A FRAMEWORK FOR COMMERCIAL LICENSING 91 



potentially valuable, ver\' few are not renewed. I see little 

 to be gained from provisions that effectively force all 

 licensees to fish when the mam problem is too large a 

 fishing fleet. 



18. All landings requirements for licence renewal should 

 be abolished immediately. 



For quota licences, I propose below that royalties be 

 payable on the resources committed to licensees whether 

 the authorized catch is taken or not. This will provide 

 adequate assurance against unused allocations. 



Transferability of Licences 



Probably the most controversial issue in licensing is 

 that of transferability. To begin to sort out the often 

 confusing debate over this question, a couple of distinc- 

 tions should be made. First, whether a licence is transfer- 

 able is often confused with whether the licence is applied 

 to a person or a boat. This confusion may have arisen 

 because the Department has attempted, unsuccessfully, 

 to reduce the size of some fleets (e.g. the roe-herring) 

 through attrition by issuing licences to persons and mak- 

 ing them nontransferable. But a licence applied to a per- 

 son can be made transferable if the government wishes to 

 do so. 



Second, a distinction should be made between transfer- 

 ring a licence from one person to another and transfer- 

 ring a licence from one vessel to another. The latter is 

 related to vessel replacement. The former involves the 

 sale of fishing privileges, often in conjunction with the 

 sale of a vessel; it is regarding such transactions that the 

 term transferable properly applies. 



The controversy surrounding transferability involves 

 several questions: whether it permits private parties to 

 gain from the sale of rights to use a public resource, 

 whether it will encourage overcapitaliziition of the fleet, 

 whether it will lead to monopoly control, and whether it 

 invites speculation that causes destabilizing fluctuations 

 in the value of licences. These concerns deserve brief 

 comment. 



First, we must recognize that a licence to fish in any 

 remunerative limited-entry fishery will be valuable. This 

 value cannot simply be swept away by makmg licences 

 nontransferable. If transfers are prohibited, a licence 

 holder will be unable to sell his fishing privilege to some- 

 one else, but he can still realize the value it confers on 

 him by catching fish and selling them. So the value that a 

 licence confers on its holder cannot be erased by prohi- 

 biting him from shifting the privilege to another person. 



This Commission's terms of reference imply that the 

 Crown should extract the economic gains from the 

 fishery beyond a reasonable return to fishermen and ves- 

 selowners, but prohibiting licence transfers is not the best 



way to do this. Charges for fishing privileges afford a 

 more direct and equitable method. 



The anxiety about private profits and capital gains 

 from rights to use public resources is misdirected when it 

 focuses on licence transferability. If the objective is to 

 improve the economic returns of fishing and. at the same 

 time, to prevent the financial benefits from accruing only 

 to private parties, then ways must be found to divert the 

 gains to the public. Licence fees and landings charges can 

 serve this purpose while prohibiting licence transfers can- 

 not. And by reducing the profitability of fishing, direct 

 public levies on licensees also reduces the market value of 

 their fishing privileges. Moreover, if licences have fixed 

 terms and are reallocated periodically through competi- 

 tive bidding as recommended, new entrants can acquire 

 them directly from the government, without dnvmg up 

 the price of licences held by others. 



The concern that licence transferability aggravates 

 overcapitalization of the fishing fleets seems to be 

 unfounded as well. A vesselowner will add to the catch- 

 ing power of his boat whenever he expects that the costs 

 of the extra equipment will be at least covered by the 

 higher volume or value of catch it will produce. His 

 expectations about this will not be affected by whether or 

 not his licence is transferable. When a fishermen buys a 

 licence from someone else to place on his vessel (which 

 has occurred frequently in past years), his capital mvest- 

 ment certainly includes the cost of both the vessel and the 

 licence. But when economists refer to overcapitalzation 

 of fishing fleets and associated costs, the cost of a licence 

 is irrelevant because it does not represent investment of 

 tangible capital that could be employed elsewhere in the 

 economy. So the cost of excess vessel capacity is a waste 

 of resources, but licence value is not. 



Finally, concern that speculation artificially inflates 

 licence values appears to be largely exaggerated. Most 

 transactions in vessels and licences are among fishermen 

 and fishing companies. While some have undoubtedly 

 gained from trading in licences and vessels, the fluctua- 

 tions in value have reflected mainly the changing expec- 

 tations of fishermen and vesselowners themselves about 

 the economic returns from fishing and their financial cir- 

 cumstances. (Apparently, other investors have been 

 attracted to invest in fishing vessels and licences as a tax 

 shelter, but this is a separate issue, discussed in Chapter 

 13.) 



While the objections to transferability are weak, its 

 benefits are substantial. Transferability permits flexible 

 reallocation of fishing privileges to enable the industry to 

 adjust and to provide an avenue for new participants.- It 

 will be particularly valuable in promoting fleet rational- 

 ization where licences provide catch quotas because it 

 will enable licensees to adjust their rights to the most 



