The oceans are being overfished due to high demand for fish, causing irreparable damage to fish stocks. The European Union (EU) attempted to promote sustainability in the fishing industry through the implementation of quotas, but alternative approaches yield varying outcomes.
To tackle the problem of overfishing, I will first analyze its causes and then explore possible prevention strategies. The occurrence of overfishing can be explained by different factors. In markets where externalities are present, the amount of fish being taken out (Q1) differs from the socially ideal level (Q2), as shown in Figure 1 below. It is crucial to mention that this model assumes no transitional mechanisms during the transition from one equilibrium to another. The fish market serves as a prominent example of negative externalities in action.
According to Pindyck and Rubinfeld (2009), a negative externality occurs when one party’s actions impose costs on another party. The high demand for a few fish species results in decreased abundance due to slow replenishment, leading to higher catching costs. Moreover, extensive fishing activities can disturb food chains and negatively impact ecosystems.
Figure 1 illustrates the Marginal External Cost (MEC) curve, which represents the costs associated with producing one additional unit. The Demand curve reflects the societal benefit of producing more units, while the Supply curve indicates the producer’s marginal cost (MC). When combining the MEC and MC, we obtain the Marginal Social Cost (MSC) curve. The MSC curve has a steeper slope than the Supply curve, resulting in a lower quantity value where it intersects with the Demand curve. Consequently, this creates a cost to society represented by the shaded area, causing producers to supply a quantity that exceeds the socially optimal level.
This is the reason why catching too many fish is considered as ‘overfishing’. The issue is why producers, who are a part of society, would want to produce beyond the sustainable level. According to Hardin (1968), the cost to society of overgrazing common land by adding another animal is shared by all members of society. This makes them almost negligible to the individual.
Although the owner of the animal receives all the proceeds, each individual benefits more than the cost. Rational producers will strive to maximize their surplus, resulting in the addition of more animals or the catching of more fish until reaching the profit-maximizing level (where marginal cost equals marginal revenue). If the resource is common property, there are no restrictions on access or usage, allowing everyone to take as much as they want.
Hence, resource consumption will persist until it becomes economically unfeasible. Whether an ‘individual’ refers to a fisherman or a country, the outcome remains unchanged. The harmful consequences of excessive fishing know no boundaries, necessitating an authoritative body that prioritizes the collective welfare over individual interests or national concerns in order to regulate fishing quotas. However, no such governing entity currently exists.
One of the challenges is determining a limit, as the external costs are difficult to quantify due to the subjective nature of valuing a species becoming extinct. Furthermore, measuring and predicting costs can be challenging; for instance, declining numbers of a species may be caused by pollution rather than the fishing industry. Consequently, the MSC serves as an estimate, and implementing a quota based on it may result in an incorrect social equilibrium quantity.
How does a quota impact consumer and producer surplus? Figures 2 and 3 display examples of the supply and demand for fish in the EU and the MSC associated with this. Figure 3 illustrates the impact of a quota set at the SOL on surplus. The supply curve becomes inelastic at Q2, causing the price to rise to P2, which represents what consumers are willing to pay for the new quantity. The area A now represents the difference between what consumers are willing to pay and what they actually pay, known as consumer surplus.
Area B represents the producer surplus, which is the discrepancy between what producers require and what they receive. Area C contributes to the deadweight loss. Producers’ surplus is now B+D as they have lost area E, and the total deadweight loss becomes C+E. Depending on the elasticity of supply and demand, producers may have either suffered losses or gained. In general, there is a societal loss associated with a quota, as indicated by the deadweight loss.
If the MEC is overestimated, the quota will be too low, which will unnecessarily reduce the surplus. Conversely, if the MEC is underestimated, the quota will be too high and the amount of fish caught will become unsustainable. Quotas are imposed on the most sought-after fish species, leading fishermen to provide alternative species to fulfill the demand. This situation creates issues, like using nets with small mesh to catch sole, which inadvertently captures cod as by-catch.
According to Channel 4 (2011), the cod quotas have already been fulfilled, resulting in the inability to gain producer surplus. Thus, although a quota may not significantly reduce MSC, it will always reduce surplus. In an attempt to catch scarce fish, fishermen resort to unsustainable methods due to the quotas given to them in their respective areas (Channel 4, 2011). By opening a market for quotas, this issue can be resolved while maintaining a fixed total number of fish caught.
Since quotas have been introduced in the UK, fishermen with lower MC (who use more socially costly methods) have purchased more quota (Cardwell, 2011). As a result, the proportion of unsustainable fishing methods in the industry has increased due to this market. Various alternatives to quotas are available and we will compare them.
If fishermen are maximizing working hours and catch, both no-take zones and limiting days at sea have similar effects as a quota. Instead of imposing restrictions, these alternatives limit the resources accessible to fishermen. Consequently, they address the issue of discarded by-catch and effectively reduce the MSC more than quotas do.
However, fishermen may desire to increase their catch within the given time limit or restricted area. In order to do so, they may attempt to enhance the efficiency of their fishing techniques, resulting in higher marginal cost (MC). Consequently, this will also lead to an increase in marginal social cost (MSC), at least by the same magnitude. In addition, the adoption of new methods might potentially elevate external costs. As a result, the new socially optimal level (SOL) will still be equally or even further distant from the competitive equilibrium compared to before. Alternatively, the European Union (EU) could introduce a fee per landed fish or a tax per purchased fish that equals the marginal external cost (MEC) at the SOL. Figure 5 in Section 2 represents the quantity of fish that fishermen are willing to supply at the consumer price with such a tax.
The tax is equal to the vertical difference between S2 and the Supply curve because the price fishermen receive is equal to the price consumers pay minus the tax. The new equilibrium quantity occurs where the price fishermen are willing to receive equals the price consumers are willing to pay minus the tax, which is where the demand curve intersects S2.
Adding the tax directly to the price paid by consumers may make it easier for fishermen to avoid paying a fee by landing their fish in another country. However, the outcome remains the same: consumers end up paying more than they would in a competitive equilibrium, fishermen receive less, and the burden of the tax falls on those who are least price elastic. If the Marginal External Cost (MEC) has been estimated incorrectly, similar problems can arise as with a quota. The tax revenue (represented by B+D) could be utilized for research purposes to improve the accuracy of MEC estimation.
Enforcing laws that restrict the catch of fish solely for human consumption would impose limitations on the amount of fish fishermen can legally provide (Monbiot, 2011). This action would result in a downward shift of the demand curve, consequently reducing the social equilibrium. While the new quantity may be more sustainable, it will not be socially optimal. Moreover, the deadweight loss incurred would be greater compared to implementing a quota (Figure 6). Alternatively, fishermen could increase awareness about overfishing, similar to the approach taken with CO2 emissions, to decrease the demand for fuel.
Despite a shift in demand towards different fish species, the overall demand for fish is projected to remain steady. Redirecting the demand towards fish caught using smaller mesh nets may not result in a decrease in popular fish caught and thus affect the Marine Stewardship Council (MSC). However, this will inevitably lead to a reduction in available fish for catch and subsequently decrease employment for fishermen. Eliminating the need for fishing reduction would require increasing the socially optimal level.
e. If the MEC and consequently MSC can be decreased (Figure 8), legislation that prohibits unsustainable fishing techniques would accomplish this goal. In conclusion, there are several approaches to enhance the sustainability of the fishing sector, each with its own disadvantages, which require the collaborative efforts of all nations for effective implementation.
