Saturday, May 31, 2003

Two recent blog postings ridicule and attempt to refute David Frum's suggestion that one solution to the problem of overfishing would be to create a system of property rights in wild fish. Both, I think, miss the mark, although by differing margins.

A blogger named Jim Capozzola took note of Frum's suggestion, and proclaimed it to be "not an example of chutzpah," but "the very definition thereof." Capozzola did not supply any reasoning or argumentation to support this conclusion, and given that he doesn't even mention the large literature on "Individual Transferable Quotas" (or ITQs), I would surmise that he has no idea what he is talking about. (Not that this is a special condemnation of him; a lot of bloggers don't know what they are talking about a substantial portion of the time.)

A more educated, but still inaccurate, posting comes from political scientist Henry Farrell. Here's a quote:
As Jim sez, this is chuzpah at its finest; it's also based on assumptions that are quite problematic. Frum's basic idea -- that the only solution to overfishing is to create private property rights -- rests on Garret Hardin's the Tragedy of the Commons. * * * Traditionally, two possible solutions have been proposed to the Tragedy of the Commons. The first is centralized government rules of the sort that Frum abhors instinctively. The second is to privatize the resource. If it becomes the property of one actor, then that actor has an incentive to maintain it in the long run rather than seeking to maximise her short term gain.

So much for the conventional wisdom. The Tragedy of the Commons is a nice story and describes real problems. But economic theory has demonstrably underestimated the ability of communities to solve these problems. Lin Ostrom, at the University of Indiana, has a wonderful book, Governing the Commons that shows how conventional wisdom can sometimes turn out to be plain wrong. Ostrom has coordinated a major, decades-long research project that has examined literally thousands of situations involving commons-type resources. * * *

Ostrom argues, on the basis of voluminous amounts of empirical evidence, that problems such as overfishing aren't solved by privatization or centralization. Instead, they're best addressed by polycentric governance systems, in which central authorities provide broad enforcement, but let local communities set their own rules as much as possible. For example, problems of overfishing of lobsters along the Maine coast have been solved by local gangs of lobster fishermen that informally regulate certain parts of the coast, working in conjunction with the state government. This approach allows local users to use their specific knowledge to maintain resources while excluding free riders. As Ostrom suggests, something like this approach seems to be the best bet for managing resources on a wider scale. It's less applicable to some species than to others -- pelagic fish present a problem because of their long migration routes. But it appears to have a track record of actually working -- something that can't be said either for Frum's proposal of privatizing everything, or for the politicized quota systems that governments currently rely on.
Farrell was doing well until this last paragraph. Ostrom does not, so far as I am aware, ever argue for so bald a proposition as that "problems such as overfishing aren't solved by privatization." She usually makes the more subtle point that privatization isn't the only possible solution to the tragedy of the commons, and that under certain limited conditions a local community's customary rules might be superior.

Nor is it accurate to suggest that using a commons regulatory structure "appears to have a track record of actually working -- something that can't be said either for Frum's proposal of privatizing everything, or for the politicized quota systems that governments currently rely on." This is false. Empirical evidence shows that the ITQ system has been largely successful in Iceland's and New Zealand's fisheries, for example.

This not to say that ITQs or similar private property rights systems are universally superior or that they are without pitfalls. Ostrom (and many other researchers) have showed that common pool regimes sometimes are superior, given certain conditions, and that interventions by centralized governments often make things worse.

Still, common pool regimes have their problems too, and nothing in the literature suggests that they are universally superior. The choice of regulatory regimes is exceedingly complicated, and it requires a great deal of comparative institutional analysis. (For an example of the more sophisticated analysis to which I am referring, check out Hakan Eggert's 1999 paper.) It is almost never correct to issue simplistic, blanket pronouncements such as Farrell's conclusion that commons work and private property rights don't.


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