banks in the Northwestern Atlantic by the mid- 1990s resulted in more than 40 000 people being
unemployed in the Canadian Maritime Provinces. With Federal Government assistance to these peo-
ple due to expire after 7 years, the fish stocks still have not recovered Kurlansky, 1997. On a
global scale, the magnitude of the problem is illustrated by global marine fish production esti-
mated to cost 124 billion per year to harvest the operating cost of the global fishing fleet, but
returning revenues of only 70 billion Mace, 1997. The 54 billion shortfall is thought to
represent various kinds of government subsidies to fishing that help entrench both the over-ex-
ploitation of resources and the economic ineffi- ciency of the fishing industry.
Although there has been considerable develop- ment of both economic theory and biological
models as they apply to the management of marine natural resources over the past 50 years,
policy development for the marine environment is particularly complicated compared with that for
many land-based resources. Despite development of increasingly sophisticated and complex policy
frameworks, biological, economic and social out- comes often have been poor. Complications range
from wider questions of sovereignty at both inter- national and state levels to the difficulty of defin-
ing ownership of free-ranging or migratory resources like fish stocks. Establishing property
rights in ways that result in the generation and fair distribution of economic rent, along with
sustainable utilization of resources, has proved to be extremely difficult.
Four major areas of economic policy that have emerged as significant issues for the proper man-
agement and development of marine natural re- sources
are discussed
in this
paper: implementation of appropriate economic instru-
ments; establishment of property rights; genera- tion and distribution of rent; and management of
resources for sustainability. While there are obvi- ous overlaps and interactions between these areas,
they are separated to some extent in the following discussion to allow easier consideration of their
characteristics and potential roles in marine re- source management.
2. Economic instruments for managing marine natural resources
James 1997 defined economic instruments EIs as instruments that operate through market
processes or other financial incentives. This con- trasts with the traditional approach to managing
natural resource problems, which has been to apply regulations, sometimes known as the ‘com-
mand-and-control’
approach. ‘Command-and-
control’ refers
to government
measures legislation with which individuals or corporate
entities must comply. Examples of this approach to environmental management include establish-
ing regulations that set standards for air and water quality, prescribing consumer behaviour,
and limiting the fishing equipment that may be used in specific fisheries.
Economists have, however, long argued that market-based incentives, which apply monetary
values, are more efficient for environmental man- agement than those based on ‘command-and-con-
trol’ approaches. Yet environmental management has been dominated by the regulatory approach.
James 1997 noted that regulations were, until recently, almost the only instrument used by gov-
ernments in natural resource and environmental management. This began to change to some ex-
tent in 1972 when OECD countries agreed to pursue a ‘polluter-pays’ approach as a back-
ground economic principle for environmental pol- icy. A recent manifestation of this policy was the
introduction, in 1999, of ‘ecotaxes’ on energy sources in Germany.
Economic instruments incorporate monetary values for the use of natural resources by, for
example, applying taxes, prices or tradable rights. The main attraction of these pricing mechanisms
is that they provide clear signals in the market to consumers about the cost of producing a particu-
lar product, and to producers about the relative valuations based on willingness to pay that con-
sumers place on the resources, i.e. a simple infor- mation system is established. Wills 1997 noted
that society needs a ‘‘signalling and incentives system to co-ordinate individuals’ production and
consumption activities’’. Following Wills, such a system must ‘signal information’ about resource
availability or scarcity. This information is useful for bringing production and consumption into
balance, and for directing scarce resources to their most valued uses. Pricing systems imply that there
are rewards and penalties for consumers and pro- ducers in relation to their activities.
An advantage of EIs is that they allow for adaptive choice and decentralized decision-mak-
ing by those whose behaviour is to be modified. There are, however, some disadvantages in relying
on markets for management of marine natural resources, especially for optimal allocation of
scarce resources. To understand these disadvan- tages, it is important to examine the consequences
of inefficient or wasteful exploitation of natural resources. Foremost among these are welfare im-
plications, particularly where future generations are left worse off by the actions of the present
generation. Also, market failure can increase po- tential environmental impacts from the exploita-
tion of natural resources. Market failure occurs where prices do not properly reflect the true value
of the good in question. Many of the benefits of, for example, marine protected areas, such as eco-
logical, biological or aesthetic values, are subject to market imperfections. Davis and Tisdell 1995
pointed out that because there is no ‘environmen- tal price’ to be paid by consumers who reap the
benefits of, say, a pristine coral reef, then the reef is made available at an inefficiently cheap price
i.e. the net social benefits arising from use of the reef are not maximized and it may subsequently
be overused and degraded. An obvious reason for this is that many of the benefits from being able
to use the reef are difficult to measure and express in monetary terms.
Setting an appropriate price for marine and other natural resources is a major challenge be-
cause of the so-called intangibles. These include values other than those associated with immediate
use such as existence, option and bequest values Munasinghe, 1992. To make matters worse,
overuse and damage of the resource is virtually guaranteed because of the open access nature of
most marine resources, an issue discussed later in this paper in relation to property. Therefore, as
explained by Turner et al. 1994, market failure arises because the price for goods and services
does not reflect the true value of the resources being used to produce them, including the full
cost of degradation of those resources. Many marine environmental goods presently
are unpriced and are consequently overused marine waters used for sewage disposal have
traditionally been subject to such overuse. Where the major part of environmental goods and ser-
vices is unpriced, markets cannot be used for effective allocation. With zero price, they would
dissipate all of the resource without regard to its true, but hidden values. This problem is charac-
teristic of the open access andor public good nature of most marine environmental goods.
Davis and Tisdell 1995 explained that, when open access is the case, individuals have no incen-
tive to conserve the resource being exploited. In other words, they do not take account of user
costs and, although one user might take care, others will not. They concluded that this supports
the adage that the property of all becomes the responsibility of none.
Economic instruments are designed to correct market failure — to ensure that real or inclusive
costs are signalled to producers and consumers. Turner et al. 1994 noted two ways in which
market failure in the context of natural resource services could be overcome. First, markets could
be created in previously free services by attaching a price to them. This might require restriction of
access to such resource services by, for example, charging entrance fees. The best known price-
based
instruments are
taxes and
user-pays charges. Restricting access might, alternatively,
involve changing property rights an example of changing property rights would be to establish
extended exclusive economic zones in the oceans.
Second, markets could be modified by centrally deciding the value of natural resource and envi-
ronmental services, and ensuring that those values are incorporated in the prices of goods and ser-
vices. This type of approach is known as the market-based incentives approach, and is nor-
mally contrasted with the direct regulatory ap- proach. Annual licence fees might provide an
example of a centrally determined value for access by commercial tour operators to particular sites
or attractions in marine protected areas, although
those fees — where they are charged — tend to be based on administrative costs rather than envi-
ronmental values. An example is provided in the whale shark tourism industry in Western Aus-
tralia’s Ningaloo Marine Park, where daily visitor charges include a fee that is payable to the state’s
management agency Davis et al., 1997; Davis and Tisdell, 1999.
Despite growing interest in the application of EIs, many questions still arise. For example, is it
not easier to make a rule about resource use and enforce it? The principal problem with this regula-
tory approach is that it does not work. The cost of effective enforcement, both in monetary and
social terms, inevitably is too high. Without effec- tive enforcement and compliance, the resource is
likely to become degraded. In addition to being expensive and difficult to enforce, regulations will
most likely not result in the most efficient use being made of scarce resources because they take
no account of costs, are inflexible and slow to change as technology and production patterns
change for example, see Alder and Haste, 1995, and they provide no incentive for groups such as
polluters to continue to improve beyond the set regulatory limit. For example, if pollution such
as effluent discharge into an estuary is at a high level and pollution represents a direct cost to
society e.g. Fig. 1, Point A, regulations might be introduced requiring polluters to reduce their out-
puts to a level below a set standard point B within a given period of time. But there is no
incentive in this system to continue to reduce pollution to still lower levels — polluters will
reduce levels as required, but then continue pol- luting at a level such as that shown by the line
CD. EIs are implemented to provide the incentive for continued reduction in pollution, perhaps fol-
lowing the line ACE. With regulation, there is a loss to society represented by the hatched area.
The load-based licensing scheme for effluents re- leased into the atmosphere and water bodies,
recently implemented by the state of New South Wales, Australia, is a scheme designed to provide
such
on-going incentives
for environmental
improvement. In addition to providing better outcomes for
the environment, EIs usually help achieve these objectives at a lower cost to the community than
the ‘command and control’ approaches, for the reasons already outlined. In the wider context, as
pointed out by James 1997, they are a practical means of implementing the principles of sustain-
able development.
In resolving resource use problems, however, it is essential that any solution adopted should not
impose more costs on society than the problem being solved — there should be a net benefit to
society from the change. The application of this principle is not always straightforward when there
is uncertainty surrounding the true costs of the problem and the costs and benefits of alternative
solutions. This uncertainty results in some solu- tions being ‘second best’. For example, Forsyth et
al. 1995 explained that user-charges should be related to costs, either the costs of environmental
damage or the monetary costs incurred in avoid- ing such damage. But the difficulty is that such
costs, particularly environmental costs, are often difficult to estimate accurately. The result is that
charges are sometimes imposed not on the exter- nality, but as a Pigovian tax on the person or
product that generates the externality, meaning that such charges relate only indirectly to the
environmental costs being incurred.
Social outcomes also comprise an important area of cost. Sustainable communities are an im-
portant part of the marine resource management equation, and formulation of policy, including
that based on EIs, will require compromises and trade-offs between economic efficiency and social
Fig. 1. Incentive effects of economic instruments.
and biological outcomes. This is not, however, an argument against the use of EIs. Regulation may
also result in welfare losses, but without the atten- dant gains in economic efficiency potentially
available through the use of EIs. And, of course, taking no policy action is almost guaranteed to
result in the demise of certain coastal industries and communities as happened, for example, with
sardines on the US West Coast and herring in the North Sea.
Marine natural resources can also provide more than one service. For example, many fish species
have both a recreational and commercial value, and marine parks have a wide variety of different
users. Management of these resources will entail multiple objectives and, therefore, a combination
of management instruments will be needed. Fur- thermore, valuation of the resources might be
incorrect. Marine protected areas provide an ex- ample. There have been a number of valuation
studies of protected areas with values based on activities such as tourism. Yet these valuations
may overstate the value of protection to the area — many of the tourism activities would have
occurred whether or not protected status had been granted. If user-charges were based on the value
of major activities in the protected area, they would most likely result in charges being levied
that are too high and so over-estimate the ‘added- on’ value conferred by protection. Consequently,
economic approaches such as the auction of rights to access certain resources can be used to elicit a
more accurate, market-based valuation of those resources.
Economic instruments are also subject to a range of other limitations. Markets can distort
values when they are based on poor information about resources. For example, stocks of orange
roughy, a fish occurring in water over 3 km deep in the Southern Ocean and sub-Antarctic, were
greatly over-estimated, resulting in over-capital- ization in the industry. Sound market decisions
rely on good information.
Governments can also distort markets by grant- ing exemptions to regulations that otherwise
would impose a cost. This so-called ‘government failure’ is, perhaps, one of the greatest sources of
poor resource management around the world. For example, sea farming of tuna in South Australia
was allowed to proceed with an exemption from the Environmental Protection and Assessment
Act, yet such an industry might impose significant economic and other externalities on other users of
the areas in which the farms are located. Equity issues might also arise, with an EI having most
impact on those who can least afford to pay, e.g. increases in fishing licence fees will most affect the
poorest sectors of the industry. Wills 1997 also explained that environmental problems involve
uncertainty, and this renders the development of management strategies more difficult. These cases,
however, support at least partial adoption of EIs, as these are more flexible than the regulatory
‘command and control’ approach.
Two final points can be made about the use of EIs for marine resource management. First, as
noted by Davis and Tisdell 1996, EIs are mostly underpinned by technical or biological consider-
ations such as the desired upper limit on emis- sions, or the total allowable catch in certain
fisheries and, therefore, the most effective ap- proach is likely to involve a blend of incentive-
based approaches and regulation.
Second, as Turner et al. 1994 argued, there is little doubt that society will demand increasingly
stringent pollution controls in the future and, therefore, costs and regulatory intrusiveness will
escalate significantly. Similarly, pressure on scarce natural resources such as fish stocks will lead to
society and industry demanding improved man- agement of those resources, involving better bio-
logical, social and economic outcomes such as generation of rent, notwithstanding the biological
uncertainties that typify their exploitation. These factors will require increased use of market mech-
anisms for revealing information, compared with the excess costs and bureaucracy associated with
strategies based solely on regulation. Economic incentives, of necessity, will become more widely
adopted by government resource management agencies. To achieve desired management out-
comes for a range of natural resources using economic approaches relies, however, on im-
proved specification of the property rights govern- ing the use of those resources.
3. Property rights
