Research Lounge: Konrad Gudjonsson, “Fisheries economics: How Iceland made professional fisheries profitable”

Date: Monday 25 Feb, 2013
Location: PG Hub 7, Senate House
Topic: Fisheries economics: How Iceland made professional fisheries profitable
Speaker: Konrad Gudjonsson

About the Speaker: Konrad earned his B.Sc. in Economics at the University of Iceland before going to Warwick. Coming from a tiny fishing village in a rural part of Iceland, he has learned to understand the industry and how efficient it can be if the right framework is provided. He wrote his undergraduate dissertation on profitability in mackerel fisheries in Iceland and concluded that there was a great capacity for higher profits without increasing the catch.

Why are commercial fisheries so special?
The short answer is simply: The tragedy of the commons. Free and wild fish in the seas are per se not owned by anyone, which gives fishermen incentives to overfish and not consider the effect of their own actions on other fishermen and the fishstocks. This very often leads to unsustainable fisheries, higher costs per unit of catch and low, or even zero, profits in the industry.

Commercial Fisheries around the world.
Around the world, fisheries are generally unsustainable, with small stocks and small profits. Furthermore, fisheries get large subsidies, which are estimated to account for 30-35% of revenues (Milazzo, M. 1998. Subsidies in World Fisheries: A Reexamination). The economic loss has then been estimated by the World Bank to be around $50 billion, which is equivalent to the GDP of Cameroon or Uruguay.

How Iceland solved the problem:
Gradually, from 1970′s until the 1990′s, Iceland implemented what is called “Individually Transferable Quotas” (ITQ). In its simplest version the system works like this: The Fisheries Institute decides each year how much fish can be caught, “Total Allowable Catch” (TAC), based on stock size and looking at maximizing the size of fish stocks in the long run. Then each vessel, or company, is given a fixed percentage (quota) in the TAC which they can fish during that year. These quotas, if they are permanent property, can then be traded between companies.

Why can ITQs work in theory?
First, if the quotas can be traded, those who have the best technology or knowledge are likely to buy quotas from those who are less profitable. Second, ITQs eliminate the competition to catch the fish and give fishermen better incentives to protect their resource, especially if the quotas are permanent property. That essentially eliminates the “Tragedy of the Commons” problem. Finally, the fishermen have incentives to make better long-term investments and invest in R&D.

How has this worked out for Iceland?
- Profits have increased dramatically with net income increasing by 170% in real terms, while catch has decreased slightly.
- Productivity in fisheries has increased more than in other industries and capital utilization has improved with smaller and more efficient fleet.
- Positive impact on the environment with less oil being used for unit of catch and less chance of overfishing.
- The incentives to look at the long-run have increased the prices and brought Iceland to the “best markets” with vertical integration, long-term supply contracts and marketing.
- Has provided a platform for Icelandic companies that service the fishing industry, such as Marel hf.

Challenges ahead:
Although Iceland has overall done well in managing its fisheries in the past two decades, there is still a lot of work to be done. For instance, there are still disputes ongoing over the initial allocation, and the Fisheries laws don’t state clearly how permanent the quotas are.

As mentioned before, the total catch has not increased, which is a bit disappointing but could be caused by other factors. Also, with quotas moving away from some towns and villages has caused negative socio-economic effects. That, along with unhappiness over how few people have earned most of the profits from the industry, has caused the fisheries management to be in center of the debate for some years now.

However, the EU, with its seriously flawed and heavily subsidized fisheries, and other countries should seriously consider ITQs. They could without a doubt both learn from the mistakes Iceland has made, and more importantly, how well Iceland has done relatively to most other countries in managing its fisheries.


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Distinguished Lecture: Professor David Miles, “What can monetary policy do?”

We are pleased to announce that the next Distinguished Lecture of this year will be given by Professor David Miles. The title of his talk will be “What can monetary policy do?”

Professor David Miles joined the Monetary Policy Committee at the Bank of England in June 2009. He was re-appointed by the Chancellor of the Exchequer for a second term on the MPC in February 2012 . His second term will run until May 2015. He is also a Visiting Professor at Imperial College. Miles was formerly a professor of financial economics and head of the Finance Department at Imperial. As an economist he has focused on the interaction between financial markets and the wider economy. He was Chief UK Economist at Morgan Stanley from October 2004 to May 2009.

He will be speaking on Tuesday 19th February, 6.00-7.00 pm in room M1 of the Radcliffe Teaching Centre. The lecture will be followed by a drinks reception outside room M1, where you will have a chance to talk informally with the speaker.

You are most welcome to come along to his talk at 6.00. There is no need to register – just turn up.

Distinguished Lecture: Professor Omer Moav, “Conspicuous Consumption and Persistence of Poverty”

For the audio recording of this Distinguished Lecture, please visit: Warwick Economics Media Library.

We are pleased to announce that the next Distinguished Lecture will be given by Professor Omer Moav (Warwick).  The title of the talk is: “Conspicuous Consumption and Persistence of Poverty”.

His research focuses on economic growth and development and he was the advisor of the Israeli minister of finance in 2009-2010.

He will be speaking on Tuesday 12th February, 6.15-7.15pm in room M1 of the Radcliffe Teaching Centre.  The lecture will be followed by a drinks reception outside room M1, where you will have a chance to talk informally with the speaker.

You are most welcome to come along to his talk at 6.15.  There is no need to register – just turn up.

Research Lounge: Leslie Djuranovik, “How Indonesia has moved towards macroeconomic stability”

Date: 11 February (Monday), 2013
Location: PG Hub 7, Senate House
Topic: How Indonesia has moved towards macroeconomic stability
Speaker: Leslie Djuranovik

About the Speaker: Before joining the MSc in Warwick, Leslie obtained a BSc in Statistics from Bogor Agricultural University (Indonesia) and worked for the monetary policy division of the Central Bank of Indonesia for several years.

Country Background
Indonesia is the fourth largest country in the world in terms of population after China, India, and the United States of America (US). Results of the 2010 Population Census by Indonesia Central Agency of Statistics show that the population in 2010 is around 238 million people. Thanks to its large number of population, domestic demand plays a dominant role in the economy. With regards exchange rate management, Indonesia has adopted the free floating exchange rate system since 1999.

Overview of the Economy
Against a backdrop of weaker global economic growth, the Indonesia’s economy in 2012 grew strongly by 6.2%, buoyed mainly by domestic demand. Over the past eight years, the Indonesian economy has continued to grow solidly, averaging in excess of 6%, making Indonesia one of only a very few countries in the world to combine rapid economic growth with maintained stability. This sustainable economic growth was underpinned by a favorable macroeconomic environment and stable financial system.

Inflation reached a single digit, along with improving policy credibility under Inflation Targeting Framework (ITF). Core inflation has been fairly stable in the last three years at around 4%.

In the financial sector, resilient domestic economic performance was also supported by sound performance in the banking sector, as indicated by strong credit expansion and at the same time could be maintained at a level deemed safe for the economy. This was followed by a credit allocation strategy aimed at productive sectors in the form of investment credit.

The intermediation function was performed relatively well, backed by sound banking conditions and well-managed risk exposure. Bank capital picked up, primarily in the form of core capital, therefore adding resiliency to absorb risks emerging from the banks’ business activities or to changes in the business environment.

Monetary policy was aimed to steer future inflation within the target range and provide support for sustainable economic growth. Exchange rate policy is designed to maintain rupiah stability at a level appropriate with economic fundamentals.

Prospects and Challenges
The Indonesia’s economy is expected to post high growth in 2013, with the domestic demand to remain the key contributor to economic growth. Meanwhile, the contribution of exports to GDP is projected to pick up in line with the recovery in the global economy.

The government (in conjunction with the central bank) has set the medium-term inflation target at 4.5%±1% in 2013 and 2014, and 4.0%±1% in 2015 in order to anchor inflation expectations.

In the medium term, Indonesia’s economy is expected to sustain economic growth in excess of 7% along with low and stable inflation. If the trend continues, a report from PwC indicates that in the long term Indonesia will be one of the ten largest economies in the world.


© The content is provided by the speaker Leslie Djuranovik to present the opinions and findings completely and accurately. Reference and data source may not be fully displayed but can be requested from the author. The Full content is considered as intellectual or academic work and strictly protected by copyright law. All rights reserved.