Property Rights as a Means of Economic Organization
Iceland, New Zealand and Norway: The Quality of Quota Property Rights
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Figure 7 Iceland, New Zealand and Norway: The Quality of Quota Property Rights
According to the Q values7 reported in Table 2, the quality of the New Zealand quota property right, Q=0.96, is near perfect. The property rights quality of Iceland’s quota rights, Q=0.86, is considerably lower but still quite high. The property rights quality of Norway’s fishing rights, Q=0.44, is much lower than that of both New Zealand and Iceland. Thus, although by no means negligible, Norway’s IQs must be regarded as comparatively weak property rights. It may be helpful to compare these results with a corresponding assessment of the property rights quality of a typical closed access, common property fishery employing the same methodology. This would typically be in the range of Q=[0.5,0.2] depending on the number of participants.8 Hence, compared to this, the Norwegian IQ system represents a substantial improvement. The above basically assesses the property rights quality of the harvesting rights embodied in the quotas. What about the quality of the property right in what really counts, i.e. the resource itself and its environment. Obviously, IQs and ITQs, being extraction rights, form only a very indirect property right in these underlying resources. Consequently, they provide the individual quota-holders with very little control over the fish stocks and the marine environment and equally small protection from the interference of others (quota holders, marine predators and other users of the marine environment such as mining companies, polluters etc.) in these resources. In terms of our analytical framework, this really means that the exclusivity, as far as these basic resources are concerned, is much reduced. Thus, it appears that our above assessment of the property rights quality of the quota rights may be unduly high. In this light we may rework Table 2 as follows:
As shown in Table 3, the Q-values are now much reduced. From the perspective of the underlying natural resources, i.e. the fish stocks and their marine habitat, the Icelandic and New-Zealand property rights values are now barely respectable. Indeed, these values might be compared to a typical farming property right on land which (depending outside pollution and the regulatory framework) would typically have a Q-value well in excess of 0.9. Clearly, the quality of the Icelandic and New Zealand ITQ property right is substantially inferior to this. The Norwegian IQ property right appears quite weak. Limitations on property rights In reality, property rights are perhaps never perfect. In fact, most actual property rights are quite imperfect. This applies not the least in fisheries, as demonstrated above. Given the close relationship between economic efficiency property rights it may be assumed that any deviation form a perfect property right results in a corresponding economic loss. Property rights are limited for two basic reasons, technical reasons and social reasons. Technical limitations In many cases, the available technology simply doesn't allow us to define and enforce the appropriate property rights at least not at a sufficiently low cost. This, of course, applied even more so in earlier times. Technical problem of defining property rights in land, held back advances in agricultural and farming production for a long time (Demsetz, 1967). In most areas of the world, progress in enclosure and enforcement technology eventually changed this (De Alessi, 1999), making possible huge advances in land productivity. In modern times, valuable resources such as air and atmosphere quality (apparently excessively used for airborne emissions of various types), the ozone layer and, of course, ocean fish stocks are still very much devoid of adequate property rights largely for reasons inadequate technology. As a result, we are often forced to resort to the use of indirect and imperfect property rights mechanisms such as harvesting rights in fisheries and emission rights to polluters. Since these property rights are imperfect, they will not lead to the optimal use of the corresponding natural resources. However, just as technological progress made successive extensions of the private property rights system possible in the past, we may assume that similar progress will helps us to extent and improve private property rights the future. This applies not the least to the oceans (De Alessi, 1999) where the private property rights frontier is now in the process of expansion just as in agriculture centuries ago. Of course, improvements in property rights technology would be encouraged if the potential beneficiaries of this technology were known. In an environment of no or weak property rights, it is often unclear who will be the recipients of new and improved property rights. as a result the incentive to develop the necessary technology is correspondingly reduced. This, of course, is another example of weak property rights, in this case it is weak property rights in the possible new property rights. The so-called public goods, of which roads, public parks and national defense are often-quoted examples, are by definition non-amenable to private property rights. Note, however, that on closer inspection it often turns out that there are in fact ways to turn public goods into private goods. Road tariffs can be charged to the users. Admission can be charged to the users of parks and policing and even military defense (which is actually policing too) kept away from those that do not want to pay for the service. Social limitations There is often significant social opposition to the extension of the property rights system. Although, as we have argued in previous sections, improved property rights generally increase the availability of goods to society thus offering the opportunity to make everyone better off, this is not really surprising. First, the institution or improvement of property rights almost by definition dispossesses someone. Private property rights means the exclusion of a subset of the population. Hence, an immediate impact of expanded property rights is the expropriation of prior rights, even if unused. This may be more or less dramatic depending on the details of the situation. Second, although the opportunity exists. there is no guarantee that there will be full compensation to those dispossessed and that everyone will be better off. This depends to a large extent on political and economic power in society. Third, the establishment of new or substantially improved property rights requires an overhaul and even a radical shift in the social institutions associated with the activity in question. This, inevitably disturbs the social equilibrium, reallocates social prestige, power and respect. As a result there may be opposition to the change even if everyone gains in a more narrow economic sense. The fourth factor is general uncertainty. A substantial change in property rights structures obviously has many implications. The ultimate outcome for given individuals is clearly uncertain. Hence, if these individuals are strongly risk averse, they may be justified in opposing the change, even when the expected value is positive. For these reasons and others, there is likely to be social opposition to any extension of the system of private property rights. In many cases this kind of social opposition is actually the limiting factor in the expansion and improvement of the property rights system. In fisheries, for instance, one of the most crucial reasons for the relatively slow adoption of ITQ fisheries management system around the world, is precisely this social opposition. ReferencesArnason, R. 1996a. On the ITQ Fisheries Management System in Iceland. Reviews in Fish Biology and Fisheries 6:63-90. Arnason, R. 1996b. Property Rights as an Organizational Framework in Fisheries: The Cases of Six Fishing Nations. In B.L. Crowley (ed.) Taking Ownership: Property Rights and Fisheries Management on the Atlantic Coast. Atlantic Institute for Market Studies, Halifax. Barro, R. X. Sala-i-Martin. 1995. Economic Growth. McGraw-Hill, New York. Bator, FM. 1958. The Anatomy of Market Failure. The Quarterly Journal of Economics, August: 351-79. Dasgupta, P.S. and G.M. Heal. 1979. Economic Theory and Exhaustible Resources. James Nisbet & Co. and the Cambridge University Press, Welwyn. De Allessi, M. 1999. Property Rights and Advanced Technologies. In R. Arnason and H. Gissurarson (eds.) Individual Transferable Quotas in Theory and Practice. University of Iceland Press, Reykjavik. Debreu, G. 1959. Theory of Value. Yale University Press, New Haven. Demsetz, H. 1967. Toward a Theory of Property Rights. American Economic Review 57: 347-59. Gough, J.W. 1957. The Social Contract 2nd ed. Claredon Press, Oxford. Hannesson, R. 1994. Fishery Management in Norway. In E. Loayza (ed.) Managing Fishery Resources. World Bank Discussion Papers 217. Washington D.C. Major, P. 1999. The Evolution of ITQs in the New Zealand Fisheries. In R. Arnason and H. Gissurarson (eds.) Individual Transferable Quotas in Theory and Practice. University of Iceland Press, Reykjavik. Ng. Y-K. 1980. Welfare Economcs: Introduction and Development of Basic Concepts. Halsted Press, John Wiley and sons, New York Pigou, A.C. 1912. The Economics of Welfare. MacMillan and Company, London. Rawls, J. 1971. A Theory of Justice. Oxford University Press, Oxford. Runolfsson, B.T. 1999. The Icelandic System of ITQs: Its Nature and Performance. In R. Arnason and H. Gissurarson (eds.) Individual Transferable Quotas in Theory and Practice. University of Iceland Press, Reykjavik. Scott, A.D. 1988. Conceptual Origins of Rights Based Fishing. In Neher et al. (eds.) Rights Based Fishing. Kluwer Academic Publishers, Dordrecht. Scott, A.D. 1996. The ITQ as a Property Right: Where it Came From, How it Works and Where it is Going. In B.L. Crowley (ed.) Taking Ownership: Property Rights and Fisheries Management on the Atlantic Coast. Atlantic Institute for Market Studies, Halifax. Scott, A.D. 1999. Introducing Property in Fisheries Management. A paper submitted at FishRights99, Mini-course. Fremantle. Sharp, B. M.H. Kiwi Quotas: Ten Years of Tradable Fishing Rights in New Zealand. Risking Tide? Rights Based Fishing on the Atlantic Coast. Conference Proceedings. Atlantic Institute for Market Studies, Halifax. Smith, A. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. Edition by E. Cannan 1977. University of Chicago Press, Chicago. Varian, H.R. 1992. Microeconomic Analysis (3rd edition). W.W. Norton and Co, New York. 1 Note that one way to derive the equality result in standard welfare theory is to assume concave individual utility functions which is equivalent to assuming risk aversion (see e.g. Varian, 1992).. 2 Notice, however, that this does not permit repeated or continuous reallocations on the basis of emerging inequalities. For this would clearly create a huge incentive problem. 3 This, of course, assumes something less than perfect altruistic individuals. 4 It may be illuminating in this context to wonder about the most likely organization of a society where trade is not possible. Under these circumstances, it seems that it might be advantageous to organize society in closely knit communities where some specialization can occur on the basis of traditional sharing of the community's production with people attending to their pre-assigned duties according to tradition and social pressure. The family, of course, is an example of this kind of organization. 5 Actually, if "taking" is not allowed, we may say that property rights exist. 6 Remember that individual characteristics are measured on the interval [0,1]. 7 The Q-values are calculated on the basis of the same parameter specifications as in the example in Table 1 above. In particular, ===1/3, =1, w1= 0.6 and w2 =0.4. 8Thus, for instance, security=0.95, permanence=0.9, transferability= 0.0 and exclusivity=0.005 yields Q=0.1. Download 309.85 Kb. Share with your friends:
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