Towards a Sustainable Fishery: The Price-Cap Approach Eric M. Singer* Overfishing is the classic tragedy of the commons. So far, governments have pursued a variety of solutions to incentivize sustainable commercial fishing practices, realizing only mixed results. After describing the costs associated with implementing overfishing controls, I propose a new method of regulating commercial fishing: the price cap. This Article explains the theory of how price caps can incentivize sustainable fishing, analyzes the implementation costs associated with price caps, and compares price caps to existing overfishing regulations. Because each fishery is unique, no single method will produce the greatest benefit at the lowest cost in all fisheries. Accordingly, I analyze the factors that might make a fishery a better or worse candidate for the implementation of price caps. I. INTRODUCTION ................................................................................. 254 II. COSTS OF REGULATION .................................................................... 260 A. Transaction Costs ............................................................. 261 B. Enforcement Costs ............................................................ 263 C. Political Costs ................................................................... 265 D. International Cooperation ................................................. 266 E. Substitution Costs ............................................................. 267 F. Skill-Misallocation Costs ................................................. 268 G. Information Costs ............................................................. 269 III. PRICE CAPS ....................................................................................... 269 IV. COSTS OF PRICE CAPS ...................................................................... 273 A. Political Costs ................................................................... 273 B. Enforcement Costs ............................................................ 274 C. Substitution ....................................................................... 275 D. Market Clearing ................................................................ 277 E. Devaluation....................................................................... 278 F. Information Costs ............................................................. 279 V. PRICE CAPS COMPARED TO OTHER SOLUTIONS .............................. 279 A. Input Controls ................................................................... 280 B. Informal Contractual Arrangements ................................. 282 C. ITQs .................................................................................. 283 D. The Ideal Price Cap Fishery ............................................. 288 VI. CONCLUSION .................................................................................... 288 * © 2011 Eric M. Singer. J.D. 2010 University of Chicago Law School. Many thanks to Richard Epstein for advising me on this Article, and also to Lee Fennell and Katrina Wyman for many helpful comments. 253 254 TULANE ENVIRONMENTAL LAW JOURNAL [Vol. 24:253 I. INTRODUCTION Overfishing, the practice of catching more of a species of fish than its population can replace through reproduction, is a problem that has not gone unnoticed. Fishermen feel the impact of overfishing in the forms of diminished wages, costly regulations, and, in extreme cases such as the moratorium on Northern cod fishing, the disappearance of their entire livelihood.1 Skilled cod fishermen once profited from what was thought to be an infinite supply of the popular fish;2 they now work odd jobs, catch the noxious, slime-secreting Atlantic hagfish,3 or idly collect government aid, all while waiting for the resurrection of the cod population, an event that may never come to fruition.4 Consumers feel the impact of overfishing through higher prices and, in many cases, the unavailability of preferred fish.5 Politicians responding to the interests of fishermen, in addition to those of environmentalists and endangered species advocates, continue to spend the public dollar in pursuit of an effective and politically feasible solution. Overfishing has attracted significant scholarly interest. In the law and economics literature, it is the classic tragedy of the commons.6 An unregulated fishery is an open-access commons where any fisherman can catch as many fish as he chooses. Because a fisherman realizes only his own costs, he will catch fish until the marginal benefit (the market 1. D.H. Steele et al., The Managed Commercial Annihilation of Northern Cod, 8 NFLD. STUD. 34, 35 (1992). 2. See H. Scott Gordon, The Economic Theory of a Common Property Resource: The Fishery, 62 J. POL. ECON. 124, 125-26 (1954). 3. Often called the most disgusting creature in the sea, the hagfish is a far cry from the noble cod. It is, however, commercially viable. Its skin is used to make products such as wallets that are marketed as eel skin, and its flesh is consumed in Korea. The unsurprising consequence of its commercial demand combined with low reproduction rates is that it, too, is being fished beyond sustainable levels. See Lee Jean, Hagfish Aren’t So Horrible After All, 5 J. YOUNG INVESTIGATORS (Apr. 1, 2002), http://www.jyi.org/volumes/volume5/issue7/features/lee.html. 4. BILL BRY S ON, A SHORT HISTORY OF NEARLY EVERYTHING 285 (2003); MARK KURLANSKY, COD: A BIOGRAPHY OF THE FISH THAT CHANGED THE WORLD 231-32 (1998). 5. Tasty species such as cod and bluefin tuna, once common on restaurant menus, have all but disappeared, replaced with farm-raised fish such as tilapia, species such as mahi mahi that were once thrown away when caught, or in the more troubling case of grouper, substituted with various species such as basa, a Vietnamese farm-raised catfish, that are labeled and sold as real grouper. Covert substitution is also common with cod, which even when sold as cod, is more likely to be a variety of haddock or pollock. See BRYSON, supra note 4, at 285; KURLANSKY, supra note 4, at 223. 6. See Shi-Ling Hsu, What Is a Tragedy of the Commons? Overfishing and the Campaign Spending Problem, 69 ALA. L. REV. 75, 76, 100-01 (2005) (describing overfishing as “the classic environmental commons problem”); see also Jonathan Adler, Conservation Through Collusion: Antitrust as an Obstacle to Marine Resource Conservation, 61 WASH. & LEE L. REV. 3, 10 (2004) (“Ocean fisheries represent the archetypal commons problem.”). 2011] TOWARDS A SUSTAINABLE FISHERY 255 price if he is fishing commercially) equals the marginal cost of production. As more fish are caught, the fisherman’s catch will be limited by the falling market price and the increasing marginal cost of production as the population declines.7 If the reproductive capabilities of fish were robust enough to keep up with the market equilibrium level of production, there would always be enough fish to meet consumer demand, and overfishing would not be a concern. During the early years of commercial fishing, this was the case. The fish population was high, the human population—and thus the demand for fish—was low, and due to the limitations of fishing technology, the cost of production was high enough to limit yields to sustainable levels. As a result, fish were able to reproduce fast enough to keep up with the numbers being caught, and their supply was, given the lack of any perceived supply problems, not unreasonably thought of as infinite.8 In time, however, the market equilibrium yield began to increase, a consequence of an increase in the human population and, with the introduction of more advanced fishing technology, a decrease in the cost of production.9 Once the equilibrium yield reaches a point where the reproductive capacity of the fish stock cannot keep up, the effects of overfishing begin to appear.10 As stock size decreases, so too does the size of each individual fish caught, representing the inability of fish to live long enough to reach their full size before being caught. Bluefin tuna, for example, used to be caught at sizes exceeding 1500 pounds, yet the typical size landed today is less than 200 pounds.11 Lobster and cod can both live for over seventy years and reach massive proportions, but as their population decreases, so too does their average age and size.12 Effects of overfishing on the fish stock can be drastic and sudden, materializing with significant increases in the marginal cost of production and decreases in fish size over shockingly 7. See Gordon, supra note 2, at 129-30. Increasing marginal cost is crucial to the analysis. It can be explained with a hypothetical involving one fisherman and a given supply of fish. If there are fish everywhere, the fishermen needs only lower a net into the water to produce the number of fish required. Indeed, this may not be far from the state of the early Atlantic cod fishery. Early European travelers to the Nova Scotia coast claimed that baskets lowered from the sides of ships would be filled with cod when raised. If the population is smaller, however, the fisherman incurs search costs to find schools of cod. As the population decreases further, he must invest in larger nets, longer hours, and so forth. 8. See BRYSON, supra note 4, at 284. 9. See Gordon, supra note 2, at 129-30. 10. See Hsu, supra note 6, at 101-04. 11. Mediterranean Bluefin Tuna Stocks Collapsing Now as Fishing Season Opens, WORLD WILDLIFE FOUND. (Apr. 14, 2009), http://wwwf.panola.org/?162001/Mediterranean- bluefin-tuna-stocks-collapsing-now-as-fishing-season-opens.