International (fisheries) agreements and game theory

• Why is international fisheries management important?

• What are the major international agreements governing the exploitation of marine fisheries?

• An example of failure• How can game theory help in explaining

and predicting the behaviour of countries?

International agreements: characteristics

• Countries negotiate on exploitation of common environmental & natural resources

• Negotiations slow, countries or groups of countries may later find it optimal to deviate from the agreements

• Disagreements on the size of environmental and natural resources

• Lead even to military conflicts

List of International Environmental Agreements

• London Convention on the Protection of Wild Fauna in Africa (1900; never ratified)

• International Convention for the Regulation of Whaling (1946)

• Convention for the Prevention of Pollution of the Sea by Oil (1954)

• Antarctic Treaty (1959)• Treaty Banning Nuclear Weapon Tests in the

Atmosphere, in Outer Space and Under Water (1963) • Treaty on Principles Governing the Activities of States in

the Exploration and Use of Outer Space (1967)

List of IEAs Continuing

• Convention on International Trade in Endangered Species (CITES) (1973)

• International Tropical Timber Agreement (1983; renegotiated in 1994)

• Vienna Convention for the Protection of the Ozone Layer (1985)

• Framework Convention on Climate Change (1992) • Convention on Biological Diversity (1992)• International Conference on Population and

Development (1994)• International Convention to Combat Desertification

(1994)

Overexploitation of fish stocks

• historical records from 1600’s• resources are scarce, negative externalities• harvesting technologies have developed in

the 1960’s• important food source and industry for many

countries• Consequences: international conflicts,

decreased economic value of fisheries

Law of the sea convention 1982

• Established the Exclusive Economic Zones (EEZ) for the coastal states (200 nautical miles from the coastline)

• 90 % of the marine fish stocks are found inside the EEZs

• Fisheries disputes remained• 1992 UN Conference on Environment and

Development, Rio 1992

C1

C2

STRSH

Transboundary Fish Stocks

SH = Shared fish stocksSTR = Straddling (and highly migratory) fish stocksEEZ = Exclusive Economic Zone

EEZ 1

EEZ 2

UN Conference on Straddling and Highly Migratory Fish Stocks 1993-95

• Attempt to establish property rights for the remaining 10 % of marine fisheries

• Suggests cooperation through regional fisheries organisations

• What are the optimal structures of these organisations?

Example: the Norwegian spring-spawning herring

• One of the most valuable fish stocks in the world

• Stock was depleted in 1970’s due to intensive harvesting

• Migratory pattern changed

• Fishing moratorium was declared for almost 20 years

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 20000

2

4

6

8

10

12

14x 10

9 Norwegian spring-spawning herring

Spa

wni

ng s

tock

bio

mas

s (k

g)

Time

Collapse!

Fisheries economics and game theory

• Rational countries maximise their net present value from harvesting for given strategies of other countries

• Equilibrium where unilateral deviation not optimal

• Cooperation vs. non-cooperation

Nash solutions to the fishery games

• Non-cooperative, Clark 1980: Every fishing nation harvests at maximum effort until it is no longer profitable. At this equilibrium the stock is below the optimum of the most efficient country - “tragedy of the commons”

• Cooperative, Kaitala & Pohjola 1988: The surplus benefits from cooperation are equally divided between the fishing nations. Thus the countries in a three-player game receive their threat point payoff + a third from the benefits generated by cooperation

Coalitional games

• If countries can form coalitions with each other the solution of the game may be changed

• The bargaining strength is then also defined by the coalitions

• Stability of coalitions

• Coalitional free-riding vs. individual free-riding

Bioeconomic modelling: from open access to full

cooperation

Agenda

• Bioeconomic = biological models + economic models

• National vs International fisheries management

• International: non-cooperation vs. cooperation

Bioeconomic modelling

• National level: Fishermen exploit a common fish stock, say herring.

• Biological model predicts the development of the stock without any economic activities natural equilibrium

• For economic analysis production function is needed, how the resource is harvested h = Ex

• Further, we need prices to build objective functions for the agents interested in harvesting the stock economic equilibrium

• International level: Countries exploit a common fish stock

International cooperation: how to share benefits

• Assume an agreement is reached for the two countries.

• Then the question remains how they should allocate cooperative benefits

• A further question arises whether they find the agreement satisfactory on this path.

• In practice countries negotiate on TACs (Total Allowable Catch)

• After receiving the national TAC they still need to implement national management (open access, TAC, ITQ (Individual Transferable Quotas), ITE (Individual Transferable Effort)

Game theory and fisheries

• Countries exploit common fish stocks

• Strategic incentives to subsidise the national fleet and create overcapacity biological and economic inefficiency

• Game theory helps to explain the reasons and find ways to reach sustainable agreements

Schäfer-Gordon model

Gordon (Journal of Political Economy 1954), Schäfer (1957), Scott (JPE 1955)

Biology

• Logistic growth F(x)

• Biomass x

Logistic function

• R: intrinsic growth rate

• x: fish stock

• K: carrying capacity of the ecosystem

)1()(K

xRxxF

Production

• Harvest function:

• E: Fishing effort• q: Catchability

qExh

Sustainability

• F(x) = h

• Steady state

Steady state fish stock

qExK

xRx )1(

qEK

xR )1(

)1(R

qEKx

Steady state harvest

• Insert steady state stock into production function :

)1(R

qEKx

qExh

)1(R

qEqEKh

Economics

Assumptions:

• Fish price per kg constant

• Unit cost of effort c constant (constant marginal cost). Note marginal revenue not constant.

Optimum

• Maximise economic yield by choosing E.

max

FOC:

(7)

cER

qEpqEKcEph )1(

0)2

1(

cR

qEpqK

E

)1(222

*2 pqK

c

q

R

Kpq

cR

q

RE

Comparative statics

• dE/dR > 0

• dE/dK > 0

• dE/dc < 0

• dE/dp > 0

• dE/dq ?

Open access

• Unregulated fishing. E.g. no international fisheries agreement.

• Fishers (countries) enter into the fishery until profits (rent) is equal to zero.

Open access effort

0 cEph

0)1( cER

qEpqEK

0)1( cR

qEpqK

)1(2 pqK

c

q

R

Kpq

Rc

q

REOA