One difference between our assessment, and that of the OECD,is that we are insistent upon including taxes, or their equivalent, among theincentive adjusting measures. We do so in recognition of the fact that there isevidence that taxes can be effectively applied in some countries, especially ifsome kind of exclusivity is recognized. While incentive adjusting methods appearmore promising for the control of capacity, there is also evidence that theseschemes, are not readily applicable to many fisheries or countries. But there is also ampleevidence that schemes such as ITQs are not readily applicable to many fisheriesand infeasible in most developing countries.

In particular, underutilization of funds will yield low earnings, resulting in the decline of return per share. The promoters of a company may issue more than the required number of shares and debentures, and these funds may remain idle. Such funds will not earn a return, whereas investing them may yield a high return. Overcapitalization is when a company’s capital is worth more than its total assets. Essentially, the company cannot raise capital to fund itself, its daily operations, or any expansion projects.

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Thus, a buyback programme may be used to encourage and facilitate the transfer of ITQs fromhigh to low cost producers and the removal of vessels from the fishery (Davidse,ibid.). The second comment pertains to the possibility of a welldesigned limited entry scheme being more than just an incentive blocking one. Ifthe number of fishing vessel owners in a limited entry scheme is large, e.g. theUK, then one would expect the fishermen to act like competitors, with all thatthat implies. If on the other hand, the numbers are “small”, then thepossibility exists that the vessel owners would begin to coalesce. In otherwords, in these circumstances, the competitive game situation, whichcharacterises so many limited entry schemes, would be replaced by a cooperativegame one. Should that occur, one could anticipate that the vessel ownersthemselves would engage in intra-industry buy backs, in order to enhance theirjoint profits from the fisheries.

At national level, this segmentation may initially lead tothe identification of only a few CMUs, eventually showing prevailing or possiblesubdivisions (by sub-groups of stocks, fleets, or areas). It could constitutenevertheless a good basis on which to assess and start managing fishingcapacity. It can be noted that the concept may be applied to stocks and fleetswhich transbound national boundaries. Mauritania has roughly 750 km of coast line and a highlyproductive EEZ of 200,000 square km. Its fisheries have developed since theestablishment of its EEZ in 1978. Fisheries have now come to play a key role inthe country’s economy, accounting for 24 per cent of its fiscal revenues,and 67 per cent of its foreign exchange earnings.

1. During boom period, companies have to pay high prices for purchases of fixed assets, and the amount of capitalisation is kept high.
2. The second approach is to implement a buy back scheme, inwhich the authorities purchase licenses plus vessels, which are thus removedfrom the fishery.
3. The shares of an over-capitalised company have small value as collateral security.
4. It can be noted that the concept may be applied to stocks and fleetswhich transbound national boundaries.
5. This makes the management of capacity a rathercomplex endeavour which would require assessments at both CMU level (actual anddesired capacity) and fishery level (actual and desired effort).

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Acoordinated planning and training effort would nevertheless appear to be calledfor to strengthen user-group’s active involvement in management and thereagain, few governments have systematically followed such policy. There are two ways in which one can view taxes as a measurefor managing fisheries. First, one can say that the outcome of open accessfisheries is a case of “market failure”, in which the market sends thewrong signals to the fishermen. Alternatively, one can argue that the aforementioned“market failure” is a result of ill defined property rights to theresources. If we are concerned with resources within the EEZ, the resources arein fact the property of the state. If the state introduces thorough-going taxeson fisheries, which absorb most, if not all, of the rent, then the state will befulfilling its role as landlord (sealord?), and the property rights problem, andits resultant consequences, will be solved.

3.2 License limitation

Let us complicate matters a bit more by supposing that we havethe following situation, in which there are three fisheries, all of which arecan be characterised as regulated open access, A, B and C. Suppose that thereare two fleets operating in fishery A, and that one of the fleets also operatesin fishery B, while the other operates in fishery C. Our previous argument wouldlead us to conclude that each fleet should be treated as if it were amulti-product industry, and that each “industry” should then beassessed to determine whether or not it was subject to overcapacity. Under these circumstances, the fishermen will regard thelimited harvest as a common pool. Consider first the consequences in the specialcase in which the fleet is specialised to the extent that it can operateeffectively only in the one fishery. We can argue that the common pool nature ofthe limited harvest will result in the complete dissipation of resource rentthrough unequivocal overcapitalization.

3.3 Vessel catch

An over-capitalised concern either misutilises or under utilises its resources. In order to prevent declining trend of income, an over-capitalised concern resorts to increased prices and reduction in quality of its products.. Over-capitalisation affects not only the company and its owners but also the society as a whole. If a company is to be floated during an inflationary period, or any development activity is carried out in such a period, it will be a victim of over-capitalisation because it has to spend huge amounts. (ii) Closure of an over-capitalised company hits the society adversely; in terms of loss of production, generation of unemployment, etc.

Of course,some of the management methods causes of over capitalisation reviewed so far would have to be appliedsubsequently, but in a very different environment. The government may choose toretain some degree of control over harvest or harvesting capacity. If it is thecase, one of the main differences is that any global quota or limit imposed bythe government authority would be managed by a group of producers or acommunity, rather than by complex administrative rules or by market forces. Theincentive structure facing the group of fishermen concerned is clearly differentwhen it is empowered with some user rights. When few fishermen are involved,this incentive structure may actually be close to that of an ITQ fishery.

When a company finds itself in this situation, it may have excess capital or cash on its balance sheet. This cash can earn a nominal rate of return (RoR) and increase the company’s liquidity. When a company is overcapitalized, its market value is less than its total capitalized value or its current value. An overcapitalized company may end up paying more in interest and dividend payments than it can sustain in the long term.

1. This is exemplified by the use of limited entryprogrammes combined with TACs.
2. Reducing the scope of possible capacity allocation mayinduce gains in management efficiency but could also have significant drawbacks,especially in relation to seasonal and cyclic fisheries.
3. If thefisheries sector is at a low level of development, it should not be undulydifficult, with the aid of controls and financial inducements, to shift“conventional” capital out of fisheries that are under pressure tothose fisheries which are still lightly exploited.
4. When a license is sold, and the vessel is scrapped, thevessel’s VCUs accompany the license, thus adding to the new owner’sallowed capacity.
5. In so doing, we shalldraw heavily on a recent, and thorough, study of subsidies in fisheries carriedout by Matteo Milazzo, National Marine Fisheries Service (U.S.A.) (1996).
6. So long as the vesselcapital is not perfectly malleable (which it virtually never is), the harvestingcapacity will increase beyond that which will be required to take theTAC.

Inadequacy of capital is, generally, the result of faulty financial planning, and compells the company to borrow capital at very high rates of interest. In this case, a large chunk of profits is given away to the creditors as interest leaving little to be distributed to the shareholders as dividends. Due to fall in rate of dividend, the market value of shares also fall which is the symptom of over-capitalisation. This situation will normally arise when a company raises more capital than what is  justified by its actual earnings.

Perfectly “malleable” capitalis capital that one can dispose of without fear of capital loss at amoment’s notice. In so doing,we make some attempt to allow for the fact that a given fleet may operate inmore than one fishery. On the other hand, if the joint exploiters of thetransboundary resource are able to cooperate effectively, then, by definition,it will be possible for them to agree upon resource target levels and optimalharvest programmes through time. From this it follows that they should be ableto determine optimal levels of “conventional” capital, and should bein a position to address the issue of methods of dealing withovercapitalization.

Absence of suitable depreciation policy would make the asset-values superfluous. If the depreciation or replacement provision is not adequately made, the productive worth of the assets is diminished which will definitely depress the earnings. Lowered earnings bring about fall in share values, which represents over-capitalisation. Market capitalization refers to the total dollar value of a company’s outstanding shares. You can easily calculate this figure by multiplying the price of one share by the total number of shares outstanding.