The Economics of The Economics of Maori Fishing Maori Fishing Basil Sharp Basil Sharp Department of Economics Department of Economics University of Auckland University of Auckland
Introduction Introduction • Rob McLeod ( • Rob McLeod (Hui Hui Taumata Taumata, 2005) , 2005) – – economic models are relevant to Maori economic models are relevant to Maori assets assets – Ingredients of economic success not unique Ingredients of economic success not unique – to Maori – – no ones knows formula no ones knows formula to Maori – Assets are capital Assets are capital – – income is the flow income is the flow – – Organisations play key role Organisations play key role –
Outline Outline • Significance of initial entitlements • Significance of initial entitlements • Rights that attach to settlement quota • Rights that attach to settlement quota • Possible organisational arrangements • Possible organisational arrangements • Maori rights derive from two not one • Maori rights derive from two not one statutory sources statutory sources – Fisheries Act 1996 Fisheries Act 1996 – – Maori Fisheries Act 2004 Maori Fisheries Act 2004 –
Facts Facts • Value of output from sector ~ $1.5b • Value of output from sector ~ $1.5b • Employs 20,000+ • Employs 20,000+ • NZ • NZ’ ’s s QMS is a world leader QMS is a world leader – Economically Economically – – Sustainable utilisation as best we know Sustainable utilisation as best we know – • Not • Not “ “free market free market” ”, it is a market based , it is a market based system of governance based on the system of governance based on the principle of sustainable use principle of sustainable use
Initial Entitlements Initial Entitlements • Initial entitlements matter because they • Initial entitlements matter because they provide the opportunity for economic provide the opportunity for economic growth growth – Endowments determined by statutory rules Endowments determined by statutory rules – • Transaction costs • Transaction costs – – the cost of doing the cost of doing business matter too. High transaction business matter too. High transaction costs limit commercial opportunity, reduce costs limit commercial opportunity, reduce the liquidity of the asset the liquidity of the asset
Property Rights Property Rights • Existed before Europeans arrived • Existed before Europeans arrived • Rights embedded within QMS are • Rights embedded within QMS are generally of high quality by international generally of high quality by international standards. standards. • I suspect that the tag attached to • I suspect that the tag attached to settlement quota and voting rules settlement quota and voting rules governing use lowers its value relative to governing use lowers its value relative to regular quota rights regular quota rights
Asset Specific Investment Asset Specific Investment • Return from next best alternative is low • Return from next best alternative is low – Thermal power plants, hydro dams, oil rigs Thermal power plants, hydro dams, oil rigs – • Settlement quota is asset specific • Settlement quota is asset specific – Use right is to a degree asset specific Use right is to a degree asset specific – – Value derives from right to fish Value derives from right to fish – – Compared with land Compared with land – • Asset specificity • Asset specificity - -> opportunistic > opportunistic behaviour behaviour
Asset Valuation Asset Valuation • Settlement quota is an asset • Settlement quota is an asset • Economic rent is the • Economic rent is the “ “payment payment” ” to the to the asset asset • Value of the asset is the present value of • Value of the asset is the present value of returns to exercising the right returns to exercising the right • Diminish the right • Diminish the right - -> diminish the value > diminish the value (rent) of the asset (rent) of the asset
Participation Participation • Background • Background – QMS offers huge advantage to commercial fishers QMS offers huge advantage to commercial fishers – • International markets • International markets • Leverage off asset • Leverage off asset – NZ is to large degree a price taker NZ is to large degree a price taker – – Demand for seafood positively related to income Demand for seafood positively related to income – – Sensitivity of demand to price varies across products Sensitivity of demand to price varies across products – – Freedom and incentive to innovate Freedom and incentive to innovate – • Lower unit costs • Lower unit costs • Product development • Product development
Economic Objective Economic Objective • Maximise rent; maximise profit; enhance • Maximise rent; maximise profit; enhance value of asset value of asset • Maximising export value is not criterion • Maximising export value is not criterion – – scarce assets and maximise net return to scarce assets and maximise net return to settlement quota settlement quota • Rent enhancement and not rent • Rent enhancement and not rent dissipating activity dissipating activity
Possibilities Possibilities • 1. Adjustments to established entities • 1. Adjustments to established entities – Leverage off settlement quota to gain Leverage off settlement quota to gain – economies of scale and scope economies of scale and scope – Evidence of economies of scale in NZ Evidence of economies of scale in NZ – • 2. ACE trader • 2. ACE trader – Discrete contracts, annual Discrete contracts, annual – – Relational contracts, longer term Relational contracts, longer term – – Maui contract not a good example Maui contract not a good example –
Possibilities Possibilities • 3. Joint ventures • 3. Joint ventures – Rather than acquire, JV Rather than acquire, JV – – Horizontal, vertical JVs Horizontal, vertical JVs – – Shared equity enterprise, mutual reliance Shared equity enterprise, mutual reliance – – Reasons for formation Reasons for formation – • Create market power • Create market power • Economies of scale • Economies of scale • Access to technology and skill • Access to technology and skill • Reduce risk • Reduce risk • Manage rivalry and possibly contractual hazards • Manage rivalry and possibly contractual hazards
Concluding Thoughts Concluding Thoughts • • Twenty years have passed since the High Court decision. Twenty years have passed since the High Court decision. • • Bottom line: settlement quota is an asset and economic Bottom line: settlement quota is an asset and economic performance of that asset is critical to your iwi iwi’ ’s s future future performance of that asset is critical to your • • Enhancing the income flow to settlement quota is Enhancing the income flow to settlement quota is enhancing wealth – – it becomes a platform to launch it becomes a platform to launch enhancing wealth investment elsewhere investment elsewhere • • Avoid rent dissipating activity – – zero zero- -sum games are not sum games are not Avoid rent dissipating activity wealth enhancing wealth enhancing • • Adopt the opportunity cost principle and know what is Adopt the opportunity cost principle and know what is given up when a decision is made given up when a decision is made • • The choice is yours to make The choice is yours to make
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