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Ed Lotterman: A state-managed fishery collapsed. Privatize it?

In local politics there often is an inverse relationship between the underlying importance of an issue and the heat of argumentation about it. That is the case for a tempest in an admittedly large teapot here in my home state of Minnesota. But it isn’t all that different from analogous issues in other states, particularly those like Idaho, where camping, fishing and hunting are important in the economy as well as in the culture.

Federal or state governments manage natural resources, and the outcomes of such management has repercussions throughout local economies, whether the issue is the spotted owl in the Pacific Northwest or the walleye in my state.

The walleye is the favorite fish in the upper Midwest. Lake Mille Lacs, at 200 square miles, long has been a major venue for thousands of anglers and at least a hundred resorts and other businesses that cater to them. But now the fish population has collapsed, and it is unclear when, if ever, it will return to former levels.

This is a blow to fishing-related businesses. So, of course, some elected officials think these folks deserve monetary compensation from the taxpayers for their lost business.

Enter the ideas of the late University of Chicago economist Ronald Coase, who died two years ago come September. Officials and affected businesses could probably use his advice.

Born in 1910, the Nobel laureate’s original and prolific ideas are particularly salient today as evermore political candidates decry excessive government control of economic activity and as more people, particularly young adults, identify themselves as “libertarian,” even without having thought through all of what that means.

If you don’t like government overreach, Coase is the go-to guy. He demonstrated that under the right conditions, private market arrangements could function well in managing resources, including natural ones like fisheries, and that government regulation of private activity was not needed in many cases where most economists — and politicians — assumed it was.

As in most other areas, fishing has been regulated in here for many decades, and fish stocks have been “managed” by our Department of Natural Resources for a long time. If a managed fishery collapses, it’s natural to question whether an alternative approach to resource allocation would have worked better. The DNR has long been the subject of much criticism.

One disclaimer: I am, in part, setting Ronald Coase up as a straw man. I do deeply admire his work, especially because he posed such interesting questions. But I also think his logic sometimes leads to conclusions opposite those he himself might identify. Even Coase’s own criteria often inexorably indicate that resources will be wasted and our economy will be inefficient without government action. So let’s question whether government-managed game fish stocks in a large public lake applies.

Despite detailed government regulation and interventions, such as stocking the lake from state-operated fish hatcheries, the population of walleye of fishable age has plunged. Would it have stayed higher under an alternative system?

One alternative might be full private ownership of the fish. Currently, individuals can own land around the lake, but the lake itself is a “public water,” and the fish belong to all the people of the state. That is a very large group. What if, instead, the lake and the fish clearly were the private property of a much smaller group that had a direct economic interest in the long-run health of the fishery?

Coase argued that the incentives for efficient management of a resource were greater under private ownership, even with multiple owners of a common-pool resource such as fish, as long as two conditions were met. First, all the rights and responsibilities of ownership had to be clearly specified in law. Second, the administrative costs of negotiating among the property owners, including those of suing each other in court if necessary, had to be low.

Obviously, meeting these criteria is not difficult if one person owns the entire lake itself, including its full perimeter, and the fish, has the right to control all access. Given the conditions, such an owner might have shut down walleye fishing long ago — or conversely, allowed people to fish the lake to death.

Ditto for a small group of shoreline, or riparian, landowners, two or five or eight or perhaps even 12.

(Yes, this would involve effectively ending the legal concept of “public waters” long enshrined in the law and culture of most U.S. states. But doing so might result in more efficient resource conservation, Coase would imply. And private control of waters is not alien in other jurisdictions with similar legal systems, such as Britain, as evidenced in the books of Roald Dahl and dramas like “Downton Abbey.”)

Mille Lacs, however, is the 28th largest U.S. natural lake with myriad riparian landowners. And, as the current brouhaha shows, there are many more people with an economic stake in the fishery. Clearly detailing all the property rights becomes more difficult as the number of owners grows. For example, in collective decision-making for a private lake, is it one owner-one vote. or are votes proportional to feet of shoreline or area of contributing watershed?

And there is the knotty question of enforcement. If a private governance body for a lake decides on limited fishing takes, how do you ensure that some participating resort owner is not cheating? If there are costs associated with stocking, what’s to ensure all owners pay their assessed share?

This potential “free-rider” problem is exactly analogous to that faced by labor unions. If there is no power of coercion over all workers by a union supported by a majority, the whole system of collective bargaining falls apart. And if there is no power of coercion of all by a majority of owners around a lake, that system will fail to deliver an efficient outcome.

People familiar with the problems of Mille Lacs will point out that experts say it is not an overfishing situation, so simple privately-agreed-on-and-enforced fishing limits would be of little use. And exactly how a private management entity would deal with factors such as water clarity and temperature, invasive species or even climate change is a knotty question. Such a body might well run into the same dead ends as the DNR, although it probably would seem and be more responsive to local concerns.

There are many more issues, including that of Native American treaty rights and whether the size and complexity of a private entity to manage a lake like Mille Lacs is not just government by another name.

There also is the issue of whether “government,” (read taxpayers statewide) should be on the hook (so to speak), regardless of whether this localized resource failure was the fault of the government, the environment or the market.

St. Paul economist and writer Edward Lotterman can be reached at boise@edlotterman.com.

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