Discounting and Fisheries Sustainability

Rashid SumailaFisheries Economics Research Unit

Fisheries Centre, University of British Columbiar.sumaila@fisheries.ubc.ca

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 everygeneration, and the preceding one can have no right toblind it up from posterity” (Adam Smith, 1766 Lecture on Jurisprudence).

Photo: NASA

Catch of halibut in Norway

0

2000

4000

6000

8000

1950 1960 1970 1980 1990 2000

Years

Tonn

es

Is this an achievable goal?

Catch of Namibia Pilchard

0200400600800

1000

0 10 20 30 40 50

Years (1960 - 2002)

Cat

ch (1

000

tonn

es)

Catch of red stingray in Japan

0

4000

8000

12000

16000

20000

0 10 20 30 40 50

Years (1951 - 1999)

Ca

tch

(to

nn

es)

Catch profile of Newfoundland cod

Fish biomass and fishing intensity

• Biomass;• Fishing intensity.

Fishing Intensity

19001900

19991999

Biomass Biomass

Courtesy V. Christensen

1.8-2.51.5-1.81.2-1.50.9-1.20.7-0.90.6-0.70.4-0.60.3-0.40.2-0.30.1-0.20-0.10-0

Biomass t·km-2

0.0

0.5

1.0

1.5

2.0

2.5

1950 1960 1970 1980 1990 2000

Bio

mas

s an

d c

atch

(m

illio

n t

on

nes

)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Fis

hin

g in

ten

sityCatch

Biomass

Fishing intensityBiomass

North West Africa: Changes in key fisheries variables

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.

Sumaila (in press)

The ‘frontloading’ problem

Present Future

Future benefits from today’s perspective

Value

“Egoism is the law of perspectives as it applies to feelingsaccording to which what is closest to us appears to be large andweighty, while size and weight decrease with our distancefrom things” (attributed to Nietzche, 1844-1900).

Discounting in economics

Clark and Munro(1975)

ratediscount theis

fish ofunit per price is

functioncost theis *)(

fish offunction growth theis *)(

*)(

*)(*)(*)(

p

xC

xG

xCp

xGxCxG

The optimal population trajectory x = x(t) and optimal population for different discount rates

Adapted from a model developed by Clark and Munro (1975)

xM

Time, t

Pop

ulat

ion,

x

xL

xH

x0

0

The basic bioeconomic model of Clark and Munro (1975)

The optimal population trajectory x = x(t) and optimal population for different discount rates

Adapted from a model developed by Clark and Munro (1975)

Low disc. rate

xM

Time, t

Pop

ulat

ion,

xxL

xH

x0

0

The basic bioeconomic model of Clark and Munro (1975)

The optimal population trajectory x = x(t) and optimal population for different discount rates

Adapted from a model developed by Clark and Munro (1975)

Medium disc. rate

Low disc. rate

xM

Time, t

Pop

ulat

ion,

xxL

xH

x0

0

The basic bioeconomic model of Clark and Munro (1975)

The optimal population trajectory x = x(t) and optimal population for different discount rates

Adapted from a model developed by Clark and Munro (1975)

Medium disc. rate

High disc. rate

Low disc. rate

xM

Time, t

Pop

ulat

ion,

xxL

xH

x0

0

The basic bioeconomic model of 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 approachesproposed 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

0

0.2

0.4

0.6

0.8

1

0 20 40 60 80 100

Years

Ben

efits

(bill

ion

$)

NPV accruing to each generation within 100 years based on conventional discounting

Conventional discounting

0.0

5.0

10.0

15.0

20.0

Generation 1 Generation 2

NP

V (b

illio

n $)

NPV accruing to each generation within 100 years based on intergenerational discounting

Resetting the discounting clock

0.0

5.0

10.0

15.0

20.0

Generation 1 Generation 2

NP

V (b

illio

n $

)

Intergenerational (IG) discounting: Discrete model

2

1

1

1

11

21

)1()1(

t

tttt

ttt

tttt CVCV

NPVNPVNPV

Sumaila (2004)

Sumaila (2004)

0.0

1.0

2.0

3.0

4.0

5.0

1 10 19 28 37 46 55 64 73 82 91 100Years

Dis

cou

nte

d n

et b

enef

its

Status quo GM

Restoration GM

0.0

0.5

1.0

1.5

1 10 19 28 37 46 55 64 73 82 91 100

Years

Cat

ch le

vel

Status quo

Restoration

0.0

1.0

2.0

3.0

4.0

5.0

1 10 19 28 37 46 55 64 73 82 91 100

Years

Dis

co

un

ted

ne

t b

en

efi

t

Status quo CM

Restoration CM

0

10

20

30

40

50

60

To

tal

dis

co

un

ted

ne

t b

en

efi

ts

Status quo CM

Restore CM

Status quo GM

Restore GM

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)

G

d ...

G

dd

G

dd d

.

.

. G

d

G

dd d 2

G

d d 1

1 o

year tJoin ... 2yr Join 1yr Join Present )(

fg2

fg2-t

fg1-t

t

2fgfg2

fg

t

t

tYear

Sumaila and Walters (2005)

IG discounting tableau

The IG bioeconomic model

time generationG ;d

d and

1

1

G

dddW where

T,..,2,1,0t ,)CV(WNPV

fg

t1tfg

T

0ttt

t

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