Article Critique of:

Jinji, N. (2012). Fisheries subsidies and management in open economies. Marine Resource Economics,
27 (1), 25-41. Retrieved September 13, 2014, from
http://www.jstor.org/.../10.5950/0738-1360-27.1.25.pdf.

By:

NEIL D. AMMEN
Master of Management Business Management 1

Submitted to:

DR. JOY C. LIZADA

Economic Analysis Professor
University of the Philippines Visayas

November 29, 2014

Jinji, N. (2012). Fisheries subsidies and management in open economies. Marine Resource
Economics, 27 (1), 25-41. Retrieved September 13, 2014, from
http://www.jstor.org/.../10.5950/0738-1360-27.1.25.pdf.

INTRODUCTION AND STATEMENT OF PURPOSE

Fisheries subsidies have become a leading international issue for the reason that fish stocks
around the world are facing an unprecedented crisis of depletion, and inappropriate subsidies are a real
part of the problem. Though the author did not specify the definition of fisheries subsidies, the World
Trade Organization (WTO) defines fisheries subsidies as government actions or inactions that are
specific to the fisheries industry and that modifies - by increasing or decreasing - the potential profits by
the industry in the short-, medium- or long-term. The author mentioned that member of the (WTO) have
been conducting negotiations which aim to clarify and improve the disciplines on fisheries subsidies. In
this light, Naoto Jinji (2012) conducted this study with the primary objective of analyzing how fisheries
subsidies affect the incentive of people in the fisheries sector. The author considered two types of
subsidies which the WTO included in the list of prohibited subsidiesone for income supports and
second for price supports that raise the domestic producer price of the fisheries products, in order to
present the result of its analysis and provide some implications for the negotiations at the WTO. The
author illustrated how the effects of reducing the existing subsidies on fisheries output differed
considering the economic conditions.

THEORETICAL ASSUMPTIONS AND RESEARCH METHODS

To illustrate how the effects of reducing the existing subsidies on fisheries output differed,
depending on the economic conditions, the author constructed a simple model of two sectors: fisheries
and manufacturing with variable labor supply as the key element. In these models the worker chooses the
optimal supply of labor by taking into account the substitution between consumption of goods and leisure.
In effect, the labor supply is not perfectly elastic which is noteworthy as this is a significant departure from
the standard model in fisheries economics where supply of fishing effort is assumed to be perfectly
elastic. Thus, the framework is relevant in the analysis of the effects of changing fisheries subsidies.
Furthermore, the author hypothesized that fishers follow non-cooperative Nash behavior where they
choose their fishing efforts, taking other fishers total fish catch as a given. Consequently, even in the
case of unregulated fisheries, rents in the fisheries sector are not necessarily fully dissipated.

In the fisheries sector, the author utilized the logistic function G(S) = rS(1-S/K) which is common
in the literature of fisheries economics. In the model, r>0 is the intrinsic rate and K is the carrying
capacity. S refers to the current fisheries resource stock and the natural growth rate of fisheries stock is
G(S). The model assumes that given the resource stock and other fishers catch, an increase in fishing
effort yields more catch but the marginal catch is diminishing. It also assumes that as other fishers catch
more fish, the amount of catch falls for a given level of fishing effort because the remaining number of fish
is reduced. Lastly, the model assumes that an increase in the size of the resource stock raises the
amount of catch for a given level of fishing effort.

In the manufacturing sector, to simplify the analysis, the author made an assumption that each
person can only work in one sector and consumer tastes for consumption goods are quasi-concave and
weakly separable across the set of consumption goods and leisure. The author also assumed that people
are myopic in the sense that they maximize their current period utility in each period. This means that
when a person engages in fishing he decides the optimal level of labor by taking the fish stock as a given
and ignoring the effects of labor on the changes in the current fisheries resource stock. This approach
was used because the author recognizes that the overexploitation of renewable natural resource is mainly
attributed to the short-sighted behavior of the people.

RESULTS OF THE STUDY

The study found that in a small open economy (SOE) where catch quotas are not enforced and
there are no alternative employment opportunities for workers in the fisheries sector, a permanent
reduction in subsidies for income support increases the fisheries output in the short run. This is primarily
because the workers in the fisheries sector try to partially offset the reduction in income from cuts in the
subsidies by increasing labor, which results in a longer time spent fishing. In the long run, the subsidy cut
reduces the steady-state fish stock due to increased fishing. A reduction in subsidies for raising the
domestic producer prices of fish has a similar effect if the elasticity of substitution between leisure and the
aggregate consumption good is low.

In an SOE where catch quotas are strictly enforced and there are alternative employment
opportunities for workers in the fisheries sector, a permanent reduction in fisheries subsidies has no effect
on total fisheries output or on the steady-state fish stock as long as catch quotas are binding. A further
reduction in fisheries subsidies may cause catch quotas to be no longer binding. In such a case, a
reduction in subsidies reduces fisheries output both in the short run and in the long run and may increase
the steady-state level of fish stock.

Third, in the trade between two countries, the world relative price of fisheries product is
endogenously determined and hence is affected by any change in fisheries subsidies. If the relative
supply of fisheries product increases, then the world relative price will decrease. This indirect effect
through price changes reinforces the direct effect of reducing fisheries subsidies. Consequently, even in
the case of trade between two countries, subsidy reform that reduces either income supports or price
supports can expand the world catch of fish in the short run. In the long run, the world fish stocks will be
reduced by the subsidy reform unless the price change is large. The results in this study suggest that
proper management of fisheries resources is important for subsidy reform to mitigate overfishing and
conserve fisheries resources.

CONCLUSIONS

In this study, the author examined the effects of reducing existing subsidies in the fisheries
sector. The conventional wisdom is that fisheries subsidies cause overfishing, and hence a reduction in
fisheries subsidies will contribute to mitigating overfishing and conserving fisheries resources.
Conversely, the analysis of the study suggests that under some conditions the opposite result may be
truea reduction in fisheries subsidies may accelerate overfishing and reduce fisheries resource stocks.
The key is how the change in subsidies will affect the incentives of workers who engage in fisheries. If a
reduction in subsidies causes workers to put more effort into fishing, it may yield unexpected and
undesirable results in counties where fisheries resources are not properly managed. Therefore, in
designing new regulations on fisheries subsidies at the WTO, the effects of reducing fisheries subsidies
should be carefully examined after consideration of the conditions in different countries. Strengthening
fisheries resource management will ensure that subsidy reform mitigates overfishing and conserves
fisheries resources.

The focus of the study was on the effects of subsidies on fisheries output and fish stocks,
however, the issue that subsidies contribute to the problems of overcapacity and rent dissipation in the
fisheries sector is also important. The author mentioned previous studies arguing that when harvest is
restricted by a total allowable catch (TAC) quota and factor inputs are controlled; fishers have an
incentive to hold overcapacity, which results in rent dissipation. In this situation, since subsidies increase
the incentive to hold overcapacity, a reduction in those subsidies will improve economic efficiency in
fisheries sector. Although this issue is beyond the scope of the study, the author recommended
examining the impact of reducing subsidies on fishing capacity and rent in the fisheries sector as a next
step.

REFLECTION

The author was successful in describing how the fisheries subsidies affect the incentive of people
in the fisheries sector. Through constructing a simple model of the fisheries and manufacturing sectors,
the author clearly illustrated how the effects of reducing the existing subsidies on fisheries output differed
depending on the conditions of the economy. However, I personally believe that the claims of the study
can be further strengthened if the model will be integrated with a survey to capture and quantify the actual
degree of effects of reducing fisheries subsidies.

Moreover, it is agreeable that inappropriate fisheries subsidies should be reduced as excessive

capacity in the fishing industry results to overfishing. However, it should be noted that the government
should also be very careful in assessing the impacts of reducing fisheries subsidies taking into
consideration the economic condition of a society, most particularly those with locals whose primary
livelihood is dependent on the fishing industry and where there are no other alternative livelihood.