The tragedy of the commons and dissipation of rent

A fishermen entering an open access fishery for the first time would carry out a very simple cost benefit exercise:

Cost: The negative impact (cost) of an additional fisherman in the fishery is that effort will increase, and the sustainable economic rent must therefore decrease. The loss in sustainable economic rent must however be borne by all fisherman, and so this loss is a shared loss. The loss that will be experienced by individual fishermen is therefore relatively small.

Benefit: The benefit to new fisherman is that each now gets a percentage of the rent, that percentage depending on the total number of fishermen. This portion of the rent will always be larger than the portion of lost sustainable economic rent borne by each fisherman.

As a result, if the sustainable economic rent is positive, potential fisherman will see a net benefit (Benefit - Cost) from engaging in fishing. In the open access fishery, this causes effort to increase to the right towards the economic break-even point, where rent is zero.

The tragedy of the commons for fisheries therefore is that the open access, unregulated fishery will eventually be reduced to a biological state at which it generates zero or possibly even negative rent. All participants will lose everything ("ruin for all"), despite the existence of an option for managing the resource on an economically optimal basis (i.e. by keeping effort at the correct level).

If one tries to avoid the tragedy of the commons by limiting only the number of fisherman, the result will be unsuccessful. This is because the existing participants will increase their fishing capacity by upgrading their vessels (more powerful motors, better navigational equipment, better echo-sounders etc.). The end result will be that the fishery will be forced towards the economic break-even point as before.

Another option open to managers is to limit both the number of fisherman and the total catch that may be landed each year. If the limit on the total catch can be effectively enforced, then this will probably prevent the detrimental biological consequences of the tragedy of the commons scenario. However, participants in the fishery will still compete against each other for the largest share of the Total Annual Catch (TAC). Individuals will therefore still follow a simple "cost to the group versus benefit to self" calculation in decisions to increase effort. Since everybody will follow the same logic, effort will increase. However, since the total catch is limited, the same amount of fish will be landed at much greater cost.

Therefore, although theoretically there is no biological risk to the resource, the economic rents will whittle away as harvesting costs increase, until an economic break-even situation is reached. In fisheries managed in this way, the tendency is for the fishing season to become very (sometimes ridiculously) short. The end result is a biologically intact resource (optimistically), but nevertheless an economically valueless fishery as before.

The essential ingredient missing from the last option is to limit the catch that each participant in the fishery may catch by the allocation of individual quotas. This is the situation in a number of countries, eg. South African and New Zealand. In theory, this removes the "race to catch" incentive. This is sometimes used to explain why South African fisheries are technologically inexpensive and unsophisticated compared to their counterparts elsewhere. If this is true, it would certainly be desirable not to jeopardise this state of affairs by introducing new competitive forces which lead to long term rent losses.

It would be wrong to conclude from the above that fisheries only collapse because of the tragedy of the commons scenario sketched above. Many fisheries which have experienced collapse have done so while being managed by limited entry. Fishery collapses occur when the catch exceeds the amount that the resource can sustain.

The reasons for this may be

1. poor scientific advice,
2. political decisions which have ignored valid scientific advice, or
3. unregulated open access fishing (i.e. tragedy of the commons).
4. in many cases, environmental change is a contributing factor to resource collapse.

The economic trade-off between sustainable versus non-sustainable resource exploitation

The tragedy of the commons occurs because there is a fundamental incompatibility between the productive and economic characteristics of living renewable resources, and the pursuit of individual interest which disregards the costs to a larger social group. This causes an unregulated fishery to be utilised on a non sustainable basis.

There is another important factor which exacerbates the "ruin for all" result in renewable resources. In any country, one can define the average real rate of growth in the economy. This is also known as the discount rate, such that in real terms, money might grow at say 3% in a typical investment account. This means that 100 tons of fish would be worth 3% more in a years time, if one converted it into money and invested this in the bank. The alternative would be to leave the 100 tons of fish in the sea, and just harvest the sustainable yield that this 100 tons generates in the sea, which might be 2 tons or 15 tons, depending on the productivity of the resource. If it is only 2 tons, then one is doing better in the bank, and so it is better to fish out the resource than to manage it on a sustainable basis.

In general, for resources which are generating less interest (i.e. sustainable yield) than money is in the bank, there is a strong economic incentive to harvest out the standing stock, i.e. non sustainable utilisation of the resource. This type of exploitation is completely unacceptable and that long term sustainable resource utilisation should be the core of any fishing policy, and this is not under any circumstances negotiable.