A basic feature of traditional fishingfirms (with up to 13 crew members) is that all resource owners (shipowner,skipper, engineer, cook, seamen) are compensated with a share of the netrevenue after paying certain common costs (e.g., nets, food). The shipownerpays for the fuel and the ship’s repairs. The most elaborate fishing firms arethe medium-sized ships which fish in deep-sea grounds for periods of one tofour months, with 11 to 13 crewmen. Participants in this traditional fishingfirm include: the ship-owner, who may be an individual, a partnership or acompany; the fishing skipper, who is responsible for the ship and handlesnavigation while fishing, this being the reason why the team’s productivitycrucially depends on his performance; the coast skipper, who substitutes the skipperas the second in command; the engineer, who looks after the engines, thefreezer and the electric systems, sometimes helped by a greaser; the cook,whose task is, obviously, to prepare the food; and, finally, the commoncrewmen.
In these medium-sized boats, thefishermen’s wage varies greatly with the value of the catch and some of theexpenditures incurred for each specific voyage, which is called the “share orlay system”. The distribution of rewards begins with gross revenue, themonetary value of the catches obtained in a fishing expedition, which isestablished in open auction in the formal wholesale fish markets. The markettakes care of the auction and the payments and also certifies the proceeds fromthe sale. Sharing follows a refined process. Gross revenue is first reduced bythe commission paid to the market (between 3.5% and 4.5%). Next to be paid arecommon expenditures, which are collectively supported, such as food provisions,fishing tackle (nets, rods, lines, etc.), bait, salt, ice and commutingexpenses. The shipowner finances these common expenditures, recovering themonly after the catch is sold out. If the value of the catch is lower than theexpenditures, the difference is accumulated and deducted from future catches.Once the common expenditures have been deducted, the resulting net revenue isdivided in two parts, one for the ship-owner and the other for the crew. Intraditional wooden boats, this division is made more or less on equal terms.The allotment received by the crew is allocated among crewmen according totheir relative human capital. The amount is divided by the number of fishermenplus 1.5 (so that q = 0.49 [CV-CE] / [n+1.5], where n is the total number ofpeople in the boat). The value of each resulting portion, q, is called a“share”. Every crewman earns one share, except the fishing skipper, who getstwo, and the coast skipper, who takes one and a half. From his participation innet revenue, the shipowner pays two additional shares, one to the fishingskipper and another one to the engineer, as well as one half or one quarter ofa share to the cook, and another quarter to the greaser, if there is one.Moreover, he has to pay for all the fuel consumption and the ship’s insuranceand repairs. The residual income, if any, compensates him for the cost ofcapital.
You can find it useful to study theclassic Alchian and Demsetz (1972) paper before answering the questions.
Questions:
1. How do you explain the prevalence ofthe pattern of sharing in net revenue?
2. And what about the sharing of somecosts but not all?
3. The bigger ships have distinctivefeatures: they are more costly and have larger crews (30-50), longer sailingtimes (three to five months) and they fish in remote seas. Many of them notonly catch the fish but also clean and freeze it. They are usually owned bylarge ship-owning firms, some of which have hundreds of ships. Building on yourexplanation for the previous questions, predict how workers in these largeships are compensated.