I. Introduction

As headlines in the daily newspapers regularly remind us, Washington's once-bountiful salmon supply is under severe challenge. That is a message about which state game officials and commercial, tribal and recreational fishermen need not be reminded. The current efforts of state and federal governments to ration the salmon harvest while preserving the natural fishery are simply not working.

Because salmon that are native to Washington waters travel across state and international boundaries during their life cycle (70% of Washington salmon are caught in Alaska or Canada), a successful plan for restoration of the fisheries is not an easy matter. The problem involves politics and international diplomacy as well as principles of sound environmental management.

The greatest flaw in the present system of fishery management is the perversity of incentives which benefit the fisherman who catches the most salmon the fastest, but does little to reward those working for the long range management and prosperity of our fishing resource. The severe depletion of Northwest salmon is, truly, a tragedy of the commons.

With this in mind, we commissioned the following paper to examine how a free market approach, such as is followed elsewhere in the world, can be part of the recovery and long-term stability of threatened Northwest salmon species. The author, while acknowledging the international dimensions of protecting our salmon, focuses here on free market policy initiatives which can be implemented at the state level, and argues that a state-level solution is feasible, desirable and necessary.

- Richard Derham, former Washington Institute President

Foreword

by Richard O. Zerbe, Jr.
Professor of Public Affairs and Adjunct Professor of Law
University of Washington

Property Rights and Environmental Remedies

Human rights in the environment often take the form of property rights. Property rights may conveniently be divided into three categories. First, property rights define the ways in which the owner may use or refrain from using the property. Second, property rights define the ways in which the owner can prevent others from using the property. Third, property rights define how these rights to use and to exclude others may be transferred to another person. These three aspects of property rights are succinctly referred to as use rights, exclusion rights and transfer rights.

Markets for environmental (and all other) goods fail to work well when property rights are undefined, poorly defined or are too costly to enforce for technological reasons. Technological barriers may make it difficult to create effective exclusion rights and thus may prevent the development of effective markets for some goods.

We never imagine, for example, a market for clean air because technological barriers to such a market prevent it. Large numbers of people may be affected by changes in air quality, but all experience the same air quality. A market for clean air is difficult to develop because if you pay for cleaner air your neighbor who has not paid will also benefit. That is, it is expensive to keep those who don't pay from benefiting; exclusion of others in the case of clean air is expensive. Some will ride free on the purchases by others of air quality.

The pricing of highway use is similarly costly as it may be difficult to collect fees from actual users. The administrative cost of charging for the use of roads may make their pricing too expensive. Of course technology may change so that a market with associated property rights can be created where none existed before. For example, some argue that electronic technology and fast scanners now exist to effectively and efficiently price the use of highways by individual cars.

Where environmental problems arise because property rights are undefined or poorly defined, potential legal remedies exist through the creation of property rights. Consider the demise of the wild buffalo in the early American west. Buffalo were not legally owned by anybody, so they were ripe for the taking. The private economic cost of harvesting a buffalo consisted only of time, shot and powder and, if hides were sent to the east, shipping costs. Yet these were only the private costs and not the full social costs. An owner of cattle who decides to slaughter his animals must bear, in addition to the cost of slaughter, the costs of the loss of the cow as a breeding animal and its loss for future use. These property losses would be taken into account by the owner in considering whether or not to kill the animal.

This is not so with the hunter of wild buffalo. A buffalo not taken today might be taken by someone else tomorrow. As a result, the private costs of killing a buffalo are much less than the social costs. Unlike the situation for cattle, the kill rate for buffalo will be higher than warranted by the actual social costs of the kill. As a result, the buffalo were fast disappearing in the late eighteen and early nineteen hundreds, because they were being killed much faster than they could naturally replace themselves.

One approach to the problem of the disappearing buffalo then, would have been to create a legal, enforceable property right in buffalo. This might or might not have been technologically feasible in the last century. The owners of a herd would have had to be able to fence it in, or to follow the herd around to protect it from other hunters. Currently buffalo thrive on some ranches in Montana and have been reintroduced into the wild on the Oklahoma prairie.

Often people point to what appears to be a conflict between property rights and environmental rights. For example, if you find an endangered species on your property, your property value goes down because your full and free use of what belongs to you will be restricted. Thus, there appears at first to be a conflict between property rights and protecting the environment. Yet it need not be this way. Instead, suppose environmental public policy reduced your property taxes to zero if you found an endangered species on your property for as long as the species continued to thrive there. In this situation you would have a strong incentive to preserve the species and the conflict over property rights and protecting the environment would disappear.

Property rights play a role in almost all environmental issues; preservation of water quality, protecting salmon, forest life, trees and other natural resources may all be analyzed from a property rights perspective. Consider Chesapeake Bay oysters. In the 1890s roughly 20 million bushels of oysters were harvested from the waters of the Bay. By 1992 though, the harvest was only about one percent of what it had been. Establishing property rights in oysters is technologically easy because oysters do not move. By allowing property rights in oysters, the owners would have a strong incentive to manage their crop well and the previous devastation of the beds could be reversed. (This very strategy for protecting the environment through private property rights has worked well for over a century in Willapa Bay. See box after page 5).

The advantages of property rights solutions to environmental problems are many. A property rights approach can reduce government regulations, increase individual liberty, and effectively harness private incentives and the power of the free market to produce more efficient results while protecting the natural environment. The following study explores how this principle can be applied to protect threatened Northwest salmon species.

I. Background

No environmental issue has dominated headlines in Northwest newspapers over the past decade more than the U.S. - Canada salmon dispute, and no issue promises to dominate regional headlines this year as much as threatened salmon and the Endangered Species Act. As salmon runs have declined, Canadians have complained that Americans are taking more salmon than allowed by the 1985 Pacific Salmon Treaty, and the United States has countered by arguing that continuing Canadian harvest of severely depleted Columbia coho and Puget Sound Chinook stocks threatens these vital species with extinction.

What is lost in the debate over salmon fishing, listing and recovery is that our salmon populations can no longer be restored and at the same time managed as a traditional open-access natural resource to be used for economic gain. A new approach is needed.

Great advantages are possible from adopting a new salmon management model because an environmental policy which returns more fish to Washington waters would revive what was once a flourishing state commercial and recreational salmon industry. As recently as 1987, Washington's commercial salmon fisheries delivered more than 67 million pounds of salmon, worth about $80 million, to Washington ports. By 1996, in comparison, Washington commercial salmon fisheries had shrunk considerably, delivering only about 15 million pounds of salmon, worth $8.5 million, to Washington ports. This catch included 2.5 million pounds of British Columbian coho from stocks which Washington fishermen can no longer harvest.

Responding to expanding interest in regional sport fishing, the Washington legislature in 1989 passed "The Recreational Fishery Enhancement Plan," which was designed to realize then-Governor Booth Gardner’s personal and political objective of making Washington state the nation’s recreational fishing capital. The state’s sport fisheries, however, have fared even worse over the past decade. They staggered through an entire year with no sport fishing at all in 1994 and have explored alternative salmon fisheries with little success. The 1998 sport fishing season saw resort operators in Clallam County begging state officials for permission to let their guests try to catch even a few hundred fish. Without decisive action guided by a new approach to salmon management, the state’s 1999 sport fishing season promises to be even more disappointing and controversial than last year’s season.

Perhaps even more impressive than the great gains that might be realized in developing a successful salmon policy are the imposing losses to be faced in failing. This year the National Marine Fisheries Service is expected to recommend listing the Puget Sound Chinook as a threatened species, unless the state develops a comprehensive plan, based upon enforceable measures, which guarantees the salmon's survival and viability to the federal government's satisfaction.

No thorough estimates of the listing's total cost to the people of our state are available, but a range of new restrictions on land use, homebuilding, water rights, agriculture and silviculture are expected to follow from the listing. Governments at all levels have already allocated significant amounts of money to develop recovery measures and attempt to avoid the listing.

The total amount of money pledged to this effort last year alone, almost $70 million, gives some indication of what local governments think avoiding the listing is worth. In addition, Governor Locke is seeking $201 million, $99 of which is requested from federal sources, in his 1999-2001 budget to help pay for salmon recovery efforts. These direct taxpayer costs do not of course account for the direct burden of job loss and a slower economy which increased federal regulation will impose on to the people of the state.

II. Salmon Fisheries as an International "Tragedy of the Commons"

Washington's wild salmon, the majority of which are captured in ocean areas off Alaska and British Columbia by Alaskan and Canadian fishermen, are victims of a quintessential problem of management of "the commons."

Garrett Hardin, in his 1968 landmark essay "The Tragedy of the Commons, identified the causes of overexploitation when scarce resources are left open to all. He explained the problem this way:

"Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. As a rational being, each herdsman seeks to maximize his gain. But when the common pasture is at its natural grazing capacity, the addition of an extra cow will harm the entire herd. It is in the common interest to prevent overgrazing. But for each individual herdsman, adding a cow to his own herd, for which he gets the entire benefit, while the detriment of overgrazing is shared in a small way by all, is the only sensible course."

Hardin continues: "Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit – in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons." As Hardin concludes: "Freedom in a commons brings ruin to all."

A similar dynamic exists where an ocean fishery is used in common because each fisherman exploiting the fishery captures all the benefits of harvesting more and more fish, but faces only a small part of the costs associated with diminishing fish populations for future harvests.

North Pacific salmon fisheries fit neatly into this theoretical model. Lead U.S. salmon negotiator William Ruckelshaus has characterized international salmon harvest and attendant harm in the Northwest as a "classic ‘tragedy of the common.’" The Canadian federal Fisheries Minister has, likewise, implicitly recognized the underlying tensions and ultimate result of a salmon commons by characterizing his own nation’s fishermen as "fighting for the right to catch the last fish."

Exactly that type of rational, if ruthless, behavior is predicted by the commons model, under which each fisherman will chase the very last salmon in the North Pacific, although catching that fish means the end of the fishing for everyone. The fisherman catching that last salmon gains all the fish’s benefits while the costs of an extinct fishery are shared with his disappointed competitors. Thus, if the American Fisheries Society is correct in estimating that better than half of our region’s salmon stocks are approaching collapse, continuing to manage the North Pacific salmon fisheries as commons threatens both the salmon and the salmon industry with extinction and threatens our state’s vibrant economy with a series of unprecedented hurdles to continued economic growth.

While pressure associated with common use may threaten the viability of North Pacific Salmon fisheries as a whole in the future, such pressures impact some producers in the salmon "commons" more critically right now. Alaska’s fishermen, for example, have caught more than 100 million salmon every year for two decades, and anticipated another harvest of 146 million in 1998. In 1997, British Columbian salmon returns, bolstered by the second largest Fraser River sockeye run on record, compared favorably with recent historical averages for all species except coho.

South of the border, however, robust salmon runs are increasingly rare, with several species listed as threatened or endangered. Although Northwest fishermen working off the coasts of Alaska and British Columbia can recover some of the costs associated with depleted salmon stocks in the Northwest by catching fish bound for states farther south, the total cost of the commons approach to salmon fisheries fall more heavily on Washington, Idaho and Oregon fishermen than on those of British Columbia and Alaska. This is because the people of Washington, Idaho and Oregon must also bear the direct costs imposed by Federal regulators through Endangered Species Act listings.

III. The Salmon Certificate System

In light of the clear failure of the top-down "commons" policy to protect this vulnerable natural resource, a new approach is needed. The salmon certificate system, which is similar to the "individual transferable quota" systems used with success by other countries, restricts access to a state’s wild salmon by vesting enforceable property rights in fish before the fish are caught.

The Fishing License Model. Under the traditional "commons" approach now in use, anyone permitted to fish for salmon (by virtue of a government-issued fishing license, for instance) creates a legal property right in salmon only by actually catching the fish. Until that capture occurs, however, the fisherman has no enforceable property rights in the fish. The government license, which has value to the extent it can be sold, confers nothing to its owner but the privilege to try and catch fish. So far, this traditional approach has not worked to protect the vitality and stability of vulnerable salmon stocks.

The Salmon Certificate Model. A salmon certificate approach, however, would create property rights in a fixed and limited amount of salmon at the time the certificate is issued. The purchaser of a salmon certificate immediately obtains an exclusive, transferable right to the type and number of Washington salmon designated on the certificate. The buyer can exercise his rights under the certificate by catching the salmon himself, hiring someone else to catch them, or by selling the certificate to another person who may be able to catch the fish more cheaply. Just as importantly, he may also pursue legal enforcement against anyone who tries to capture fish illegally.

This free market approach makes it in the interest of every fisherman to insure environmental law is fairly and fully enforced, because it protects his livelihood as well as preserves a sustainable natural resource for the future.

By establishing a pre-catch, enforceable property interest in the state’s salmon resources, the salmon certificate system would create these primary benefits:

• Shift economic incentives away from the current "race to the harvest" system;
• Provide an exact market valuation of this important natural resource and its various uses;
• Increase the involvement of all fishermen in the decision-making and resource allocation process that so closely affects their lives.
• Resolve the conflict between economic profit and protecting the environment.

The salmon certificate program could be implemented under existing Washington State administrative structures. To conduct an annual auction of salmon certificates, the state would begin by dividing the total wild salmon population into a number of allotments defined by species and stock (river of origin) and measured by weight.

These could then be sold to the public at market rates. The state could use the revenues to run the system and regulate the use of this important natural resource. More importantly, the market would inform state regulators of the exact value of and demand for the resource. By limiting the number of certificates auctioned from year to year, state officials could adjust the amount of fish that are allowed to be harvested and insure that wild salmon populations remain stable, thriving and secure for generations to come.

Individual units for specific fish species should be small enough to facilitate a broad market and should be structured to give access to recreational fishing (perhaps through clubs or intermediaries like resorts and charter boat owners), as well as large-scale fishermen. Alternatively, the state could hold salmon certificates for certain rivers and salmon stocks out of the auction, and reserve these for use under state regulation by sports fishermen only.

The total number of salmon certificates issued would reflect the estimated total allowable catch for a species and stock in any given year, allowing for more flexible management of certain sensitive fish populations. The successful bidder would acquire a vested property interest in the salmon resource upon issuance of the certificate. The certificate could be transferred or sold after purchase, and could be applied to any purpose, from supporting commercial and sport fisheries to demonstrating conservation values through purchase for retirement. Subject to limits imposed by requirements of the Endangered Species Act, certificates might also be purchased and retired to mitigate damage caused in one salmon stock by improving another stock.

IV. Stakeholder Benefits Available Under a Salmon Certificates System

The interests of Washington state, Indians tribes, commercial and recreational fishermen, and environmentalists must be considered in developing salmon policy. Remarkably, all these interest groups would benefit from a salmon certificates policy.

Creating property rights in salmon prior to capture and limiting access to wild native salmon stocks creates strong incentive to generate more fish instead of simply dividing up the current pie. It also gives each stakeholder an opportunity to participate in controlling his fishing destiny. In essence, a salmon certificates system creates a positive-sum game, in which all parties benefit by allowing the state’s lakes and rivers to produce more fish. This innovative approach replaces the zero-sum game of contemporary salmon fisheries, in which all parties merely pursue the biggest piece of a fixed pie, until the day the resource is gone.

A. The State. As principal administrator of any state salmon policy, the state government’s interests in enacting a proposed salmon policy are probably of primary importance. The salmon policy proposed here would benefit Washington’s state government in a least three ways:

First, selling salmon certificates would provide clear value for fish and would permit Washington to capture the whole value of salmon produced in the state, satisfying the equity principle underpinning the international Pacific Salmon Treaty.

Next, selling salmon certificates would provide the state with revenue to restore salmon habitat and would make that restoration more likely by imposing a cost for failing to undertake important restoration work. State-sponsored efforts can improve salmon runs, as shown in Alaska, and are more likely to be undertaken voluntarily where the state faces an opportunity cost (in terms of foregone revenue from fish) associated with failing to make the effort.

Lastly, a salmon certificates system would clarify tradeoffs between the value of producing salmon and, for example, producing electrical power with Washington’s rivers and streams or harvesting timber along salmon streams. To date the various productive uses of Washington’s land have been considered independent of each other, but the ascendancy of large-scale ‘ecosystem management’ and established principles of economic efficiency makes clear tradeoffs between economic uses of the land desirable.

B. Treaty Tribes. For treaty Indian tribes, a state salmon policy based on salmon certificates would provide more flexibility and certainty than current salmon management provides. Under federal law, the treaty Indian fishing grounds in Washington are property considered as a third fishery distinct from the state’s commercial and sports fisheries, and is entitled to half the available catch in any given year. Under a salmon certificates system, treaty Indian tribes would receive half the certificates auctioned for runs passing through each tribe’s "usual and accustomed" fishing area in any given year. Not only would this preserve all vested rights, it would actually increase the tribes’ options in exercising their treaty rights. Other advantages to Indian tribes would be:

Salmon certificates would increase certainty to the treaty tribes, by avoiding adjudication of their status under the Endangered Species Act and in assuring a continued salmon supply, and by creating the incentives shared with all stakeholders to promote conservation and development of the salmon resource.

Salmon certificates would increase a tribe’s freedom to manage its own destiny. A treaty tribe could, for instance, employ its members to catch the full amount of salmon allocated to it. Or, if the tribe desired, it could catch some salmon using traditional methods, thereby preserving the tribe’s unique cultural identity, and then sell surplus salmon certificates in the marketplace to finance tribal social services, fund capital improvements on their lands or for whatever purposes they choose. It would be the tribe’s decision.

C. Commercial Fishing. A salmon protection policy based on salmon certificates would also increase supply and planning certainty in sport and commercial fisheries. To commercial fishermen, a salmon certificates system offers two advantages over the current "rush to capture" salmon management regime:

First, purchasing certificates would provide certain rights to a specified weight of salmon, and price signals associated with the sale of certificates would provide a basis for cost projections, freeing individual fishermen to make economically efficient marginal decisions regarding their level of harvest.

Second, a salmon certificates system would encourage individual fishermen to exploit comparative advantages other than how fast they can catch fish. Where a fishery is managed as a common, a fisherman can improve his profits only by catching fish as quickly as possible, causing fishermen as a group to overinvest in big, fast boats. Under the salmon certificates system, property in the salmon is established when a fisherman buys a certificate, so the buyer need not race to catch the fish. He can either catch the fish himself or hire others to catch the fish in a way that profits both, while the state-set limit on total certificates preserves the resource for future years.

D. Recreational Fishermen. Salmon certificates would offer commensurate levels of security to sport fishing organizations and charter boat and resort operators. Certainty of long-term supply, through the preservation of the resource, would facilitate planning, investment, and the general orderly development of recreational businesses.

The charter boat industry is a clear example. Not only do charter boats require long-term investment and maintenance, but the operation of a vacation-centered business requires advertising to potential customers year-round to stimulate business. Mid-season cancellations, as were common in the years before the total collapse of Washington’s charter boat industry, is destructive to business and to recreational opportunities alike.

Fishing clubs could also be encouraged through certainty of long-term supply. Private clubs have been successful in improving sport fishing habitat in other states and nations, as in Scotland. A fishing club which controls the riparian land around a salmon stream has a strong incentive to improve the salmon habitat in that stream. Any increase in the number of fish produced in the stream would mean lower prices for the same salmon certificate in future years, and therefore, reduces dues and expanded activities to the club’s members.

To create further incentives for conservation by recreational fishing clubs or resort owners, a portion of each river’s catch could be reserved for recreational uses and auctioned off on a regular basis. Some areas might be reserved for "open" recreational fishing, depending upon the size of each year’s returning salmon run to insure that salmon populations were being protected.

Some salmon certificates could be defined in denominations small enough to encourage broad-based bidding while others could be large enough to stimulate group bidding. Given an appropriate bidding mechanism, there is every reason to believe that private and recreational fishermen could afford enough certificates every year to preserve a steady and vigorous recreational fishing use.

According to one study, a single fish on average has 400 times more value to a recreational fisherman than to a commercial fisherman. In British Columbia, for example, a sport-caught Chinook, which would produce only $26 of value if harvested commercially, is worth more than $670 to the area’s economy.

Price is a measure of scarcity, so the price of salmon certificates in depleted stocks may be so high that no commercial harvester could afford them. Sport fishermen, resort and charter boat owners, on the other hand, would put a premium on that scarcity, and would be willing to pay higher prices to catch rarer fish. And, through the power of the free market, their property interest would induce them to protect the resource for the future in order to enhance its value to themselves and other sport club members.

E. Conservationists. Lastly, a salmon certificates system would provide conservation groups with an opportunity to realize their commitment to maintaining native wild salmon runs by excluding harvesting of selected stocks through purchase and retirement of certain salmon certificates.

Just as the Nature Conservancy raises private contributions to set forest land aside for preservation, environmental groups could use the salmon certificates system to serve similar goals. In other words, they could buy salmon certificates on the open market and then not use them, thereby guaranteeing that the salmon covered by those certificates would go free.

Purchasing salmon certificates to protect the environment would communicate conservationist concerns to legislators in a language that politicians understand. Their action would put a "price" on the environmental cost of losing endangered salmon stocks, without relying on the current inexact methods that currently are used to estimate those damages.

Given the choice between spending their scarce funding on lobbying legislators and government agencies to enact policies that only partly protect wild salmon, or investing those same funds directly to protect the resource, many environmentalists would find direct action preferable. A salmon certificates system would give them that choice.

V. Conclusion

By providing positive incentives for producing more salmon to the state and by fully capturing the salmon’s whole value to consumers, Indian tribes, sport fishermen and to environmentalists, a salmon certificates system would result in more fish, a more efficient salmon harvest and improved future prospects for Washington’s salmon populations. Salmon certificates would achieve these ends by removing Washington state salmon from the fishing "commons" and by creating for certificate holders an exclusive, transferable and enforceable property right in Washington state salmon before those salmon are caught.

A state-level solution to our state’s urgent salmon problem is possible and desirable. This state can solve its salmon protection problem, and salmon certificates and the power of the free market can be part of the answer.

About the Author

Travis W. Misfeldt holds a multidisciplinary degree from the University of Washington that emphasizes forestry, economics, and statistics. He will receive his law degree from University of Washington Law School in June, 1999. He plans to enter a professional career devoted to advancing and implementing incentive-based solutions to environmental problems. His work will be based on the principle that human use of natural resources produces better outcomes on the physical landscape only when those who use the resource for personal and social gain have direct incentives to produce those better outcomes.

The author wishes to thank Dick Derham and Paul Guppy of the Washington Institute and Dick Zerbe of the University of Washington for their assistance, comments and editing in publishing the ideas contained in this report.

Richard O. Zerbe is Professor of Public Affairs and Adjunct Professor of Law at the Graduate School of Public Affairs at the University of Washington. He specializes in law and in economic cost benefit analysis.

Sources:

"Protecting Willapa Bay"

Michael De Allessi, Oysters and Willapa Bay, Private Conservation Case Study, Center for Private Conservation, 1996.

"Restoring Wild Atlantic Salmon"

Terry L. Anderson and Donald R. Leal, Enviro-Capitalist, Doing Good While Doing Well, Rowman and Littlefield, Inc. 1997, pp. 135 - 136. North Atlantic Salmon, End of the Line, The Economist, February 14, 1998, pp. 80 - 81.

"New Zealand’s Property Rights Approach"

Michael De Allessi, Fishing for Solutions, Institute of Economic Affairs, 1998, pp. 40 - 47. Tom McClurg, Bureaucratic Management versus Private Property, in Fish or Cut Bait; The Case for Individual Transferable Quotas in the Salmon Fishery of British Columbia, The Fraser Institute, Laura Jones and Michael Walker, editors, 1997, p. 91.