeconomicanalysisfairlystraighYorward
•  Mymainfocus:EthicalandpoliVcalaspects
1.  WhyareexclusiverightssystemssVllrare?
2.  TheiniValallocaVonproblem
TheRighttoExclude:How?
•  Howcanpeoplecome
tohaverightsto
excludeothersfrom
useofgoods?
•  Locke:Becausethose
othersarenotmade
worseoff(indeed
muchbe_er)
TheRighttoExclude:Why?
•  Whyshouldpeople
haverightstoexclude
othersfromuseof
goods?
•  Hume:Becausescarce
resourceshavetobe
allocatedsothatthey
canbetransferred
intotheirmost
efficientuse
TheFeasibilityofExcluding
•  Landcanbefencedoff
•  Ca_lecanbebranded
•  Butwhataboutcommonpoolresources?
1.  Radiofrequencies?
2.  Mountainpastures?
3.  Salmonrivers?
4.  Offshorefishinggrounds?
TheCaseofBroadcasVng
RadioFrequenciesinU.S.
•  In1920s,radiostaVonsemerged,
broadcasVngindifferentlocaVonsondifferent
frequencies
•  IflocaVonsandfrequenciesbecametooclose,
thestaVonsinterferedwithoneanother
•  Courtswerebeginningtorecogniseindividual
rightsofexclusion,onprincipleoffirst
occupancy(“grandfathering”)
RadioSpectrumNaVonalised
•  In1927,Congressdecidedthatradiospectrum
shouldbeheldbythepublic
•  Agerthat,broadcasVngrightshavebeen
allocatedbygovernmentina“beauty
contest”
•  Moneywastedinrent-seeking,i.e.costsof
acquiringbroadcasVngrights
•  Freedomofspeechreduced
874–930:Se_lementofIceland
SocietyofFarmers
•  Se_lers:MenfromWesternNorwayandWomen
fromCelVccountries(DNAresearch)
•  IcelandmoreinviVngthenbecauseofwarmer
climate:DiscoveryofAmerica
•  About4-5thousandfarmersinmanyvalleys,
mostlyrearingsheep
•  Winter:sheepfedinbarns
•  Summer:sheepgrazedinmountains
•  Farmsprivateproperty,eachvalleyformedan
associaVon
GrazingRightsinPastures
•  Mountainpastures:heldincommon(bythe
geographicalassociaVon,hreppurineachvalley)
becausefencingandmonitoringcoststoohigh
outsidetradiVonalfarmland
•  TemptaVonforeachfarmertokeeptoomany
sheep:benefitcapturedbyhimandcostimposed
onall
•  SoluVon:Grazingrightsor“quotas”(itala:
counVngin)definedtoeachfarm
•  TheoldIcelandicLawBook(Gragas):Fillingthe
pasture,withthesheepreturningasfatas
possible
SalmonFishing
SalmonRiversinIceland
•  Salmonfeedinseaandtraveluptheirnatalriversto
spawn
•  20-30riparianfarmersshareaccess
•  TemptaVonforfarmersclosetoseatoharvest
salmon
•  SoluVon:Eachriparianfarmerownsarighttothe
useofapresetnumberofrods
•  Together,theyformfishingassociaVonswhichrent
the“rodrights”outtorecreaVonalfishermen,voer
thefishingseason
SalmonFishingRights
•  Amountstoprivatepropertyrightstoapartofthe
salmonfishstockoftheriver
•  Non-transferableandlimitedtocertaingear,i.e.
rods
•  Ineffect,quotasoneffort,notoncatch
•  Why?BecausethepointofrecreaVonalfishingisnot
minimisingcost(asinprofessionaloffshore
fisheries),butmaximisingpleasure(leisureacVviVes)
FerVleFishingGrounds
OffshoreFisheriesinIceland
Fishinggroundsdifficulttofenceoff
Resourceoccursonanimmensescale
Somefishstocks(e.g.herring)fugiVve
Biologicaloverfishing:Herringstockcollapsedin
1960s,andcodstockalmostcollapsedin1970s
•  Economicoverfishing:Toomanyboatschasing
thefish
•  AgercapturingIcelandicwatersinCodWarswith
UK,Icelandinsolecontrol:ReducedtransacVon
costs
• 
• 
• 
• 
IcelandicEEZSince1975
EconomicOverfishing:16Boats
Cost
Income
120
100
80
60
40
20
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Overfishing:From8to16
•  Whenaccesstofishinggroundsfree,effort
(numberofboats)increasesunVlrevenuegoes
downtonothing(totalrevenueequalstotalcost)
•  Besttomaximiseprofit(differencebetween
revenueandcost),i.e.by8boats,notcatch,i.e.
by10boats
•  Ineffect,16boatsharvestwhat8boatscould
harvest:Rentdissipated,zeroprofit
•  Taskistoreducethefishingfleet(andfishing
effort)from16to8boats
TwoOpVonsDiscussed
Publicren+ngoutofquotas
•  Governmentprofits
enormously
•  Somefishingvesselowners
neitherprofitorlose
•  Otherfishingvesselowners
lose(theirinvestment
suddenlybecomes
worthless)
•  Public?Doesitprofitfroma
strongerstate?
Alloca+onoffreequotas
•  Governmentprofits
somewhat
•  Fishingvesselownerswho
sellquotasandleavefishery
profit
•  Fishingvesselownerswho
stay,profit
•  Thepublicbenefits
•  Nobodyloses
SameEndResult:8Boatsinsteadof16
Cost
Income
120
100
80
60
40
20
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Pelagicfishery:FugiVvespecies
DemersalFishery:MoreLocal
DevelopmentofITQSystem
•  Catchquotasinpelagicfisheries(herring)
introducedalreadyin1975,boatsofsimilarsize,
lowtransacVoncosts
•  Effortquotas(allowablefishingdays)indemersal
fisheriesintroducedin1977,hightransacVon
costs
•  “Derby”:Costlyracetocaptureasmuchas
possibleinallowabledays
•  Catchquotasimposedin1983,allocatedonbasis
ofcatchhistory
•  Graduallybecametransferable,andsystemmade
comprehensivein1990
HowITQSystemWorks
•  MinistryofFisheriessetsTAC,totalallowable
catchperseason,ineachfishstock
•  OwnersoffishingvesselsholdITQs,individual
transferablequotas,i.e.rightstoharvestagiven
%oftheTACinafishstock
•  Catchesmonitoredatlanding
•  Idealchange:MoreautonomytoAssociaVonof
FishingVesselOwners,e.g.sepngTACs
•  Inreality:PoliVcalpressuretoallowsmallboats
tofishoutsidethesystem,andtoimposespecial
taxesonfishery,reducingitscompeVVveness
EfficientSystem
•  Individual:Eachbearsresponsibilityforhis
ownoperaVons
•  Permanent:Fishermenhavelong-term
interestinprofitabilityofresource
•  Transferable:The8moreefficientbuyoutthe
8lessefficient
•  Rent,previouslydissipatedinexcessive
harvesVngcosts,nowcaptured
•  Icelandicfisheriesveryprofitable
Lockev.George
•  Georgism:Governmentshouldcaptureall
resourcerent,becauseunearned
•  Locke:Some(e.g.vesselowners)cancometo
holdrightstoexcludeothersfromtheuseof
goods(e.g.fishstocks),ifthoseothersarenot
madeworseoff
•  LockeanProvisometinIcelandicfisheries
•  Othersonlydeprivedoftherighttoharvestat
zeroprofit!Aworthlessright
Pareto-OpVmality
•  SocialchangePareto-OpVmal,ifno-oneworse
off,andsomeorallbe_eroff
•  IniValallocaVonbygovernmentaucVonnot
Pareto-opVmal
•  IniValallocaVononbasisofcatchhistory
(“grandfathering”)Pareto-opVmal:Fishermen
boughtout,notdrivenout
•  ThereforetheonlyfeasiblepoliVcalsoluVon,
aswellastheonlyeconomicallyefficientone
Pigouv.Coase
•  AucVonideaPigovian:Pigouproposedaccess
fees(e.g.roadtolls)toeliminateharmful
effects(e.g.roadcongesVon)
•  Coase:Whyreplaceonecost(congesVonor
overfishing)withanotherone(government
tax,feeortoll)?
•  Be_ertodefinepropertyrights,suchasITQs
SomeSimilariVes
•  ITQsarerightstoacertainuseofaresourcein
acommons
•  SimilartograzingrightsinIcelandicmountain
pastures
•  Wouldhavebeensimilartoemergent
broadcasVngrightsinU.S.(whose
developmentwashinderedbylaw)
SomeDifferences
•  BroadcasVnginterferenceaudible:harmful
effectscleartoall
•  Economicoverfishinginvisible,onlybrought
outbyeconomicanalysis
•  Effortquotasinsalmonrivers,becauseitis
aboutleisure
•  Catchquotasinoffshorefisheries,because
commercial,i.e.aboutminimisingcosts
DifferentPerspecVves
MainLessons
•  Evenifcommonpoolrights,e.g.fishing
grounds,areindivisible,someexclusiveuse
rightsinthemcanbedeveloped
•  U.S.tookwrongturnbynotdeveloping
broadcasVngrights
•  Icelandtookrightturnbydevelopingfishing
rights,theITQs
•  Goodfencesmakegoodneighbours,and
excellenteconomicsense