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On the Management of

Shared Living Marine Resources

Gordon R. Munro

Department of Economics and Fisheries Centre, University of British Columbia, Vancouver, Canada; CEMARE, University of Portsmouth, UK

Paper prepared for the

Danish Conference on Environmental Economics 2011

Skodsborg

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2 I. Introduction

A preceding keynote presentation at this conference, given by Professor Ragnar Arnason, has reviewed, in general terms, the difficulties to be encountered in managing ocean capture fishery resources. Professor Arnason emphasizes the fact that the absence of effective property rights in these fisheries, their “common pool” nature, has, in the past, has led to serious

overexploitation of the fishery resources, from society’s point of view, or, as we might say as economists, to excessive disinvestment of this form of “natural” capital.

This paper is designed to focus on one particularly important aspect of ocean capture fisheries management, namely the management of capture fishery resources that are shared. Fishery resources are shared within the waters of a given state by different groups of fishers, and are shared internationally between and among fishing states/entities. We shall, for length

considerations if nothing else, confine our attentions to internationally shared capture fishery

resources1, where we shall find that the issue of resource property rights comes up again and

again.

The FAO of the UN has stressed the importance of these shared fishery resources, maintaining that they currently account for up to one-third of world ocean capture fishery harvests (Munro, Van Houtte and Willmann, 2004). The FAO goes on to declare that the effective management of these resources stands as one of the great challenges on the way towards achieving long-term

sustainable world fisheries (FAO, 2002).2

In examining shared international capture fisheries, we shall, in passing, find many parallels to other shared “common pool” resources. The shared atmosphere, giving rise to problems such as global warming, is the most prominent example.

1 The economics of the management of shared fishery resources within the waters of a given state bears considerable resemblance to the economics of the management of internationally shared fishery

resources. The management of internationally shared fishery resources is by far the more difficult of the two. In any event, the paper would be too broad in scope, if we attempted to explore the management of both classes of shared fishery resources.

2

A comment is in order. In discussing the international sharing of fishery resources, this author is, rightly or wrongly, going to treat the EU as a single entity. The sharing of fishery resources among EU

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3 II. The Evolution of the Management of Internationally Shared Capture Fishery Resources The management of internationally shared fishery resources has gone through a lengthy

process of evolution, a process which continues to the present day. In light of this fact, some background is in order.

We shall talk in terms of three broad phases of the evolution, with these being: (a) the pre-World War II era; (b) the end of World War II to the advent of the UN Conferences on the Law of the Sea; and (c) the UN Conferences on the Law of the Sea and beyond.

Pre-World War II. In the pre-World War II era, the vast bulk of ocean capture fishery resources fell under the heading of internationally shared resources. Under the international law, the oceans were divided into two components: the territorial sea, and the high seas. The territorial sea is a narrow strip of water immediately off the shores of a coastal state, where a coastal state is deemed to be a state with “significant” coast line. Traditionally, the territorial sea had a breadth of only three nautical miles, now extending to twelve (22 km) (UN, 1982). Everything else constituted the high seas.

The coastal state did, and does, have absolute ownership to the resources contained within the territorial sea (McRae and Munro, 1989). By way of contrast, resources within the high seas

were, from the early 17th century onwards, subject to doctrine of the Freedom of the Seas (Mare

Liberum). Under this doctrine, all of the resources contained within the high seas, certainly including fishery resources, were to be deemed res communis, the property of all. In other words, they were quintessentially “common pool” in nature. A residue of the doctrine of the Freedom of the Seas, as it pertains to fisheries, remains with us today.

The doctrine of the Freedom of the Seas, as it applied to high seas resources, rested upon two basic premises:

(i) the impossibility of the high seas being subject to effective occupation

(ii) the inexhaustible nature of high seas marine resources (Orrego, Vicuña, 1999, p.4).

Given what we know today about the consequences for resource conservation of the fishery resources being “common pool” in nature, premise (ii) seems utterly bizarre. Premise (ii) was

not bizarre, however, in the early 17th century. The highs seas fishery resources were protected

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4 dangerous) to exploit high seas fishery resources intensively. From an economic standpoint the “natural” capital in the form of high seas capture fishery resources was to be seen as “free” capital.

The belief that the high seas capture fishery resources are inexhaustible continued until late into the 19th century. One of Britain’s leading scientists in the 19th century was Thomas Huxley, who for a time, in the 1880s, held the position of Inspector of Fisheries for the United Kingdom. While in that position, he gave a speech in which he stated that:

---the cod fishery, the herring fishery, the pilchard fishery, the mackerel fishery, and probably all of the great sea fisheries, are inexhaustible: that is to say that nothing we do seriously affects the number of fish. And any attempt to regulate these fisheries seems consequently … to be useless (cited in Gordon, 1954, p. 126).

Even as Huxley spoke, the economic protection afforded high seas fishery resources was beginning to fray. Ongoing advances in fisheries technology were reducing harvesting costs – hence the fraying of the economic protection. As the economic protection was steadily

removed, the fisheries “natural” capital ceased to be free and became scarce. The conservation consequences of the “common pool” nature of the fishery resources, described by Professor Arnason, began to manifest themselves.

The process was a slow one, however. While Jens Warming wrote his pioneering article on the dissipation of resource rent in “common pool” fisheries, the centenary of which we are

celebrating this year (Warming, 1911)3, and while there were a few attempts to regulate specific

fisheries,4 serious thought to regulating ocean capture fisheries did not come about until just

prior to the outbreak of World War II. Significant attempts to do so had to await the close of that war (National Research Council, 1999).

3

Warming’s article was published in Danish, which limited its circulation. Some seventy years later, the article became much better known, by virtue of a widely cited English translation of the article, undertaken by Peder Andersen (Andersen, 1983).

4 Examples are the North Pacific Fur Seal Treaty of 1911, and the founding of the International Pacific Halibut Commission in 1923.

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5 In Europe, scientists had observed the increase in fish stock sizes, and average size of fish, in the North Sea, following the close of the First World War. Putting two and two together,

scientists surmised that the growth of fish stocks was not unrelated to a sharp decline in fishing activities in the North Sea brought about by the war. The suspicion began to grow steadily that fishing could have an impact, which could be reversed, on the size and the composition of fish stocks (National Research Council, 1999).

If significant action was to be taken to curb perceived overexploitation of ocean fish stocks, it would necessarily have to be international in nature, given the narrowness of the territorial seas. The first international action of which this author is aware took the form of a conference in

London in 1937, which brought forth the International Convention for the Regulation of the Meshes of Fishing Nets and Size Limits of Fish. Attempts to bring the convention into force were brought to an abrupt halt by the outbreak of World War II, with the consequence that further steps had to await the cessation of hostilities (Anderson, 1998).

The Close of World War II to the UN Conferences on the Law of the Sea. In 1946, an attempt was made to restart the process begun by the London Conference of 1937. A second London conference was held, which gave rise to the 1946 Convention for the Regulation of the Meshes of Fish Nets and Size Limits of Fish, popularly referred to as the “International Fisheries Convention of London of 1946” (Anderson, 1998).

The Conference, as well as focussing on mesh sizes and size limits of fish, also addressed itself to the question of fleet excess capacity, a question which has continued to plague fisheries management up to the present day (Nature, vol. 157 (1946), p. 578). While the primary focus of the conference was on the North Sea, the range extended westwards out into the North Atlantic. In agreement with the United States, the westward purview of the Convention did not extend beyond 42º W longitude (Anderson, 1998).

This second attempt proved successful. The 1946 Convention came into force in 1953, and led to the establishment of a Permanent Commission – the ancestor of the present day North East Atlantic Fisheries Convention. The 1946 Convention was, in turn, to be replaced by the North East Atlantic Fisheries Convention of 1959 (NEAFC) (Anderson, 1998; Bjørndal, 2009a).

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6 In the Northwest Atlantic, there was increasing fishing pressure following the end of the Second World War, with European states being very much involved. Indeed, there had been European fishing on the Grand Banks of Newfoundland, dating back to the close of the 15th century (Anderson, 1998).

Following the lead given by the London Conference of 1946, the United States convened a conference in Washington, D.C., in early 1949, on ocean fishery conservation. The conference gave rise to the International Convention for the Northwest Atlantic Fisheries. The Convention came into force in 1950, and the resultant International Commission for the Northwest Atlantic

Fisheries (ICNAF) held its first meeting in 1951.5 ICNAF’s coverage of the North Atlantic was to

extend eastwards to 42º W longitudes. Thus, ICNAF and NEAFC combined covered the entire North Atlantic (Anderson, 1998).

The implication of the establishment of these international fisheries commissions, of course, was that the Freedom of the Seas, as it pertains to fisheries, was being curbed. This was the inevitable result of the premises underlying the doctrine’s application to fisheries steadily losing validity. The Freedom of the Seas pertaining to fisheries was later to be, not merely curbed, but severely diminished (although not eliminated), with the coming of the UN Conferences on the Law of the Sea.

Confidence in the effectiveness of resource management under international bodies, such as ICNAF and NEAFC began to decline, by the late 1960s. An example is provided by Canada. The then heart of the fishing industry of Newfoundland was a cod stock complex extending from southern Labrador to southeastern Newfoundland. The fishery had two components: inshore and offshore.

The Canadian harvesting of the resource was almost entirely based on the inshore sector. The offshore segment, under ICNAF oversight, began expanding rapidly in the late 1950s and early 1960s. Total annual harvests of the resource rose from 300 thousand tonnes in the mid-1950s to a peak of 800 thousand tonnes in the late 1960s, with the increase being due entirely to the offshore sector. Indeed, the consequences for the inshore sector were severe From the mid-1950s to the mid-1970s inshore harvests of the resource declined by 80 per cent. The

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7 Newfoundland fishing industry was plunged into crisis. Canada, rightly or wrongly, saw

ineffective ICNAF resource management as the primary cause (Munro, 1980).

A second example is provided by NEAFC and the resource, Norwegian Spring Spawning herring, which constitutes one of the largest pelagic fishery resources in the world, and, as the name would suggest, is an important fishery resource for Norway, the importance of which goes back for centuries (Sandberg, 2010). As we shall relate, at a later point, the resource crashed and had a near death experience in the early 1970s.

Serious concern was raised about the state of the herring resource within NEAFC in the late 1960s. The concern grew steadily, but no effective measures were taken. So weak was the NEAFC regulatory regime for this fishery that the fishery was close to being what economists would term a Pure Open Access one (Sandberg, 2010, p. 222). The aforementioned near death experience was the result.

Part of the problem may have rested on the sheer difficulty of capture fisheries management. In many domestic fisheries, resource managers have often found it very difficult to exercise

effective control over fishing capacity, and hence fishing effort.6 A key part of the problem,

however, may have reflected the nature of the cooperative management arrangements themselves.

Economists studying various forms of shared resources, such as the atmosphere and water, along with fisheries, are forced to recognize the strategic interaction among the states/entities sharing the resources. As a consequence, they are compelled in their analysis to bring to bear the theory of strategic interaction, more commonly known as the theory of games. We shall do no more than briefly introduce the subject at this point, going into it at greater depth in the sections to follow.

In any event, the theory of games is now used extensively in economics, and in other fields such as international relations, legal studies, evolutionary biology and others. Within economics, the importance of game theory is reflected in the fact that, within the last two decades, the Nobel Prize in Economics has been awarded twice to specialists in game theory.

6 Indeed, Canada was to manage the referred to cod stock complex very ineffectively when it ultimately came almost entirely under Canadian jurisdiction.

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8 The first was a joint award in 1994, with one of the recipients being John Nash, who laid the foundation for much of the game theory used in economics. The second, also a joint award, was given in 2005. The press release announcing the awarding of the Prize for 2005 to Laureates Thomas Shelling and Robert Aumann, read as follows;

Why do some groups of individuals, organizations and countries succeed in promoting cooperation while others suffer from conflict? The work of Robert Aumann and Thomas Schelling has established game theory – or interactive decision theory – as the dominant approach to this age-old question.

(Nobelprize.org, 2005).

With regards to the management of international fisheries, it is precisely the fisheries version of “this old age question” that we must address, doing so with the aid of the theory of games. As we shall see, the theory of games divides into two broad categories, the theory of competitive (non-cooperative) games and the theory of cooperative games. ICNAF and the 1959 version of the NEAFC are to be seen as cooperative fishery games.

A characteristic of any international resource cooperative game is that it must be self-enforcing, arising from the fact that there is no third party available to enforce the rules of cooperation. This, in turn, means that the stability of any such cooperative game is under constant threat of “free riding,” which we can define as the enjoyment of the benefits of cooperation by non-participants in the cooperative game. If it is not possible to punish effectively “players” in the game who defect, the risk exists that the

cooperative arrangement – the cooperative game – will founder, because the temptation to defect and free ride will be great.

This is a key problem in international agreements dealing with climate change, and other atmospheric pollution problems – International Environmental Agreements (IEAs) – in which typically the power to punish defectors is weak (Finus, 2003). This has given rise to what we can term “Barrett’s Paradox”, after the prominent environmental economist, Scott Barrett. Barrett argues that, unless the membership in an IEA is very small, the IEA will be stable, only if there is little to be gained from cooperation. If the gains from cooperation are large, the temptation to free ride will be overwhelming, and

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9 the cooperative arrangement will prove to be unstable (Barrett, 1994). The difficulties

being faced by the Kyoto Protocol are often cited as an example.

The pre-UN conferences on the Law of the Sea international fisheries management arrangements, such as ICNAF and the 1959 NEAFC, remind one of present day IEAs. There is no evidence that free riding could be effectively curbed. Consequently, one should not be surprised that the resource management effectiveness of these international fisheries bodies was subject to constant coastal state criticism. Dissatisfied coastal states (e.g. Canada) were to be provided with an alternative through the UN.

The UN Conferences on the Law of the Sea and Beyond. In the years immediately following the end of World War II, various coastal states, commencing with the United States, began making unilateral claims to marine resources beyond the territorial sea. The United Nations eventually intervened in an attempt to impose order on what it regarded as an unstoppable process. The intervention took the form of conferences on the Law of the Sea, with the first being held in 1958. A second conference followed in 1960, and a third between 1973 and 1982. The first two conferences accomplished very little in terms of fisheries. The Third UN Conference on the Law of the Sea, on the other hand, revolutionized the management of international fisheries.

The Conference brought forth the 1982 UN Convention on the Law of the Sea (1982 UN Convention from hereon in), which came into force in 1994 (UN, 1982). The 1982 UN Convention grants coastal states the right to establish Exclusive Economic Zones (EEZs) out to 200 nautical miles (370 km) from shore. To all intents and purposes, each coastal state has property rights to the fishery resources within its EEZ (McRae and Munro, 1989).

It was estimated, while the Third UN Conference on the Law of the Sea was underway, that, if the EEZ regime were to become universal, as it now virtually has, the EEZs collectively would encompass 90 per cent of the commercially exploitable ocean capture fishery resources (Alexander and Hodgson, 1975). Thus, the Freedom of the Seas pertaining to fisheries appeared to have been drastically reduced, if not

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10 obliterated, and the extent of internationally shared capture fisheries sharply

diminished.

In point of fact, internationally shared capture fishery resources remain very much with us, but have changed in form, since the pre-1982 UN Convention era. This arises from the simple fact that, with few exceptions, capture fishery resources are mobile.

Consequently, the typical coastal state will find that some of the fishery resource encompassed by its EEZ cross the EEZ boundary, either into neighbouring EEZs, or into the adjacent high seas. Those fishery resources extending into the adjacent high seas are subject to exploitation by distant water fishing states (DWFSs), where a DWFS is to be defined as a fishing state some of whose fishing fleets operate beyond

the state’s EEZ (or equivalent).7

The FAO of the UN sets out the following categories of post-1982 internationally shared fishing stocks:

1. Transboundary fish stocks – fishery resources that cross the EEZ boundary of one coastal State into the EEZ(s) of one, or more, neighbouring coastal states.

2. Highly migratory fish stocks – highly migratory species, as set forth in Annex 1 of the 1982 UN Convention (UN, 1982), consisting primarily of the major tuna species. In light of their highly migratory nature, they are to be found both within the coastal state EEZ and the adjacent high seas, where they are subject to exploitation by distant water fishing states (DWFSs).

3. Straddling fish stocks – all other fish stocks (with the exception of

anadromous/catadromous stocks) that are to be found both within the coastal State EEZ and in the adjacent high seas, where, once again, they are subject to exploitation by DWFSs.

4. Discrete high seas fish stocks – fish stocks to be found wholly within the remaining high seas (Munro, Van Houtte and Willmann, 2004).

Two comments are immediately in order. The first is that Category 1 is not mutually exclusive from Categories 2 and 3. There are many transboundary fish stocks, which also cross the EEZ boundary into the adjacent high seas.

7 Several EU fishing states fall under this category, e.g. Poland, Portugal and Spain. It goes without saying that a DWFS is also a coastal state.

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11 The second comment is that the distinction between Categories 2 and 3 is largely artificial, although it continues to linger on in international treaty law. The distinction arose because of negotiations during the Third UN Conference on the Law of the Sea. There is no biological justification for the distinction. Some straddling fish stocks migrate farther than many tuna stocks. Neither is there any justification in economics for the distinction. The economics of the management of highly migratory fish stocks is indistinguishable from that of the management of straddling fish stocks (Munro, et al., 2004). We shall, therefore, merge Categories 2 and 3 and talk henceforth of straddling fish stocks broadly defined. We are thus left with the following categories of internationally shared fish stocks:

A. Transboundary fish stocks

B. Straddling fish stocks (broadly defined) C. Discrete high seas fish stocks.

Collectively, the three categories of internationally shared fish stock are estimated, let us be reminded, to account for as much as one third of world capture fishery harvests (Munro, et al., 2004). The three categories of internationally shared fish stocks are illustrated in the following figure.

Figure 1 here

It will be recalled that, at the conclusion of the Third UN Conference on the Law of the Sea, it was estimated that capture fishery resources accounting for 90 per cent of world capture fishery harvests would be encompassed by EEZs worldwide. Consequently, it seemed clear that Category B, let alone C, would be of little importance. What seemed clear in 1982 was, in fact, entirely wrong. Category B stocks created serious resource management problems over the ensuing decade. The problems were sufficiently severe that the UN felt compelled to convene a second international conference to address the issue. The conference, popularly referred to as the UN Fish Stocks Conference, 1993-1995, brought forth an agreement popularly referred to

as the 1995 UN Fish Stocks Agreement (UN, 1995).8 The 1995 UN Fish Stocks Agreement

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The full title of the conference is: UN Conference on Straddling Fish Stocks and Highly Migratory Fish Stocks. The full title of the Agreement is: Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks. The Agreement entered into force in 2001.

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12 (1995 UNFSA) is, as we shall note, to be viewed as a supplement to the 1982 UN Convention. Thus, the 1982 UN Convention and the 1995 UNFSA combined provide the legal framework for the management of internationally shared fish stocks.

We are now in a position to discuss the economic management of the three classes of internationally share fish stocks. Prior to so doing, however, we need to digress briefly to consider in more detail the elements of the theory of strategic interaction (theory of games), to which we alluded earlier. No progress can be made in analysing the economics of the

management of these resources without this set of tools.9

III. The Theory of Strategic Interaction: A Brief Digression

To repeat what we said earlier in our discussion of the post-World War II international fisheries commissions, the need for the theory of strategic interactions (theory of games) in analysing the management of internationally shared fish stocks is very straightforward. The harvesting activities of one fishing state exploiting the resource will, in other than unusual circumstances, have an impact on the other fishing state, or states, exploiting the resource – hence the strategic interaction.

While the theory of games was clearly relevant to the economics of fisheries management in the immediate post-World War II era, the theory of games was not introduced to fisheries

economics until the 1982 UN Convention was on the horizon. It became apparent that internationally shared fish stocks would constitute a major resource management problem under the coming EEZ regime. The first articles employing game theory appeared in 1979-1980. There have been steady advances in the application of game theory to this management issue from then up to the present time.10

As indicated in our earlier discussion, the theory of games divides into two broad categories, the theory of competitive, or non-cooperative, games, and the theory of cooperative games. Some terminology is common to both. The participants, as in our earlier case, fishing states, are referred to as “players”, or as “agents.” The “players”/”agents” are assumed to be rational and to have various courses of action open to them, which are referred to as “strategies.” The expected return to an agent, in following particular strategy, is then referred to as a “payoff.”

9

Those familiar with the rudiments of the theory of games are encouraged to ignore the digression. 10 Munro (1979; Clark (1980); Levhari and Mirman (1980). For a detailed and thorough summary of the application of game theory to fisheries economics, see: Bailey, Sumaila and Lindroos (2010).

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13 The size of the expected return or “payoff” will, needless to say, be dependent upon the known, or expected, reactions of other players/agents. The interaction between, or among, the agents as they execute their strategies, is the game. The stable outcome of a game, if it exists is termed the “solution” to the game. Finally, the game may be a one stage, “ once only” affair, or it may be repeated, or it may change through time, and thus be dynamic, and/or it may be multi-stage in nature.

In a cooperative game, the agents are assumed to be motivated entirely by self interest, but have some incentive to attempt to cooperate. Of critical importance is the fact that agents are able to communicate with one another effectively. In competitive, non-cooperative games, the lines of communication between and among the agents are, more often than not, faulty, or are simply non-existent.

Having said all of this, however, it must be stressed in passing that open lines of

communication, between and among agents, do not, in of and by themselves, guarantee a stable solution to a cooperative game. As we shall emphasize, communication among players is a necessary, but not sufficient, condition for a stable outcome (solution) to the cooperative game.

The key conclusion arising from non-cooperative game theory is that the agents will be driven inexorably to adopt strategies that they know perfectly well will produce decidedly undesirable results. This outcome is referred to as a “Prisoners’ Dilemma” outcome, after a famous non-cooperative game developed to illustrate the point (Tucker, 1950).

The basic nature of the “Prisoners’ Dilemma” outcome, in a fisheries context, can be illustrated as follows. Consider a transboundary fishery resource shared by only two coastal states I and II. I’s harvesting activities will have an impact upon II, and vice versa. Suppose further that there is no significant resource management cooperation between the two, with I and II

attempting to manage their respective segments of the resource on their own. Finally, suppose that both I and II recognize that the resource had been overexploited in the past.

If I undertakes to restrict harvests in order to “invest” in the resource, the benefits from this action will not be enjoyed by I alone, but will be shared with II. What assurance does I have that II will also undertake to conserve the resource? Since there is no cooperation, the answer is none. It is only too possible that II would be content to “free ride” off of I’s resource investment

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14 efforts. In these circumstances, it is likely that I will conclude that the return on its resource investment would be less than the cost , and that its best course of action (“strategy”) is to do nothing. II could be expected to come to the same conclusion.

Worse, I has to allow for the possibility that II might deliberately deplete the already

overexploited resource. If I seriously believes this, then it could decide that its best strategy is to strike first. Once again, II could follow the same line of reasoning. As we shall attempt to demonstrate in the discussion to follow, the predictive power of the theory of competitive games in the area of fisheries management has proven to be substantial. The “Prisoner’s Dilemma” has manifested itself many times over.

The theory of cooperative games is essentially a theory of bargaining. The basic problem is to achieve a bargain that is stable through time. Many cooperative fisheries arrangements are inherently fragile.

There are, according to the theory of cooperative games, several conditions, which have to be met, if the solution to the cooperative game is to prove to be stable over time. Once stated, all of the conditions sound obvious. First, there must exist no alternative solution that would make at least one agent better off, without harming the others. This is often referred to as the

collective rationality condition.11 Secondly, and very importantly, each and every agent, now

and in the future, must be convinced that its payoff from cooperation is at least as great as the payoff it would enjoy under competition. This is referred to as the individual rationality

constraint. In game theory parlance, the payoff that the agent would enjoy under competition is referred to as its Threat Point payoff.

From the individual rationality condition, it follows that the cooperative game, the cooperative arrangement, must be protected against two closely related banes of cooperation, namely cheating and free riding. Cheating refers to members of the cooperative resource management arrangement breaking the rules of the cooperative arrangement , e.g. through taking more than its agreed upon harvest share. Free riding refers, as we noted earlier, to the enjoyment of the benefits of the cooperative arrangement by outsiders. Admittedly the two can come to be blurred at the boundary. Suppose that an initial member of the cooperative arrangement decides to defect. Is this cheating or free riding?

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15 To see the importance, consider a prospective member of a cooperative resource management arrangement (agent), which is convinced that it will be treated fairly by the other members of the cooperative arrangement, but is also convinced that most of the benefits from cooperation will be taken by free riders. The prospective member (agent), could well calculate that its payoff from cooperation would be less than what it would enjoy under competition. It would then refuse to cooperate. Other prospective members of the cooperative arrangement are likely to make the same calculation and arrive at the same conclusion. The cooperative arrangement would then be dead upon arrival.

The third condition to be met is that the cooperative arrangement have the ability to withstand unpredictable shocks, be they economic, political, or environmental. The technical term for this is time consistency, or resiliency. It constitutes a serious policy problem and remains an unresolved issue in game theory.

Once the number of agents, or players, exceeds two, all sorts of complications arise. If the number exceeds two, then players, or agents, may form sub-coalitions. The coalition consisting of all the agents, or players, is referred to as the Grand Coalition. In order for the Grand

Coalition to be stable, the individual rationality condition must be satisfied on a true individual agent basis, but also on an individual sub-coalition basis. This also raises the possibility of partial cooperation.

As a general rule of thumb, the larger the number of agents/players, the more difficult it is to achieve stability through time. If nothing else, the larger the number, the more difficult it is to achieve effective compliance.

There are two final pieces of terminology with which we must be acquainted: cooperative surplus and internal stability. The cooperative surplus is a measure of the economic benefits arising from cooperation, and can be seen as the difference between the sum of the payoffs to the agents under cooperation and the sum of these same agents’ Threat Point payoffs. Internal stability of the Grand Coalition refers to a situation in which no agent has the incentive to defect and free ride. Barrett’s Paradox, to which we referred in the context of international

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management arrangement, with other than a very small number of agents,12 will achieve internal

stability, only if the cooperative surplus is small. The question that we shall have to address is the extent to which Barrett’s Paradox applies to cooperative fisheries management

arrangements.

With the digression complete, we turn now to the economic management of internationally shared fish stocks. We commence with the simplest case: transboundary fish stocks.

IV. The Economic Management of Transboundary Fish Stocks

The legal framework covering the management of transboundary – EEZ to EEZ – fish stocks is provided by the 1982 UN Convention. The Convention contains but one article pertaining to the management of these stocks, namely Article 63(1). The article imposes a duty on relevant coastal states to negotiate over cooperative arrangements for the management of these resources. What the article does not do is to impose a duty on the coastal states to reach an agreement. If the states negotiate in good faith, but are unable to reach an agreement, then each state is to manage its share of the resource (i.e. that part occurring within its EEZ), in accordance with the relevant rights and duties laid down by the 1982 UN Convention (UN, 1982, Article 63(1); Van Houtte, 2003). We can refer to this as the default option.

The default option raises the question of what the consequences of non-cooperative management of the resource are. One can point to a few examples in the world in which a fishery resource is shared, but in which there is no strategic interaction between or among the coastal states sharing the fishery resource. In such cases, the default option if fine.13 In all others, economists bring to bear the theory of competitive (non-cooperative) games. The conclusion from the analysis is that, in the absence of cooperation, there is a risk that the outcome will be an inferior one, with the loss of potential economic benefits, and quite possible serious overexploitation of the resource, or resources.

For a real world example, we turn to the author’s part of the world and Pacific salmon shared by Canada and the United States. Historically, Pacific salmon was the most important fishery resource for the fishing industries of the American states of Washington, Oregon and Alaska, and the Canadian province of British Columbia. The resource is shared, because American

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In some cases that small number is only two.

13 A scallop resource shared between Canada and the United States in the Gulf of Maine region is one example (Munro, et al., 2004).

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17 fishermen inevitably intercept (i.e. harvest) salmon produced in Canadian rivers and streams, while Canadian fishermen inevitably intercept American produced salmon..

Figure 2 here

The United States and Canada, two developed coastal states with extensive fisheries management resources and experience, came together in the late 1960s to cooperate in the management of all Pacific salmon fishery resources from northern California to the Gulf of Alaska. The negotiations were long, arduous and difficult. A successful conclusion was not reached until 1985. What drove the negotiators on was the manifestation of the “Prisoners’ Dilemma.”

It was believed, at the time, that salmon production could be increased substantially through enhancement projects (e.g. fish ladders) on major salmon rivers, such as the Fraser River, which empties south of Vancouver, British Columbia, and the Columbia River, which marks the boundary between the states of Washington and Oregon. If Canada and the United States both engaged in such projects, the mutual benefits could have been impressive. Each country deliberately held back from enhancement projects, however, for fear that the other would “free ride” on its efforts (Munro, McDorman and McKelvey, 1998).

In addition, there were outbreaks between the two countries of Pacific salmon “fish wars,” which the American legal expert, Thomas Jensen, defines as the deliberate overexploitation of the fishery resource for the purpose of denying harvest opportunity to the other party or parties (agent or agents) (Jensen, 1986, p. 18). When negotiations finally reached a successful conclusion in 1985, in the form of the Canada-United States Pacific Salmon Treaty, Jensen commented that the Treaty could best be described as a “peace treaty memorializing the end of the Pacific salmon war” (Jensen, 1986, p. 372). In the early 1990s, the Treaty seized up for a period of several years. During this period of treaty paralysis, the “Prisoners’ Dilemma” re-emerged with a vengeance (Miller, Munro, McDorman, McKelvey and Tydemers, 2001).

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18

There is nothing unique about the Canadian-American experience.14 In any event, it is not

necessary to prove in each and every case, in which transboundary stocks are managed non-cooperatively, that the consequences will be severe. All that is necessary is to show that the risk is substantial. Generally speaking, cooperation does matter, and does so a great deal.

In the cooperative management of transboundary fish stocks, the cooperating coastal states start off with certain advantages, which were not to be found in the pre-1982 UN Convention era of international fisheries commissions, and which are not to be found, at least to date, in the management of straddling fish stocks. The first is that the property rights to the relevant fishery resources are not ambiguous. If the fishery resources wholly within the coastal state EEZ are to be seen as the property of the coastal state, the fish stocks shared by neighbouring coastal states can be seen as being owned on a condominium basis (McRae and Munro, 1989). Secondly, the number of agents, or players, is generally small, although there are some

important exceptions. Cooperative management of transboundary fish stocks involving only two agents/players in not uncommon.

What then is involved in the cooperative management of transboundary fish stocks? One of the most prominent marine biologists to have been employed by the FAO of the UN, John Gulland, set out the basic requirements in 1980, as the Third UN Conference on the Law of the Sea was entering its last phase. Gulland commences by making a distinction between cooperation at the primary level and at the secondary level. Cooperation at the primary level involves cooperation consisting of scientific cooperation alone. Cooperation at the secondary level involves active management, which, by definition, requires the establishment of coordinated joint management programs (Gulland, 1980). The 2002 Norway-FAO Expert Consultation on the Management of Shared Fish Stocks concluded that, while the primary level of cooperation is useful as a

precursor to the secondary level, it is seldom sufficient in of and by itself. Cooperation must, with few exceptions, move forward to the secondary level (FAO, 2002) .

John Gulland went on to say that the secondary level of cooperation – “active management” – if it is to succeed, requires that the cooperating States/entities deal effectively with the following:

14

An orange roughy resource shared by Australia and new Zealand provides a striking example of the destructive consequences of a breakdown of a cooperative resource management arrangement. The details are to be found in Munro, et al., 2004.

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19 a) allocation of harvest shares among the participating states (or entities);

b) determination of an optimal management strategy through time, including inter alia, the determination of optimal global harvests over time;

c) implementation and enforcement of coordinated management agreements (Gulland, 1980).

Let us deal with Requirement c) first. Without effective enforcement, the cooperative resource management arrangement will break down. We need only recall our discussion of the individual rationality condition for stable cooperative arrangements.

One should seemingly also add that steps must be taken against free riding by rank outsiders. In practice, examples of such free riding in the cooperative management of transboundary fish stocks are few and far between – in contrast to the cooperative management of straddling fish stocks (Munro, et al., 2004).

Requirement a) appears to be equally obvious and straightforward. Historically, the allocation of harvest shares has been made on the basis of zonal attachment of the resource of the sharing coastal states or the historical harvests within the respective EEZs of the sharing states (FAO, 2002, para. 49). An example is provided by the cooperative management agreement between the EU and Norway with regards to the North Sea herring resource. The total allowable catch in the past has been divided on a roughly 70 per cent – 30 per cent basis between the EU and Norway, with the division being determined largely by zonal attachment (Bjørndal and Lindroos, 2004; T. Bjørndal personal communication).

Requirement a), which seems so obvious, does in fact raise an immediate question among economists. Is the real issue the division of the agreed upon total allowable catch (TAC), or equivalent, between/among the states sharing the resource, or is the real question the division of the net economic returns from the fishery through time? The two are not necessarily the same. Indeed, the report of the 2002 Norway-FAO Expert Consultation hints at this by stating that negotiations on allocations should not be confined to shares of the TAC alone (FAO, 2002, para. 46).

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20 Requirement b) means that the coastal states sharing the resource may have to bargain over the resource management policy through time, as well as over the division of the returns from the fishery. Some more game theory jargon becomes necessary at this point. In games, in which the agents are identical in all respects, the agents, or players, are said to be symmetric. In real world fishery games, asymmetry is the rule, not the exception. If the agents are

asymmetric, then it is easy to show that their resource management goals may differ. As the FAO noted decades ago, one coastal state may opt for a resource management program leading to the maximum sustainable yield (harvest) through time, while its partner(s) may opt for a stock denser than that associated with maximum sustainable yield, because of the harvesting cost advantages associated with the denser stock. These harvesting cost advantages would come at the price of less than maximum sustainable harvest through time (FAO, 1979).

It has been argued that where there are differences in management goals, it is invariably the case that one player (or players) places a higher value on the resource than the other (Munro, 1987). Maximizing the economic returns of the fishery through time obviously calls for the management preferences of the player(s) placing the highest value on the resource to predominate. In order for what we might call the optimum optimorum to be achieved, the agent(s)/player(s) placing the highest value on the resource will have to be prepared to compensate the other players. This has come to be known as the Compensation Principle (Caddy, 1997; Munro, 1987; Munro, et al., 2004).

The Compensation Principle is, of course, impossible to put into effect, if allocations between and among the coastal states (entities) are based solely and rigidly upon divisions of the total allowable catch, with each fishing fleet confined to its own EEZ. This gives rise to the concept of “side payments,” which are essentially transfers between and among agents, where the transfers may be monetary, but can take many other forms. The FAO has also referred to “side

payments” as “negotiation facilitators”15 (FAO, 2002).

For our purposes, let us define a transboundary fish stock cooperative game without side payments as one in which the economic returns to a given agent (coastal state) arising from the transboundary fishery are determined solely by the harvests of the agent’s fishing fleet taken

15

One problem faced by the theory of games is its terminology. Some at the 2002 Norway-FAO Expert Consultation found the term side payment suggestive of bribes and corruption. The euphemism “negotiation facilitators” was preferred.

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21 with the agent’s EEZ. If side payments are allowed, then the focus of allocation shifts to that of dividing the net economic returns from the transboundary fishery among the agents.

Perhaps the most striking example in which side payments were used to implement the

Compensation Principle to the benefit of all is that of the North Pacific fur seal fishery, during the last century. Strictly speaking the fishery is not a transboundary one, as we have defined it, but it is close enough for our purposes.

From the late 19th century onwards, the fishery was shared by four states: Canada, Japan, Russia and the United States. When the fishery became significant in the late 19th century, there was no cooperative management. The “Prisoner’s Dilemma” played itself out, and the resource was subject to severe overexploitation. Fearing the outright collapse of the resource, the four states came together and transformed the non-cooperative game into a cooperative one, which took the form of the 1911 Convention for the Preservation and Protection of Fur Seals, which was to last, with one lengthy hiatus, until 1984 (Barrett, 2003).

The four agents were not identical. Two, Russia and the United States, were low cost harvesters, harvesting the seals on land (Pribiloff islands), while the other two, Canada and Japan, were high cost harvesters, harvesting the seals at sea. Moreover, Russia and the United States received higher prices for their seal skins than did the other two states. Needless to say, Russia and the U.S.A. placed a higher value on the resource than did the other two. Under the terms of the Convention, the Canadian and Japanese fleets were, every season, each to receive a fixed percentage of the total allowable catch (TAC) – zero per cent. All harvesting was to be done by the American and Russians. The Canadians and the Japanese were compensated by receiving from the Americans and the Russians certain percentages of the harvested seal skins, each season. The United States and Russia did, of course, determine the resource management regime.

This pure side payments cooperative arrangement proved to be profitable for all four players. Moreover, it also had beneficial conservation consequences. It was estimated that, between 1911 and 1941 (when the hiatus in the Convention, referred to earlier, commenced), the seal herds had increased eighteen fold (FAO, 1992).

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22 Along with enabling states to implement the Compensation Principle, “side payments,” and side payment like instruments, have the capacity of enhancing the stability of the cooperative

management arrangement, by broadening the scope for bargaining. An example is provided by what historically has been a very successful transboundary fish stock management

arrangement involving Norway and Russia in the Barents Sea. The cooperative management arrangement involves, not one, but several species – a complication that serves to enhance, rather than hinder, the attempts to achieve a stable cooperative management regime.

It is this author’s understanding that, in the mid-1970s, with the EEZ regime on the horizon Norway and the then Soviet Union entered into an agreement to manage cooperatively several shared fish stocks, with the most important of these being groundfish stocks, and with the most important groundfish stock being Arcto-Norwegian cod (Armstrong and Fläten, 1991; Armstrong, Eide, Fläten and Heen, 2011; Stokke, 2003). The harvest shares were pre-determined, and were generally set on a 50-50 basis.

While there were no explicit side payment arrangements, there were arrangements, which had a unmistakably side payments flavour to them. Thus, for example, the Soviets/Russians were, and are, granted the right to take a large portion of groundfish allocations in the Norwegian EEZ. The groundfish are generally in their juvenile stage in the Russian EEZ and in their adult state in the Norwegian EEZ. Having the Russians take much of their allocations in the Norwegian EEZ serves to maximize the global economic returns from the fisheries (Stokke, ibid.) .

In addition, arrangements are made for quota swaps. If the Norwegian preference for cod is greater than that of the Russians (which has been the case), the Norwegians can acquire more than 50 percent of the cod TAC by swapping quota of other species for cod quota – thus broadening the scope for bargaining (Armstrong and Fläten, ibid.; Stokke, ibid.).

The final issue to be raised with respect to transboundary fish stock management is what we listed as the third condition to be met, if a cooperative resource management arrangement is to be stable over time. This we referred to as time consistency, or resilience, the ability to absorb the shock of unpredictable changes. The lack of resilience can cause a once successful cooperative resource management arrangement to disintegrate.

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23 The author turns once again to his part of the world for an example, revisiting the case of Pacific salmon shared by Canada and the United States. We focus on the cooperative fisheries

management arrangement in the form of the Canada-US Pacific Salmon Treaty. In the cooperative fisheries game that is the Treaty, it is reasonable to regard Canada as a single agent, because, within Canada, jurisdiction over marine fisheries rests wholly with the federal government. In the United States, on the other hand, significant power rests with the individual states. The United States was, and is, therefore, not a single agent, but what can be seen as a four agent coalition, consisting of Washington plus Oregon, Alaska, the U.S federal government, and because of key US federal court decisions regarding the allocation of salmon harvests off of

Washington/Oregon, the 24 Treaty Native American tribes of Washington, Oregon and Idaho.16

The cooperative game is a two stage one, in which the players in the American coalition bargain among themselves, and, upon achieving a consensus, proceed to bargain with Canada.

The Alaskans have always had the least to gain from the Treaty, and indeed the Treaty

negotiations temporarily ground to a halt in the early 1980s, because of Alaskan dissatisfaction. Through a complex bargaining process, the problem was resolved and the Treaty came in to place in 1985.

At the time of the signing of the Treaty there was a rough balance between Canadian “interception” of American produced salmon, and the American “interception” of Canadian produced salmon. It was recognized by all that the cooperative surplus was substantial, and it appeared that the allocation of the economic benefits from the fishery were more or less fair (Munro, McDorman and McKelvey, 1998).

What was not recognized at the time was that there was a climate regime shift underway. The regime shift was to have a decidedly negative impact upon salmon stocks off Washington, Oregon and southern British Columbia, and a decidedly positive impact upon salmon stocks off of Alaska. The equitable division of benefits was upset, and the Treaty was thrown into

disarray, with Alaska effectively being pitted against Canada, Washington/Oregon and the American Treaty tribes. To all intents and purposes, the “individual rationality” condition, with respect to Alaska, was not being met (Miller, et al., 2001; Miller and Munro, 2004). There is no

16 The term comes from an 1854 treaty between the tribes and the American government involving, among other matters, fishery rights.

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24 evidence that the Treaty was breached; that the Alaskans overtly acted in violation of the

Treaty. The Alaskans did, nonetheless, find means of “throwing sand in the gears.”

The cooperative resource management arrangement proved to lack the resilience to withstand the major environmental shock in the form of the climate regime shift. One weakness of the Treaty was that bargaining between Canada and the American coalition was constrained by the fact there was no allowance whatsoever for side payments (Miller, et al., 2001).

After almost six years of treaty paralysis, Canada and the United States signed the Pacific Salmon Agreement in 1999 (U.S. Department of State, 1999) designed to “patch up” the Treaty. The Treaty was formally renewed a decade later, on January 1, 2009. Interestingly, both the Agreement and the renewed Treaty contained provisions for side payments, although, of course, they were never labelled as such (Miller et al., 2001; Canada, Department of Fisheries and Oceans, 2009).

While there are, of course, examples of attempts to manage cooperatively transboundary fish stocks that have been unsuccessful – the tribulations of the Canada-U.S. Pacific Salmon Treaty being one example – there have been numerous successes. The Norway-Soviet Union/Russia Barents Sea cooperative management arrangement is a particularly striking example. Some 20 years ago, Claire Armstrong and Ola Fläten carried out an empirical study of the arrangement focussing particularly on Arcto-Norwegian cod. After pointing to the many imperfections in the cooperative management arrangement, they estimated that the cooperative surplus was as much as 50 times greater than the sum of the Threat Point payoffs (Armstrong and Fläten, 1991). There is no reason to suppose that the cooperative surplus is any less today (Ola

Fläten, personal communication).17

17

Barrett’s Paradox, to which we have referred many times, does not apply in this case, because the number of agents is indeed small – two. It has to be admitted that there were some difficulties along the way. In the 1990s a portion of the resources moved into a high seas area, giving the stocks a “straddling” attribute. All of this attracted the unwelcome attention of certain other fishing states. These states were dealt with by Norway and Russia through a judicious combination of threats and bribes (see: Stokke, 2003, for details).

Having said all of this, there is further evidence of the success of the cooperative resource management regime, arising from the conservation of the resource over time. As we shall point out in our discussion of the management of straddling fish stocks, marine biologists commonly focus on the sexually mature portion of the fish stock, which they refer to as the spawning stock biomass (SSB). ICES biologists deem the minimum safe SSB for Arcto- Norwegian cod to be 200,000 tonnes. In the late 1980s, the SSB was found to have fallen below this critical minimum. In retrospect, the resource crisis can be seen, in good part, to have arisen as a consequence of seriously inadequate resource management measures

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25 As we stated at the outset, the management of strictly transboundary fish stocks is relatively easy. The property rights to the fishery resources are unambiguous; with few exceptions the number of agents is small. The management of straddling fish stocks, by way of contrast, has proven to be a far more demanding undertaking. It is to this issue that we now turn.

V. The Economic Management of Straddling Fish Stocks

To commence, let us be reminded that the definition of straddling fish stocks, which we are using, is a broad one. It includes all fish stocks to be found both within the coastal state EEZ

and the adjacent high seas.18

It will be seen that the UN Fish Stocks Agreement (1995 UNFSA) calls for straddling fish stocks to be managed on a region by region basis through Regional Fisheries Management

Organizations (RFMOs). Some RFMOs were in place prior to 1995. Two of these are the North Atlantic Fisheries Organization (NAFO) and the North East Atlantic Fisheries Commission (NEAFC).

The coming of the EEZ regime forced a reformation of the previous North Atlantic international fisheries management arrangements. The North East Atlantic Fisheries Convention of 1959 was replaced in 1980 by the Convention on Future Multilateral Cooperation in North East Atlantic Fisheries, and came into force in 1982, giving rise to the current NEAFC (Bjørndal, 2009a).

ICNAF was deemed to be incompatible with the coming EEZ regime and was terminated. At the initiative of Canada, and in cooperation with the then European Commission, ICNAF was

(Armstrong, Eide, Fläten and Heen, 2011). The appropriate policy, clearly, was to reform the resource management measures, and then to undertake a major resource investment program, with all that that implies. The economics of non-cooperative management of transboundary fish stocks tells us, as we have seen, that the resource investment program would, in the absence of cooperation between Norway and Russia, have been doomed from the start. The resource investment program was, in fact,

successfully undertaken, albeit with some temporary setbacks. The latest available data show the SSB of the resource to be in excess of 1 million tonnes - far, far above the critical minimum level (Armstrong, et al., ibid.).

18

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26 replaced by NAFO, which officially came into being on January 1, 1979 (Kaitala and Munro, 1993).

Straddling fish stocks (broadly defined) are covered under the 1982 UN Convention on the Law of the Sea by Articles 63 and 64 in Part V, Exclusive Economic Zone; and by Articles 116-120 in Part VII High Seas. Coastal states and DWFSs sharing these resources are admonished to cooperate in the conservation and management of these resources (UN, 1982, Articles 63, 64; 116-120). No details are given on how the relevant states are to cooperate.

Of greatest importance is the fact that the rights and duties of coastal states with respect to the high seas segments of the straddling fish stocks, as opposed to those of DWFSs, are left opaque by the 1982 UN Convention (Munro, et al., 2004). The consequence of this opaqueness was that it proved very difficult to establish effective cooperative resource

management arrangements. There was a distinct tendency for the relevant cooperative fishery games to degenerate into competitive ones.

The economics of non-cooperative fisheries management, discussed under the heading of transboundary fish stocks, applies without qualification to non-cooperative management of straddling fish stocks: Indeed, at one point Munro et al. state that:

the overexploitation of straddling stocks [broadly defined] worldwide, which provided the rationale for the UN Fish Stocks Conference, bears powerful testimony to the predictive power of the economic analysis of the non-cooperative management of such resources (Munro, et al., 2004, p. 45).

The economists’ model of non-cooperative management of shared fish stocks did, in line with the quote from Munro et al., 2004, demonstrate its predictive power. The Prisoner’s dilemma revealed itself through clear evidence of overexploitation of fishery resources (Bjørndal and Munro, 2003, ibid.).

NAFO provides a good example. It commenced at a disadvantage, in that the United States, and two DWFSs, which had fished on the Grand Bank of Newfoundland for centuries, Spain and Portugal, were not members. Canadian fisheries relations with the Spanish and Portuguese at the time are best described as poisonous (Bjørndal and Munro, 2003).

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27 The first few years of NAFO’s existence were reasonably effective. By the mid-1980s, however, an EC-Canada dispute broke out within NAFO. The NAFO Convention had an opt out

provision, of which the EC took advantage. The accession of Spain and Portugal to the EC – to become the EU – intensified the friction between the Europeans and the Canadians.

The situation was aggravated by the appearance of vessels of non-members in NAFO waters, often flying flags of convenience. NAFO had no effective means of controlling the free riding. The cooperative fishing game turned into a competitive one, and remained as such until the conclusion of the UN Fish Stocks Conference in 1995.

General concern over ineffective management of straddling fish stocks worldwide led, as we have already noted, to the convening of the 1993-1995 UN Fish Stocks Conference. The resultant 1995 UN Fish Stocks Agreement (UN, 1995), which came into force in 2001, is not to be seen as replacing any part of the 1982 UN Convention. It is rather to be seen as buttressing the 1982 UN Convention, in particular Part VII, High Seas (Bjørndal and Munro, 2003; Munro et al., 2004).

As we have already noted, under the 1995 UN Fish Stocks Agreement, straddling fish stocks are to be managed through RFMOs, which explicitly are to have DWFSs as members, as well as coastal states. Indeed, any fishing state with a “real” interest in the fishery resources under the jurisdiction of the RFMO is eligible for membership (UN, 1995, Article 8(3)).

Accompanying this “real” interest provision are restrictions placed upon harvesting the fishery resources under RFMO jurisdiction. Only members of the RFMO, or non-members agreeing to abide by the RFMO management regime, are to have the right to exploit the fishery resources under RFMO jurisdiction (UN, 1995, Article 8(4)).

A key question is the area of geographical competence of the RFMO. Ostensibly, a RFMO is to be concerned only with the management of the high seas segments of straddling fish stocks (UN, 1995, Article 3). The 1995 UNFSA also states, however, that the management of the high seas segments of the stocks must be consistent with the intra-EEZ management of the stocks (UN, 1995, Article 7(2)). Each fish stock is thus to be managed as a whole. This can,

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28 determines the intra-EEZ management regime, and thus the management of the high seas segments of the stocks, or in which the relevant DWFS(s) have some power over the high seas management, and thus have influence over the intra-EEZ management of the stocks (Munro, et al., 2004).

With this background in mind, let us now turn to the economics of the management of straddling fish stocks through RFMOs. Economists commence with the economics of the management of transboundary fish stocks and ask what modifications, if any, are required to analyse straddling stock management. As far as the economics of non-cooperative management of these stocks are concerned, we already have the answer. No modifications are required.

With respect to the economics of cooperative management of straddling fish stocks, all of the conditions for stability listed in the discussion of the cooperative management of transboundary fish stocks must be met. More is required, however, because the cooperative management of straddling fish stocks is far more complex than that of transboundary fish stocks. First, large numbers of agents/players are commonplace in RFMOs. Secondly, the property rights to the high seas segments of straddling fish stocks are somewhat nebulous at this stage.

The larger the number of agents/players, the more difficult it is to achieve stability, as we noted earlier. In analytical terms, economists are forced to turn to complex coalitional game theoretic models, in which a distinction is made between all members of the RFMO cooperating, the Grand Coalition, and some members of the RFMO cooperating with one another, while possibly competing with the others – sub-coalitions.

The nebulous nature of property rights to the resources leads to difficult policy issues, the first one of which is the threat of explicit free riding. There are two components to this; one

apparent, and one real. The apparent one is “opt out” provisions in the conventions, or other instruments underlying RFMOs. The idea is simply that a member of a RFMO can voice its objections to a conservation and management provision pertaining to a fishery resource, or resources, under RFMO jurisdiction, and then fish as it pleases. The “opting out” member would in effect be free riding on the cooperative efforts of the other RFMO members. There is clear evidence, as we have seen, that the existence of “opt out” provisions was a serious weakness in the pre-1995 NAFO.

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29 Law of the Sea experts, Örebech, Sigurjonsson and McDorman, argue that, while RFMO

conventions may contain “opt out” provisions, any RFMO that allows such provisions to be used freely will be in violation of the 1995 UNFSA. The treaty emphasizes strongly the

obligation on the part of RFMO members to achieve unanimous decisions - “… no negotiation is to be spared to obtain an agreement on TAC [total allowable catch] and allocation measures”

(Örebech et al., 1998, p. 126).19

The real component of explicit free riding lies in what is referred to as unregulated fishing. Unregulated fishing consists of fishing by non-RFMO members in the high seas under RFMO jurisdiction in contravention of the management regime laid down by the RFMO. The 1995 UNFSA, as we have seen, expressly forbids this. It is, however, a fundamental principle in international law that an international treaty is binding only on those states which have ratified

the treaty, unless the treaty has achieved the status of customary international law.20 To date,

78 states have ratified the 1995 UNFSA (UN, Office of Legal Affairs, 2011), but there are still some significant non-ratifiers. It is not at all clear that the 1995 UNFSA has achieved the status of customary international law.

If vessels of a state, not party to the 1995 UNFSA, engage in fishing in waters under the jurisdiction of a RFMO, in contravention of the management regime of the RFMO, the vessels are deemed to be engaging in unregulated, as opposed to illegal, fishing (FAO, 2001). Under international law, illegal fishing can be dealt with forcibly. It is much less clear what can be done about unregulated fishing.

Recent coalitional game theory analysis demonstrates that, if the free riding to which we have referred goes unchecked, the Grand Coalition, which is the RFMO, will be stable, only if the number of agents is very small. The results are similar to pessimistic assessments of

international environment agreements (IEAs), and bring Barrett’s Paradox immediately to mind (Pintassilgo, et al., 2010).

19 Örebech et al. also point out that the 1995 UNFSA expressly denies cooperating non-members opt out provisions. It would be bizarre, they maintain, to deny non-members the right to opt out, while allowing members to do so freely (Örebech, et al., 1998).

20

The status of customary international law is gained by international use and recognition. Once a treaty, or part thereof, has gained this status, a non-party to the treaty can ignore the relevant provisions, only if it explicitly states its intention to do so(Buergenthal and Murphy, 2002). Thus, for example, Part V, Exclusive Economic Zone, of the 1982 UN Convention is a part of customary international law and is effectively binding on non-parties to the 1982 UN Convention.

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30 The threat of unregulated fishing has now been clearly recognized by policy makers. Due to recommendations forthcoming from the OECD, a London based Independent Panel on RFMO

Governance was established in 2006.21 The Panel in its report states that “… a core conclusion

is that the success of international cooperation depends largely on the ability to deter free riding” (Lodge et al., 2007, p. x).

International law to one side, RFMO members are acting as if the 1995 UNFSA is customary international law, and are taking vigorous actions against unregulated fishing, including blacklisting of vessels, and the introduction of certification programs to guard against “fish laundering” (Munro and Sumaila, 2011). The report of the Independent Panel has a detailed description of means of suppressing unregulated fishing (Lodge, et al., 2007, Chapter 5).

In order for curbs on unregulated fishing to be effective, the RFMOs must cooperate. This is beginning to happen, with an example being provided by the North Atlantic. If NAFO blacklists a vessel for engaging in unregulated fishing, the vessel is automatically blacklisted by NEAFC, and vice-versa (Lodge et al., 2007).

Even if compliance of RFMO members can be achieved and unregulated fishing suppressed, there remains one problem, also arising from nebulous property rights. This is the New Member problem.

After a RFMO is established, the “charter” members may find that they are being approached by a fishing state hitherto outside the RFMO, which now wishes to join. With rare exceptions, the would be new member is a DWFS.

An example is provided by the Western Central Pacific Fisheries Commission, the RFMO encompassing the world’s largest stock of tropical tuna. When the RFMO was established, early in the last decade, it consisted of the Pacific Island States, Australia, New Zealand, a few Southeast Asian states (e.g. Indonesia and the Philippines) and DWFSs that had a history of operating in the region, e.g. China, Japan and the United States. In the recent past, several Latin American DWFSs, such as Mexico, Panama and Ecuador, have expressed a “real” interest in the relevant tuna resources, and a desire to join the WCPFC.

21

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31 Under the terms of the 1995 UNFSA, “charter” members cannot bar outright prospective new members that are prepared to abide by the resource management regime established by the RFMO “charter” members (1995 UNFSA, Articles 8, 10 and 11). The question is then: under what conditions are such new members to be admitted to the “club”?

The set of legal experts on the Law of the Sea to whom we referred earlier, Örebech,

Sigurjonsson and McDorman, maintain that, under the 1995 UNFSA, new members must be allocated just and reasonable shares of the TAC(s), available under the RFMO management plan (Örebech et al., 1998). A number of years ago, Kaitala and Munro (1997) demonstrated the following. If just and reasonable implies that the new members/participants, upon joining a RFMO, should be allocated, at no further cost as it were, shares of the Total Allowable Catch, or the equivalent, on a pro-rata basis, then, when planning is undertaken for the establishment of a RFMO, prospective “charter” members could well calculate that their expected payoffs from cooperation would fall below their respective non-cooperation payoffs. Hence, the RFMO would be stillborn, in essence because of potential new member implicit “free riding”.

The Kaitala-Munro argument can be explained in terms of the following example. Suppose that a hitherto overexploited straddling type of stock comes under the management of a RFMO consisting of coastal state V, and three DWFSs, W, X and Y. The four “charter” members undertake the cost and sacrifice of rebuilding the resource over, let us say, a seven year period. In the eighth year, the four are in a position to enjoy a return on their resource investment, through harvesting. At the b

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