The distinction between objects and ideas is arguably the most important in economics. In a world with more people, each person has fewer objects but access to more ideas. So far, the benefit we derive from access to more ideas has far outweighed the disadvantage of fewer objects. People today have less arable land per capita, but still consume more food per capita because of all the ideas we have discovered and shared.
Most of the work on the economics of ideas has focused exclusively on a subset of ideas, technologies. Economists have been slower to acknowledge the complementary set of ideas, rules.
Here’s an update to the fish proverb that makes the point succinctly:
If you give someone a fish, you feed them for a day. If you teach someone to fish, you destroy another aquatic ecosystem.
New fishing technologies such as lines with hooks, nets, and trawlers (which people do teach each other) have been destroying aquatic ecosystems for thousands of years. To protect fisheries, we eventually tried rules like limits on the length of the fishing season, but these worked badly. Only recently have we discovered and tried better rules like tradable fishing quotas. They let us get the benefits from new fishing technologies without doing more harm to the environment. They encourage efficient fishing at sustainable levels. Sadly, they are still used in only a few fisheries around the world.
How do humans discover new rules? What determines where and when known rules are implemented? Why, in particular, do rules that clearly offer large Pareto benefits (or win-win benefits for everyone) so frequently fail to be copied and reused? Social scientists should pay more attention to questions like these about innovation in the space of rules. Practitioners who are optimists about the potential for discovery should work toward changes in rules, not just in changes in technologies.
The concept of a charter city has power because it can change the rate of innovation and adoption in the space of rules.
About
I suggest tradeable quotas are not, ultimately, better than other state based rules. Quotas are set arbitrarily and the incentive of the fishermen to care for and invest in their area of operation is limited; in fact, fishermen would be far more likely to use their resources to influence the quota making authority.
At best, quotas would merely slow down the tragedy of the commons.
Through private property fishermen would have the incentive to care for and improve aquatic ecosystems. I suspect many people are afraid of this suggestion, because they see the destructive and imbalanced qualities in large-scale agriculture, but by merely viewing one of the industry related documentaries, like Big Corn or Food Inc., one can easily see the massive influence of government subsidies and regulations at work. Subsidies and regulations distort traditional farm practices, so assuming we could eliminate interference, private property owners would devote themselve to more harmonious methods of production. They would want their bit of sea to provide and improve for their lifetime and the lives of their children- much more motivating than the backhand of a quota trading authority.
I realize my response could be construed as missing the point. I didn’t miss the point, but I do feel the point was given a grave disservice by the example.
— August · Jul 30, 07:27 AM · #
August – the track record of fish privatization has been quite mixed, depending on factors of the local industry and how exactly the system is implemented. However, the effect you are concerned about, where fisherman influence the quota making authority, is not always present. When quotas are a type of property – permanent and transferrable – overfishing lowers the value of the quota, so the fisherman who own the quotas don’t have an incentive to influence the regulator to set the quota too high.
And it is simply not true empirically that quotas merely slow down the tragedy of the commons – some implementations have produced sustainable yields. If you are interested in the subject, I recommend the book “The Privatization of the Oceans”, it is a really nuanced, first-rate look at both the theory and empirical results in this area. It’s not a magic bullet, but in some places it has worked wonders.
— Patri Friedman · Jul 30, 01:16 PM · #
So my main issue here isn’t just that people get sustainable yields. Think of the aquatic ecosystem like a factory (as unlovely as that may be). The quotas are for what the factory makes, not for the factory itself. As long as improvements to the factory are not needed, everybody is happy and it looks like there is no tragedy of the commons. What happen when the factory needs repairs? Who has the incentive repair the factory? How does that person get any return on his investment?
I suppose a group of fishermen could handle the capital side of things corporately, while regulating themselves with quotas, but I agree the outcome of various privatization schemes have been mixed, which suggests to me we need many more experiments, as my hubris levels are not currently high enough for me to assume I can solve what so many others before me could not on a Thursday afternoon.
— August · Jul 30, 02:32 PM · #
How does one decide what the “right” total quota is? Why wouldn’t this result in too much supply or too little supply over time, much the same way that fiat pricing does?
— happyjuggler0 · Jul 30, 03:57 PM · #
Determining the optimal quota is the hardest part of enacting any such quota-setting legislation. This is the primary (non-political) problem confronting cap-and-trade. How does a society determine the optimal level of carbon emissions, or fish? We can’t simply aggregate individual preferences; the distribution of the benefits and costs of enacting quotas must be considered. Thus an optimal quota can only be developed by a pro-majoritarian dlegislative body in a strong democracy (this wouldn’t include the U.S. Senate). Nonetheless, any quota developed in any political system will be way off the mark. The goal should thus be attempting to get a politically viable quota as close as possible to an optimal quota forged democratically, taking into account the opportunity cost of the time spent determining quotas. Attempting to be too precise in the development of a quota sacrifices valuable legislative time. This is a pretty accepted view held by cap-and-traders but it bears repeating.
— Nicholas Andersen · Jul 30, 08:26 PM · #
August: The quotas are not just claims for what the factory makes as fish are both the product and the capital that is required to make that product.
If there is overfishing the value of the quota goes down as it is more difficult to extract the given quota. The incentive for the quota owners is to restrict to total quota as much as possible. If however the quotas are sold as a percentage of the total quota then the owners have an incentive to set the total quota “economically optimally”.
Nicholas Andersen: “Determining the optimal quota is the hardest part of enacting any such quota-setting legislation.”
For sure if the quota is set politically. If the quota is se by the market the problem of the total size of the quota disappers. How to create a market in oceans is the bigger problem as fish movements can’t be restricted efficiently.
— Artturi Björk · Jul 31, 12:30 AM · #
The aquatic eco-system, in terms of the fish catch, is a capital good. A rancher has to make improvements to his land so that it will sustain his cattle. Aquatic environments are merely more complicated, not entirely different in kind. The cattle consume resources in the environment and so do fish. So, when fishermen take their quota of fish from the sea, those fish are lost resources within the aquatic environment. Of course, a wise man would improve rather than merely replace these resources, and the foolish would be wiped out by a Black Swan event long before the lack became evident.
— August · Jul 31, 08:04 AM · #
I would point out that the optimal quota is in important ways neither a political nor an economic quantity. For any given level of fish stocks, there will exist a corresponding sustainable yield, and that yield is biologically determined (irrespective of what our laws or markets might say). If we choose a quota above the sustainable yield, then the stocks and thus the sustainable yield will decrease with time. If we choose a quota below the sustainable yield, then (in our current fish-depleted world) the sustainable yield will increase with time.
So then the question becomes, what are we trying to do with the quota? Maximize food production? Improve the health of the marine ecosystem? Maximize profits from fishing? If our goals are either (or both) of the first two, then clearly the right decision (if we have a zero discount rate) is to choose a quota which is lower than the current sustainable yield, to allow the fish stocks to rebound, and to increase the sustainable yield. Then at some future time, we can up the quota to be in line with the new, larger sustainable yield, and hold the system in steady state (assuming we really understand how the system works).
This might actually not be what maximizes the profits of the fishing industry though, as the increased supply will likely lower prices. We could address this by keeping the quotas lower than the sustainable yield even after the oceans have recovered from our centuries of overzealous harvests, but then we would not be maximizing food production.
It’s unclear to me that all three of these possible goals can be pursued simultaneously.
— Zane Selvans · Aug 8, 12:30 PM · #