This paper explores a problem faced by many coastal states worldwide: Should the rights to fish in their exclusive economic zones be attributed to national firms or sold to foreign countries/firms? The European Union for instance, with the so-called Sustainable Fisheries Partnership Agreements gives financial and technical support to developing countries in exchange for fishing rights in their jurisdiction. In order to understand and quantify the basis upon which those agreements are drawn up, we propose a framework based on a multistage game that can be used as a tool to evaluate the fairness of natural resource agreements in general, including fishery ones. By capturing how much it is worth for coastal states to give access to their fishery resources to foreign fleets, this framework can help authorities to decide on a fair sharing of resource rents during negotiations.
The problem is addressed through a two-country game, in which “home” represents the resource owner, and “foreign” the one that seeks access to the resource. In each country, there are two decision makers: authorities and harvesting firms. Two markets for selling the resource are considered, one at home and one abroad, where prices are determined endogenously.
We begin with the case of exogenous quotas. In a symmetric equilibrium, both firms are active when the foreign authority maximises welfare, but only the home firm is active when it maximises profit. Under cost asymmetry, the home authority has a pool of mutually exclusive price strategies that depend on market conditions and induce a plethora of outcomes. When quotas are endogenous, the shape of optimal price regions changes and the distinct number of pricing options increases.
