Excess capacity and the race to fish : the role of capital malleability, environmental variation and quota management

Excess capacity is a major issue in world fisheries. In addition to reducing the ability of managers to control the global harvest and increasing the potential for effort spill-over between fisheries, excess capacity introduces a prospective level of economic waste in the fishery. When there is excess capacity in a fishery, more inputs are being used than is necessary to produce the current output and economic theory suggests that the net benefit to society from the resource exploitation is not maximised. Fishery managers worldwide are concerned with reducing the levels of excess capacity in their fisheries. In fisheries where 'race to fish' behaviour is prominent, competitive harvesting can also encourage inefficient investments in capital which create the potential for problematic excess capacity. Such behaviour is termed the 'race to invest' in this thesis. The objective of the thesis is to investigate how race to fish and race to invest behaviours affect the level of excess capacity. The thesis consists of three essays, in which excess capacity is examined in the open access fishery, where the race to fish and race to invest are pervasive, and also during a period of race behaviour in a catch-controlled fishery. The first essay investigates the relationship between the malleability of capital and the level of excess capacity using a dynamic model of the open access fishery. The malleability of capital in this essay is represented by a difference between the purchase and resale prices of capital. The second essay investigates the connection between environmental variation and excess capacity, also in the open access fishery. This essay characterises the emergence of excess capacity under transient fluctuations in recruitment, and also uses parameterised simulations to investigate excess capacity when there is a regular cyclical fluctuation in recruitment and for 'positive' and 'negative' regime shifts, where the recruitment of the fishery permanently increases or decreases. In these essays, the race to fish and the race to invest are modelled separately, so the conventional race to fish determines the level of fishing effort (i.e. capacity utilisation) and the level of capital investment is driven by a race to invest, in which fishers' expectations are formed myopically (according to the theory of projection bias). The third essay undertakes an empirical analysis of excess capacity and efficiency in the Tasmanian rock lobster fishery using the Data Envelopment Analysis methodology. This essay investigates whether the adjustment of the fishery, after the introduction of the Individual Transferable Quota (ITQ) system in 1998, has occurred over a prolonged period of time. This would suggest that the ITQ system may have a larger impact on excess capacity in that fishery than is indicated by comparable studies in other fisheries. In addition, this essay looks for evidence of the re-emergence of excess capacity in the fishery during a period of non-binding Total Allowable Catch (TAC) between the 2008 and the 2010 quota years. The results in this thesis highlight a potential trade-off between excess capacity and the biological outcome for the fishery, which suggests caution in using the level of excess capacity as an indication of the fishery's health. The results also show that the reduction or elimination of excess capacity can be achieved through increasing the malleability of capital or by the cessation of competitive investment during transient positive fluctuations in recruitment. Finally, the thesis finds little evidence for a temporal change in either excess capacity or efficiency following the introduction of an ITQ system in the Tasmanian rock lobster fishery, and confirms that a period of non-binding TAC in that fishery was not associated with an increase in excess capacity.