The main objective of this Project is to analyze market/mechanism design problem for defining and allocating commonly owned fishing rights. For this real-life renewable resource allocation problem, we first plan to analyze currently used mechanisms in details and question if better design or improvement is possible for these mechanisms. Our main objective is to provide a set of institutional options that can be used to solve this real-life resource allocation problem, and to provide policy options for more effective and sustainable use of common natural resources. Firstly, we concentrate on European Union Common Fishery Policy for the allocation process of fishing rights to contribute strengthening the scientific basis of this policy. Later on, we plan to work on mechanism and market design problem to be able to implement ecosystem based management systems to manage fishery resources. These two objectives are mainly related to calls under the European Union HORIZON-2020 work programme 2014-2015 sustainable food security title (SFS 9 - 2014/2015: Strengthening the scientific basis of the new Common Fisheries Policy ve SFS 11 - 2014/2015: Implementation of an Ecosystem-based approach for European aquaculture). With the knowledge basis developed in this project, we plan to apply these and other calls by forming an international research team. In the next part of this project proposal, we describe the current conditions in this market and state the questions that we try to find answers.

The fisheries sector in European Union member countries is administered under Common Fisheries Policy. According to this management system, the total annual catch limit is determined for economically valuable species. For example, Total Allowable Catch (TAC) for anchovy determined by European Commission in Baltic Sea for 2014 is 222.102 tones (European Commission, 2013). The member countries share the total quota based on their historical catch rates. These quotas put a limit on the amount of fish that can be caught by each member state. These countries use different resource allocation mechanisms to distribute their total quota. Different mechanisms have their distinct advantages and disadvantages. Naturally, this distribution mechanism affects profitability of the fisheries sector, and also sustainability of fish resources. Current mechanisms cannot be asserted to be very successful since population of many fish species are reduced to the point of extinction.

For this market the main question is related to how to allocate these national quotas to fishermen with different fishing technologies (trawl, sweeping net, conveyor, and others). For example, trawlers’ nets destroy marine ecosystem and it is expected that relatively less quotas should be assigned to these fishermen. The next step for these mechanisms is to design effective control and punishment system for the enforcement of quotas assigned to these fishermen. In this project proposal, we plan to combine these steps and design a new management system that does not have the defects of currently used mechanisms. As a result of this management system, extinction of fish stocks may be prevented since total allowable catch is restricted, and sustainable fishery conditions are implemented.

A good target needs to be determined for the design of a new mechanism which may be used in real-life fisheries. We chose Maximum Economic Yield (MEY) solution concept as our target. MEY is defined as the outcome of an optimization problem in which fishermen’s total sum of discounted profits are maximized subject to sustainable (or biological) fishing conditions. Despite the fact that there is a consensus on the desirability of this target among fishery economics researchers, we provide more information about this solution concept or target in the next section. 

In the determination process of individual fishing rights, three different allocation mechanisms are used: grandfathering, equal sharing and auction mechanisms. In the grandfathering rule, fishing quotas assigned to a fisherman depends on his/her historical harvest ratio in the total harvest of all fishermen. That is, it is a proportional rule based on historical catches. It is easy to see that this rule may not be used for sustainable fish stocks because fishermen who harvested a lot in the past and contributed to overexploitation of the fish stock still gets a higher share of the quotas with this mechanism and the same overexploitation process continues. In the equal sharing rule, total quota is distributed among fishermen equally. This rule also does not take into account the effects of different harvesting technologies on marine ecosystem and hence it may not be used to achieve sustainable fish stocks target as the previous rule. In the third mechanism, fishing rights are sold or leased to fishermen using an auction mechanism. The biggest problem related to this mechanisms is the concentration problem, fishing rights may be concentrated on a small number of fishermen and this leads to elimination of small-scale fishermen and coastal fishing communities.

The researcher in general will investigate the stage in which individual fishing rights are determined in two different dynamic bioeconomic models and study the implementation problem of Maximum Economic Yield (MEY) which is the allocation problem of individual fishing rights to fishermen (or market design problem) who have different fishing technologies and capacities in a dynamic framework. Maximum Economic Yield is defined as the harvest level that maximize the discounted sum of total profits in fisheries sector. In this environment, different mechanisms for the distribution of quotas to fishermen will be investigated. The design of necessary resource allocation mechanism or management system to implement the solution concept will also be completed at this stage. Moreover, we will define the necessary control systems for the applicability of the designed management system. We expect that the project proposal will contribute to the literature related to theoretical renewable resource allocation. In addition, we expect that the project proposal will contribute to the process of providing institutional options to achieve the goal of sustainability in the fisheries sector.

Proposed project is related to a theoretical problem but it has a potential to find solutions to real-life effective and sustainable use of renewable biological resources problem. We will use the tools of mechanism design and game theory to achieve the milestones of the project. In this regard, we will work on two different bioeconomic models that closely represent all players in the fishing sector. Our main target is to solve the implementation problem of the Maximum Economic Yield in these bioeconomic models. The implementation problem can be defined as finding decentralized mechanisms that produce the same outcomes as the solution concept, MEY.