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 that artificially increase fishing profits, resulting in the recent agreement among members of the World Trade Organization to eliminate such subsidies. The argument for banning harmful subsidies relies on the assumption that fishing will be unprofitable after eliminating subsidies, incentivizing some fishermen to exit and others to refrain from entering. These arguments follow from 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. Importantly, until now, there have been no empirical studies of subsidy reductions to inform us about their likely quantitative impacts. In this paper, we evaluate a policy reform that reduced fisheries subsidies in China. We find that China's subsidy reductions accelerated the rate at which fishermen retired their vessels, resulting in reduced fleet capacity, particularly among older and smaller vessels. Notably, the reduction of harmful subsidies was only partly responsible for reducing fleet capacity; an increase in vessel retirement subsidies was also a necessary driver of capacity reduction. Our study demonstrates that the efficacy of removing harmful subsidies depends on the policy environment in which removals occur.