Discounting and Fisheries
Sustainability
Rashid Sumaila
Fisheries Economics Research Unit
Fisheries Centre, University of British Columbia
[email protected]
BIRS Workshop, Banff, May 10, 2007
Fish for today; fish for tomorrow
• Should this be a goal for humanity?
• Is it an achievable goal?
• Observations from the field.
• Is economics helping?
• Reasons for observations.
• Can economics help?
• Suggestions for tackling the problem;
• Intergenerational discounting.
• Way forward.
Should this be a goal for humanity?
“The Earth and the fullness of it belongs to every
generation, and the preceding one can have no right to
blind it up from posterity”
(Adam Smith, 1766 Lecture on Jurisprudence).
Photo: NASA
Is this an achievable goal?
Catch of halibut in Norway
Tonnes
8000
6000
4000
2000
0
1950
1960
1970
1980
Years
1990
2000
Catch (1000 tonnes)
Catch of Namibia Pilchard
1000
800
600
400
200
0
0
10
20
30
Years (1960 - 2002)
40
50
Catch of red stingray in Japan
20000
Catch (tonnes)
16000
12000
8000
4000
0
0
10
20
30
Years (1951 - 1999)
40
50
Catch (1000 tonnes)
Catch profile of Newfoundland cod
1000
800
600
400
200
0
1960
1970
1980
Years
1990
2000
Fish biomass and fishing intensity
• Biomass;
• Fishing intensity.
Biomass
Fishing Intensity
Biomass
t·km-2
1.8-2.5
1.5-1.8
1.2-1.5
0.9-1.2
0.7-0.9
0.6-0.7
0.4-0.6
0.3-0.4
0.2-0.3
0.1-0.2
0-0.1
0-0
1900
1999
Courtesy V. Christensen
North West Africa: Changes in key fisheries variables
2.5
3.5
Fishing intensity
Biomass
3.0
2.5
Catch
1.5
2.0
1.5
1.0
1.0
0.5
Biomass
0.0
1950
1960
1970
1980
1990
0.5
0.0
2000
Fishing intensity
Biomass and catch (million tonnes)
2.0
State of fish stocks over time
Source: Froese and Pauly (2004).
The flow of marine ecosystem
services through time
Source: Pauly & MacLean (2003).
Is economics helping?
Why these pictures?
• 1st order problem:
– Open access/common property.
• 2nd order problem:
– Sole ownership not sufficient: Why?
2nd order problem: Sole ownership …
• Will not necessarily capture all fish values
(or total economic value; TEV);
• May suffer what I term the ‘frontloading’
problem.
The valuation problem
• The economic theory of valuation calls for the
computation of TEVs made up of both use &
non-use (market & non-market) values from
fish.
The practice of valuation
Survey of 9 leading environmental &
resource economics journals (1994-2003):
• # of articles published: 4705;
• # articles containing the words ‘non
market’ or ‘existence value’ or ‘bequest
value’: 43.
Market
99%
Nonmarket
1%
Sumaila (in press)
The ‘frontloading’ problem
“Egoism is the law of perspectives as it applies to feelings
according to which what is closest to us appears to be large and
weighty, while size and weight decrease with our distance
from things” (attributed to Nietzche, 1844-1900).
Future benefits from today’s perspective
Value
Present
Future
Discounting in economics
Clark and Munro(1975)
C ( x*)G ( x*)
G ( x*) 

p  C ( x*)
G ( x*) is the growth function of fish
C ( x*) is the cost function
p is price per unit of fish
 is the discount rate
The basic bioeconomic model of
Clark and Munro (1975)
Population, x
xL
xM
xH
x0
0
Time, t
The optimal population trajectory x = x(t) and optimal
population for different discount rates
Adapted from a model developed by Clark and Munro (1975)
The basic bioeconomic model of
Clark and Munro (1975)
Population, x
xL
Low disc. rate
xM
xH
x0
0
Time, t
The optimal population trajectory x = x(t) and optimal
population for different discount rates
Adapted from a model developed by Clark and Munro (1975)
Population, x
The basic bioeconomic model of
Clark and Munro (1975)
xL
Low disc. rate
xM
Medium disc. rate
xH
x0
0
Time, t
The optimal population trajectory x = x(t) and optimal
population for different discount rates
Adapted from a model developed by Clark and Munro (1975)
Population, x
The basic bioeconomic model of
Clark and Munro (1975)
xL
Low disc. rate
xM
Medium disc. rate
xH
High disc. rate
x0
0
Time, t
The optimal population trajectory x = x(t) and optimal
population for different discount rates
Adapted from a model developed by Clark and Munro (1975)
Captured by Clark and colleagues
• Economics of overexploitation (Clark,
1973);
• Intrinsic growth rate of fish (r);
• The discount rate (d);
• d>r, could result in depletion of the stock.
Can economics help?
Is discounting a problem??
• Individuals do not discount all future values at
the same rate;
• Studies show that discount rates to be highest for
choices involving relatively small amounts (Thaler,
1981; Hausman, 1979);
• Individuals appear to apply higher discount rates
to amounts with a short delay than amounts to
be received further into the future (Bonzion et
al., 1989);
• Individual discount rates vary with personal
characteristics, e.g., income (Gilman, 1976).
Alternative approaches
proposed in the literature
• Zero discount rate: Problematic;
• Lower discount rate: How low?
– Hyperbolic discounting (Ainslie, 1974);
– Gamma discounting (Weitzman, 2001);
– Intergenerational discounting (Sumaila, 2004;
Sumaila and Walters, 2005).
Flow of 1 unit of benefit in current
and discounted value
Benefits (billion $)
1
0.8
0.6
0.4
0.2
0
0
20
40
60
Years
80
100
NPV accruing to each generation within 100
years based on conventional discounting
Conventional discounting
NPV (billion $)
20.0
15.0
10.0
5.0
0.0
Generation 1
Generation 2
NPV accruing to each generation within 100
years based on intergenerational discounting
Resetting the discounting clock
NPV (billion $)
20.0
15.0
10.0
5.0
0.0
Generation 1
Generation 2
Intergenerational (IG) discounting:
Discrete model
NPV  NPV1  NPV2
Vt  Ct
Vt  Ct



t t1
t
t 1 (1   )
t t1 1 (1   )
t1
t2
Sumaila (2004)
Catch level
1.5
1.0
Status quo
Restoration
0.5
Discounted net benefit
5.0
0.0
4.0
Status quo CM
Restoration CM
3.0
2.0
1.0
0.0
1 10 19 28 37 46 55 64 73 82 91 100
1
10 19 28 37 46 55 64 73
Years
Discounted net benefits
5.0
Status quo GM
Restoration GM
4.0
3.0
2.0
1.0
0.0
10
19
28
37
46
55
Years
64
73
82
91
100
Total discounted net benefits
Years
1
82 91 100
60
50
40
30
20
10
0
Status quo
CM
Restore
CM
Status quo
GM
Restore
GM
Sumaila (2004)
Continuous time IG discounting
• Assumptions:
– Present generation discount flows of benefits at
standard rate;
– New generation of size 1/G enters population
each year: they discount at standard rate every
year after entry;
– Current generation as decision makers discount
the interest of future generations at a ‘future
generation’ discount rate at the time they enter
the population.
Sumaila and Walters (2005)
IG discounting tableau
Year (t )
o
1
2
Present
Join yr 1 Join yr 2
...
Join year t
1
d
d2
d fg
G
dd fg
d fg
G
G
2
.
.
.
t
dt
d t -1d fg
d t -2 d fg
G
G
2
...
d fg
t
G
Sumaila and Walters (2005)
The IG bioeconomic model
T
NPV  W ( Vt  Ct ), t  0 ,1,2 ,..,T
t
t 0
where W  d 
and

d fg
d
d fg d
G
t 1
1   
1  


t
; G  generation time
Sumaila and Walters (2005)
Issues for discussion
•
•
•
•
AER: Axiom needed;
Time inconsistency;
Property rights to future generations;
Rawl’s theory with a time dimension.
Way forward – over to you Ivar
Thanks for your attention
Photo by Asep, TNC
Newfoundland cod