The use of transfer payments to solve overfishing and unsustainable fishing practices (2013)

Undergraduate: William Bost

Faculty Advisor: Sergio Parreiras
Department: Economics

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Most of the economic literature in fishery management assumes that, because marginal cost is inversely related to fish stock size, fishing a certain fish stock to extinction is impossible for a rational economic agent. However, many of the world¿s fish resources have been depleted to the threat of extinction causing many scientists around the world to predict that maintaining the current extraction rate will result in a total collapse of all of the world¿s fisheries by the year 2048. Policymakers can prevent this from happening by cutting the total allowable catch to a sustainable level for certain fisheries but are reluctant to do so because of damage to the fishing industries¿ short term economic welfare. This paper considers how transfer payments can be used to make a sustainable cooperative solution for fish resources more achievable. This paper finds that transfer payments can make a cooperative solution ideal for an infinitely large number of agents, both homogeneous and heterogeneous, to participate in the fishery to reach a cooperative solution. However, in systems where quotas are already in place, the success of reducing the allowable catch while simultaneously not negatively affecting the profits of fishermen is highly dependent upon cost heterogeneity, discount rate, and the number of periods before extinction occurs at the current allowable catch.