Wednesday, December 10, 2008

Should Whales be Hunted Again?

One of my current students (thanks Ryan) asked me to read the following article, "Protecting Whales" and comment on its economic merits. So I thought that I would write up some thoughts on the subject.

Under the International Whaling Commission (IWC) which came into force in 1986 or the 1985/86 season, with a few exceptions for aborignal peoples, the allowable harvesting of whales is zero, which is a pretty strong quota. So, given that the quota has been created whales are no longer harvested right? If it was only that easy. According to the IWC, Norway is the biggest offender of the whale harvesting ban since the agreement went into place.

So, we have a whale harvesting quota equal to zero (with a few exceptions) and have citizens of one country violating the quota. Now some may condemn Norwegian whalers for violating the IWC harvesting ban, but think about our own behavior as we are driving down a highway later this month. Are we also following at all times the speed limit? My observation is that many are not. Of course, harvesting whales is not the same as driving over the speed limit, but each involves a decision as to whether to abide by a restriction or not. Some will have an incentive to abide and others will not.

Please note: In the economic arguments that follow, I am assuming that the species of whale (such as the Minke) has a large enough population that harvesting will not result in a collapse of the specific whale species. I will address this at the end of the blog.

Given the current whale harvesting ban - at a commercial output of zero - there is a willingness to pay for those demanding whale meat/blubber that is greater than the marginal cost of harvesting the whales at the output of zero. This creates economic incentives to increase output (harvest even with a whaling ban) since by doing so whalers can increase their profits.

Let's see how this works using a hypothetical example. If someone is willing to pay $50,000 for a whale and the marginal cost of harvesting the whale is $20,000, then in resource economic terms there is a rent of $30,000 to be made on harvesting the whale. Now as more whales are harvested, the price paid starts to decline and the marginal costs of harvesting start to rise, making even greater harvests of whales less profitable. The output continues to increase until the additional profits from harvesting more whales is zero. At this point the market is in economic equilibrium hence no more whales would be harvested.

A potential problem exist if we just allow the market to work freely, that the amount of whales harvested could be greater than the rate at which whales would be able to reproduce and drive the whales to extinction that lead many to abandon the market system for whales given that whales have been hunted to extinction in the past. Yet not all species are over-harvested. Look at cattle, or chickens. So why were whales were over-fished from an economic perspective?

Whales are classic examples of common resources which is similar to a public good in that the resource is not excludable - they are available free of charge to whoever wants to harvest them - but different from a public good in that the consumption of the good reduces others from consuming the good - which economists call non-rivalry. Since common resources are non-excludable whalers view harvesting as children view getting candy from a pinata. Once the pinata has been opened there is a mad rush to get as much as candy as you can, because if you wait the other children will get grab the candy leaving less or none for you to grab. Thus in the whaling case, if whalers wait they will have fewer whales to harvest and less money made from whaling. In the common resource case (also called an open access case) the incentive is to keep harvesting more whales as long as the total revenues from harvesting are greater than the total costs of harvesting since whales are a common resource and there is no way of excluding others from harvesting whales. So if we change the property right away from whales being a common resource to private property, will economics get us to a more efficient solution?

We still have to resolve the issue of the economic amount of whales harvested may be greater than the rate at which whales can reproduce. To me, here is where the International Whaling Commission can make a difference, and act like a whaling commission as opposed to a whale conservatory. To overcome the possibility of whales being over-harvested, the IWC could use scientific research to determine a sustainable level of whale harvesting. With the number of whales to be harvested set, then economics can lead us to an efficient harvest level.

We can overcome the common resource problem by assigning or even better by auctioning individual transferable quotas for whales, also known as catch shares. Thus in order to enter the whaling industry, one must have the right to harvest whales, and these rights are tradeable (for a price). Thus demand and supply will equate themselves based on the values and costs placed on the catch shares. In fact, the September 19th 2008 edition of Science (p.1619) has an article that shows that privatization of fisheries have a significantly lower level of collapse than open access or common resource fisheries.

In summary, what needs to be done for an economically efficient whale harvest?
1. A sustainable number of whales to be harvested must be set that is based on biologically research as opposed to other economic factors.
2. Whales must be no longer viewed as common resources, but as private property resources and an excellent way of doing that is to assign (or even better auction off) individual transferable quotas (catch shares) so that now whales are looked at as private property and conserved by the "owners" of the whales as opposed to something to harvest as quickly as possible in our previous history.
3. Remove the ban on whale harvesting.

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