Hanna, Dr. Susan

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Ocean and Coastal Law JournalVolume 7 | Number 1 Article 42001More Than Meets The Eye: The Transaction CostsOf LitigationDr. Susan HannaFollow this and additional works at: http://digitalcommons.mainelaw.maine.edu/ocljThis Symposium is brought to you for free and open access by the Journals at University of Maine School of Law Digital Commons. It has beenaccepted for inclusion in Ocean and Coastal Law Journal by an authorized administrator of University of Maine School of Law Digital Commons. Formore information, please contact mdecrow@maine.edu.Recommended CitationDr. Susan Hanna, More Than Meets The Eye: The Transaction Costs Of Litigation, 7 Ocean & Coastal L.J. (2001).Available at: http://digitalcommons.mainelaw.maine.edu/oclj/vol7/iss1/4Cost/Benefit of Litigation in Fishery ManagementMore Than Meets the Eye:The Transaction Costs of LitigationDr. Susan Hanna25I am going to be talking about some of the costs of litigation, and whatI am going to be discussing today is not the result of a formal researchproject or a calculation of costs associated with litigation. What I willpresent are reflections and perspectives from the point of view of someonewho participates in the fishery management system as a scientific adviser.So, it is in part a view from inside the regional management council systemand, in part, the perspective of an outsider participating in that system as anadviser to the Pacific Fishery Management Council (PFMC) and to NMFS.The perspective that I have is also the perspective of an economist, who hasseen the cost effects of litigation roll through the fishery managementsystem. I interpret litigation as an economist, and I look at the bundle ofcosts litigation imposes on the fishery management system.Since the Sustainable Fisheries Act of 1996, we have seen an increasein the amount of litigation challenging fishery management decisions. Anarticle in the June 2001 issue of National Fisherman indicated that thenumber of suits against the National Marine Fisheries Service had morethan doubled in the past five years.26 I do not know if this figure isaccurate, but that was the order of magnitude cited. The suits are comingfrom a number of different interests, including commercial fishermen,recreational fishermen, environmental organizations, and tribes, all ofwhom are challenging a number of different aspects of the fisherymanagement system. Challenges are being made to the quality of the dataand analysis, as in the Hawaiian longline turtle case.27 Challenges arebeing made to the completeness of the analysis, as in the North PacificSteller sea lion interactions with the cod, pollock and atka mackerelfisheries.28 Challenges are being made to force adherence to the regulatoryprocess, as in the highly migratory species plan.29 Challenges are alsobeing made to the legitimacy of management decisions, as in the reductionof the summer flounder quota. 025. Professor of Economics, Department of Agricultural and Resource Economics atOregon State University.26. Richard Bard, Full-Court Press, NAT'L FISHERMAN, June 2001, at 22.27. Leatherback Sea Turtle v. NMFS, Civ. No. 99-00152DAE (D. Haw. 1999).28. Greenpeace v. NMFS, 55 F. Supp. 2d 1248 (W.D. Wash. 1999).29. Bluewater Fisherman's Ass'n v. Mineta, 122 F. Supp. 2d 150 (D.D.C. 2000).30. See supra note 4.20011OCEAN AND COASTAL LAW JOURNALThese different groups obviously have different perspectives, but Ithink it is fair to say that from the perspective of any particular groupbringing litigation, the objective is to improve the performance of thefishery management system. Whether the objective is seen as improvingperformance through better conservation, improving the allocation of fishstocks, the making of more complete assessments of economic and socialimpacts, or creating an overall more effective management process,depends on the parties involved in the litigation.As we see these suits increase, we are also seeing a change in wheredecisions are being made. Litigation is moving many managementdecisions out of the arena of the fishery management councils and NMFSand into the courts. As more management decisions are made by the courts,we are seeing a movement away from participatory management toward amore command and control kind of decision-making process. Thismovement has some implications for the costs of management and howthese costs are distributed. The relevant question for fishery managementis whether or not litigation, as a tool and a strategy, will improve fisherymanagement over the short or long term, or whether it will leave permanentdamage in its wake.One way to look at the question of management performance is to lookat the costs associated with management. When we talk about theperformance of fishery management, we are talking about the ratherrestricted notion of cost-effectiveness, because fishery managementproceeds according to standards specified by law. The real question is howeffectively those standards can be met, and whether they can be met in themost cost effective way. The ideal is to conduct fishery management by theleast-costly means possible. Of course, the ideal is not the reality, but thequestion of how actions create costs within the management system and theoverall size of the cost burden is very relevant to the effectiveness offishery management.The types of costs most relevant to fishery management are transactioncosts. Transaction costs are the costs of arranging everything thatcontributes to management: gathering information, negotiating among allthe different interests, designing the regulations, implementing theregulations, monitoring compliance with the regulations, and enforcing theregulations. Transaction costs are costs that are absorbed by agency staff,council staff, commercial fishermen, recreational fishermen, scientificadvisers, and all other participants. The costs of running the fisherymanagement system are borne by all the participants, so the cost burdenthat you create is very relevant to the system's effectiveness.It is important to recognize when you look at this question of litigationthat we are walking in the path of history. We are not just looking at(Vol. 7:1Cost/Benefit of Litigation in Fishery Managementlitigation independent of everything else that is taking place in manage-ment. We have a management system that has become increasinglyburdened with transaction costs over time. Twenty-four years of imple-mentation of the Magnuson-Stevens Act has been chronically underfundedin data collection and analysis of regulatory action. Transaction costs haveincreased over the twenty-four years of implementation with increasingovercapacity, allocation conflicts, and a host of other sources of increasingpressure on the system. New management requirements added through theSustainable Fisheries Act of 1996 that were also underfunded furtherincreased the cost burden on management. These new requirements werelayered over the old requirements and over a human capital base that wasalready stretched thin. Litigation adds a new layer of required actions andresponses that have their own set of costs. The costs of litigation arelayered onto what many feel is an overburdened and underfunded system.Litigation creates new costs, such as the opportunity cost of lostpersonnel resources. An example of the opportunity cost of lost personnelis the entrainment of scientists in the preparation of material for courtcases. Someone in NMFS used the term "insanely complete" to describethe paperwork and record-keeping associated with creating an NMFSadministrative record. The paperwork involved diverts personnel fromother activities and dedicates them to the preparation of court cases. Chaoscan be created in the fishery management council system when everythingelse comes to a halt in order to prepare for litigation.Leatherback Sea Turtle v. National Marine Fisheries Service31 presentsone of the most striking cases of the opportunity cost of using scientists toprepare materials for court. In this case, the Honolulu lab of NMFS wasasked to prepare the biological opinion for trial. That involved thededication of the time-equivalent of eight senior scientists for one year inorder to prepare the biological opinion. In the meantime, the routine kindsof analysis needed by the fishery management council were not done. Thecost of preparing material for litigation was the loss of the routine work offishery management.Another cost of litigation can be observed in the polarization of partici-pants. I have observed this in the Pacific fishery management system,where even the threat of litigation causes polarization. Although the PFMChas not yet engaged in active litigation, the threat of litigation is causingextreme polarization among participants. This leads to strategies aimed atundermining other people's decisions and to parties taking actions that are31. Civ. No. 99-00152DAE (D.Haw. 1999).2001]OCEAN AND COASTAL LAW JOURNALdamaging to a system based on participation, negotiation, interaction, andcommunication.The continued burden of allocation means that the fishery managementsystem dedicates an enormous amount of time to analysis, documentation,and data collection, as a result of the need to divide fishery resourcesamong competing interests. As overcapacity and fishing pressure increases,the amount of time and analysis required to do that has increased. Theallocation bur-den has not gone away. In fact, as both resource scarcity andthe potential for litigation have increased, it has become even moreexaggerated.These are some of the more obvious cost outcomes of litigation thatresult from taking personnel away from tasks that are part of the routinerequirements of fishery management. As the threat of litigation becomesmore active, there is an increasing unwillingness on the part of the councilsto experiment with alternative approaches to management problems for fearof litigation. Management decision-making is not focused on outcomes, buton process. Councils are refraining from action in order to consider howthat action will look in terms of possible litigation. This comes at a cost toflexibility in management and to solution-based management approaches.Another cost outcome of litigation is very high rates of discounting offuture benefits. By that I mean that managers do not have the luxury oflooking far into the future because the scarcity, allocation battles, and thethreat of negative consequences resulting from a particular action are allshortening the time horizon managers operate within. People are trying tostumble through an annual cycle and they are attempting to do as good ajob as they can in order to stretch the resources as far as possible. This isnot the long-term management for fishery sustainability that is supposed tobe our social objective.There is also an erosion of legitimacy of participatory management,because some of the strategies of engaging and positioning oneself inlitigation have to do with undermining the credibility of the science andundermining the credibility of the analysts. The effect of these strategiesis to slowly erode the perception that the participatory system is alegitimate system, and that negotiations can proceed in good faith.The last explicit cost outcome I will discuss seems to me to be a verycostly one. It is that in focusing and preparing for litigation, we are missingopportunities to step back and address the root causes of the problems thatare leading to litigation, such as overcapacity and fishing pressure. Addres-sing these root causes of our problems would provide the needed flexibilityto find better ways to fish more cleanly and to introduce more stewardship-type behavior into the decision-making process over the long-term.[Vol. 7:1Cost/Benefit of Litigation in Fishery ManagementThese are some of the more explicit cost outcomes, but I would like toadd another that seems to me to be damaging as well. It is the creepingerosion of morale among scientists and technical people participating in themanagement system, as well as, among the user groups. In the PFMC, forexample, there has been an increasing level of disenchantment in recentyears that is very troubling, because good faith participation is the basis forthe fishery management system.There is a general erosion of morale, as well as, specific problems withmorale. Attacks on the credibility of the science or the quality of theanalysis can be taken very personally by some scientists, who get tired ofbeing constantly under attack. One perspective is that there is nothingpersonal in these attacks, and that they are just a strategy or contrary pointof view applied generally to the agency or system as a whole. However, ifyou are a stock assessment scientist standing up at a stock assessmentreview meeting, and you are under constant attack, and the kinds of attackbecome much less professional and more personal over time, then younaturally begin to take these attacks personally. A person's enthusiasm andinterest in continuing to participate in the system erodes.As a university participant of the Scientific and Statistical Committeeof the Pacific Council, I have felt that very keenly myself. You feel likeyou are volunteering time to participate in the system, and whatever you dowill be subject to attack both professionally and personally. Those aresome of the costs that are harder to measure. These types of costs areharder to get your hands on, but they are very real.Transaction costs are a necessary part of fishery management. Thewhole idea is to contain them and to keep them from getting out of hand,so they do not overburden the system or overwhelm the benefits you aregetting out of the system. How do we escape these costs associated withlitigation? How do we get out of the increasing cost burden placed on themanagement system? One suggestion is to break the cycle of insufficientfunding to collect adequate data, to do the analysis, and to hire additionalscientists to do the analysis. NMFS has taken steps to increase the socialscience component, however, in terms of the requirement to manage for amaximum net national benefit and to analyze human impacts, NMFS'ssteps are rather small. We have to find some way to get realistic about theamount of funding that this system requires, if we expect it to do what thelaw requires.The most important thing is to start addressing the root causes of theproblem. Instead of throwing all our resources toward litigation, we shouldtry to fix some of the underlying causes that encourage litigation. As aneconomist, I see the root causes as the horrible levels of overcapacity andall of the attendant problems associated with overcapacity. These come out20011OCEAN AND COASTAL LAW JOURNALof our failure to specify property rights, responsibilities and expectationsfor those participating in the fisheries, and a subsequent failure to managefisheries so that they are economically productive, where participants canactively and profitably participate in sustainable fisheries.We also need to move our focus away from the regulatory process,where the system is currently focused, and to start looking at performanceoutcomes. We are not providing incentives for people to achieve certaintargeted outcomes. Instead, we are saying that they must follow a parti-cular process. We need to realign those incentives to get the focus on thekinds of sustainability outcomes that we feel are socially desirable and thatallow people some flexibility to experiment and work toward thoseoutcomes.I am sure you can tell from my remarks that I am troubled by theamount of litigation facing the U.S. fishery management system. I see anincreasing cost burden on the management system, and from my perspec-tive, the effects of this burden are troubling. I am very concerned about theindirect, erosive kinds of costs that I see working at the legitimacy of thesystem, and I hope that we can find a way to contain these costs and changethe current trend.QuestionI have two related questions. First, in your talk you make oneassumption that I want to challenge. Is it necessarily true that, were it notfor litigation and the burdens associated with litigation on scientists andmanagers, they would do a better job of fishery management?Second, it seems to me that this really ought to be a cost-benefitanalysis. You talked a lot about the transaction costs of litigation, but verylittle about the benefits that are associated with the flow from litigation. Iwonder if the real problem or challenge with the legitimacy of the agency'swork today stems from their failure to address those root causes that youtalked about rather than the effect of litigation?Susan HannaObviously the benefits of litigation are critical, they just do not happento be my piece of this panel. The benefits are likely to be long-term, andwhether this is the right strategy to get us to those goals is an open questionfrom my perspective. A piece of that question is the cost burden introducedto the system and whether it is keeping the system from getting to thebenefits by overwhelming it, or whether it will be the nudge that the systemneeds. Obviously, that is an open question.I think your point about the litigation costs and whether or not those arekeeping the system from being effectively managed is a fair one. I wouldnot argue that were it not for litigation the system would be clicking along[Vol. 7:12001] Cost/Benefit of Litigation in Fishery Management 19smoothly. The problems in the system, namely the chronic underfundingand lack of attention paid to the root causes, have been there for some time.From my perspective, in terms of costs, the litigation just happens to beintroducing significant new costs to a system that is already staggeringineffectively under its existing cost burden.20 OCEAN AND COASTAL LAW JOURNAL [Vol. 7:1

More Than Meets The Eye: The Transaction Costs Of Litigation

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More Than Meets The Eye: The Transaction Costs Of Litigation

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