On "Capital-Stuffing" in Regulated Fisheries

Abstract

An almost uniform experience in fisheries managed by limited-entry has been the increased use of capital by each firm. This is widely regarded as an undesirable loophole in programs to limit fishing effort. Closer examination indicates that the increased use of capital by firms is produced by at least six different incentives. Moreover, not all of these incentives are economically undesirable. The net effect of capital-stuffing is ambiguous and can only be evaluated empirically. Literature demonstrating the increased accumulation of capital by limited-entry license holders is plentiful. Examples of such fisheries include the Pacific salmon fisheries (Pearse and Wilen 1979; Fraser 1979), the Japanese tuna fishery (Keen 1973), and the Australian lobster fisheries (Meany 1978). Economists have almost universally bemoaned the capital-stuffing. Capital-stuffing, they argue, occurs only because the property rights to the limited-entry license are poorly designed. The destructive forces of open access have been transformed from attracting too many firms to attracting too much capital per firm. Perhaps because economists find the microeconomic foundations of the argument so obvious, they have produced only one careful analysis of the causes of capital-stuffing. Anderson (1976), applying the classical Ushaped long-run average cost curve, argued that limited entry will increase marginal revenue per unit of effort, and hence, encourage the firm to expand its size. Anderson assumed effort to be an intermediate good that is pro-