UC Davis

Subsidies are widely criticized in fisheries management for promoting global fishing capacity growth and overharvesting. Scientists worldwide have thus called for a ban on ``harmful'' subsidies, which artificially increase fishing profits. The argument for banning harmful subsidies relies on the assumption that fishing for some fishermen will become unprofitable after eliminating subsidies, incentivizing some to exit and others to refrain from entering. These arguments follow from theories of open-access governance regimes where entry has driven profits to zero. Yet many modern-day fisheries are conducted under limited-access regimes that limit capacity and maintain economic profits, even without subsidies. In these settings, subsidy removal will reduce profits, but perhaps without any discernable effect on capacity or the structure of the fleet. Importantly, there have been no empirical investigations of fisheries subsidy reductions to inform us about their likely quantitative impacts in real-world settings.

This dissertation investigates the impact of fisheries subsidy reform on fleet capacity dynamics and structure in the offshore fisheries of Zhejiang Province, China. This study is important for its novelty, the complexity of the policy context, the quality of the data, and the importance of China as a fishing nation-state. China is the world's largest seafood producer and user of harmful fishing subsidies. In 2006, China implemented a fuel subsidy program to insulate fishermen from the sudden shock to diesel prices as the country deregulated its domestic gasoline and diesel markets. But in 2016, China implemented a wide-ranging fuel subsidy reform to reduce fleet size and curb harmful gear use in order to align with new ecological policy objectives. The reform created a unique opportunity to provide the first quantitative investigation of fishery subsidy reductions.

The policy setting investigated in this thesis offers several advantages for understanding the potential impacts of harmful subsidy reductions. First, fuel subsidy reductions were allocated across vessels in a manner conducive to a quasi-experimental research design, allowing me to identify the reform's treatment effect on fleet capacity. Second, China's fuel subsidy reform took place within an institutional setting that embodies the complexity of the policy environments in which many future subsidy reforms are likely to occur. In particular, fuel subsidies were just one policy instrument among many others, including a cap-and-trade program for engine power, a buyback (or retirement subsidy) program to encourage exit and fleet capacity reduction, gear regulations, and open-season restrictions. I demonstrate that these other elements conditioned the effect of fuel subsidy reductions in complex but understandable ways that provide insights into how banning harmful subsidies might work globally.

My research design is based on a conceptual framework that considers individual-level vessel investment decisions, short-run fleet dynamics, and the long-run bioeconomic equilibrium in a limited-entry fishery. Using structural modeling techniques, I generate refutable hypotheses regarding the impact of subsidy reform on fleet capacity and test these hypotheses using state-of-the-art reduced-form empirical methods. Using a unique vessel-level panel that I assembled from administrative data collected by Chinese authorities, I demonstrate that the subsidy reform led to an increase in individual vessel exit rates. However, the extent to which vessel exits led to power quota retirement, and hence capacity reduction, depended on the simultaneous reforms of a buyback program. Using a model of a cap-and-trade market with a price floor, I am able to separately identify the effects of each component of the reform and show that while subsidy reductions induced exit, the buyback program was the primary contributor to fleet capacity reduction. I also explore the impact of the reform on the structure of the fleet and find an acceleration of capacity reduction of harmful gear and adoption of less intensive fishing gear.

Overall, this dissertation highlights the nuanced nature of mechanisms linking subsidy reductions to fleet reduction and restructuring in modern fisheries. In brief, simply removing harmful subsidies may not, as suggested, be a panacea leading to increased conservation of global fish stocks. Indeed, in modern limited entry fisheries like China's trawl fishery, subsidy reductions might have had no effect on capacity reduction without complementary policies like retirement subsidies that induced exiting fishermen to retire rather than replace their vessels. This suggests the need for a strategic design of worldwide fisheries subsidy reforms that carefully accounts for the economic incentives of participants, the complexity of policy environments, and the multiple objectives of fisheries policy.