Fisheriessubsidies,overcapitalizationandeconomiclosses.docVIP

Ragnar Arnason Fisheries Subsidies, Overcapitalization and Economic Losses Paper presented at the workshop on Overcapacity, Overcapitalization and Subsidies in European Fisheries Portsmouth October 28-30 1998 DRAFT  Introduction The economics of the world’s marine fisheries are heavily distorted not only by the externalities stemming from the common property problem but also by direct and indirect government subsidies to the fishing industry. Both kinds of distortions work in the same direction. Both encourage excessive fishing effort, overinvestment in fishing capital and overexploitation of the fish stocks. Thus, fisheries subsidies generally exacerbate the common property problem. The exact effect of fisheries subsidies depends on the fisheries management system in place. Thus, adding government subsidies to a common property fishery generally results in more economic waste in equilibrium coupled with a faster path toward a situation of economic waste and a greater risk of permanent damage to the biological resource. By contrast, government subsidies to a property-rights based fishery, i.e. a fishery where the common property problem has been substantially alleviated, may in some cases merely amount to a non-distortive financial transfer to the holders of fishing property rights. This paper explores some of the issues associated with subsidies in fisheries. It begins by reviewing the available statistics on the global amount of and trends in fisheries subsidies. It then goes on to examine the impact of subsidies on fishing effort, fishing capital and the economic performance of the fisheries. The strategy of investigation is to mix theoretical analysis with numerical calculations on the basis of a simple fisheries model. In this way, it is hoped that the reader can be provided not only with a qualitative sense of the impact of fisheries subsidies but a quantitative feel as well. 2. Subsidies and Capacity: Amount and Trends The extent of subsidies, direct an