This article looks at government policies to correct the externality of

overfishing. A negative externality of production is a spillover effect due to

production that has a negative impact on a third party. This is market failure,
where resources are not allocated efficiently or in the best interests of
society.
The Primary Industry Ministry has lowered the quota of fish for recreational
fishermen from 9 to 7 and increased the minimum size to reduce the amount
that can be caught. This is an externality because fish are a common access
resource, goods which no one owns. People will unsustainably use these
resources for their own benefit. As a result, the next generation of fishermen,
a third party, is impacted negatively. Also, due to scarcity, the consumers of
the next generation are also affected because they must face higher prices
of fish.

The amount of the externality is shown by the arrow between the MPC and
MSC. The equilibrium price is P and the quantity is Q. However, the social
equilibrium is shown by P opt and Q opt, meaning that currently, MPC does
not equal the MSC, so market failure has occurred and resources are not
efficiently allocated. In this case, fish is underpriced and overproduced. The
shaded area shows the welfare loss due to the overallocation of resources to

the production of fish. As the government wants resources to be allocated

efficiently, they must correct the externality.
The government has decreased fishing quotas to make it more difficult to
catch smaller fish and correct the externality.

A quota limits the number of fish that can be caught per day, so recreational
fishermen produce fewer fish per day, lowering supply and shifting the
supply (MPC) curve leftward, to MSC. In doing this, the current equilibrium
price and quantity P and Q will also shift to P opt and Q opt. The externality
and welfare loss have been eliminated, and resources are now efficiently
allocated.
Unfortunately, this may not work as planned.
Firstly, it is difficult to measure the amount of the externality, so
implementing an accurate quota will also be difficult. The government opted
to decrease the quota to 7 instead of 3 per day, possibly because they were
unsure of the cost of the externality.
Also, as shown by the article, the quota is aimed at recreational fishermen,
not fishing companies that produce much more than them. These fishing

firms contribute to overfishing more than recreational fishermen, so the

quota will not be effective in reducing the number of snapper caught or
correcting the externality. As Mandy Kupenga says, "theyre reducing
peoples ability to catch fish for something thats not going to make a
material difference. It would be more effective to implement it on fishing
firms to limit their catches, which would have a more noticeable effect on the
problem of overfishing. The government could be limiting recreational
fishermen only, because fisheries are a major industry they do not want to
lose.
Thus, the governments implementation of a quota in this situation will not
be very effective at reducing the production of fish.
Another option is implementing a tax on the earnings of fishing firms. The
fishing firms are discouraged from supplying fish, so the supply curve shifts
to the left until it is equal to MSC.

The tax has the same result as the quota, with social equilibrium being
reached and the correction of the externality, but has additional advantages.

Firstly, the government now earns tax revenue, which it can spend on other
beneficial sectors of the economy. The revenue earned is shown by the
shaded area.
Also, this policy is targeted at the large fishing firms who contribute the most
to unsustainable overfishing, so it would be more effective in correcting the
externality.
However, it faces the same weaknesses the quota, in that it is difficult to
measure the amount of the externality and calculate a tax rate. Also, it
suffers from the disadvantage in that if the supply of fish is inelastic, a high
tax rate would be needed to cause noticeable changes in the supply of fish.
Due to firms facing higher costs, some fishing employees may be fired.
Consumers will be affected because they have to face higher prices of fish,
which increases when quantity supplied decreases.
Furthermore, this policy internalises the externality, because it is now paid
for by the producers themselves.
Overall, the tax is more effective because it corrects the externality by
targeting the right party and generates government revenue.
750 words

Middle ground in snapper quota cuts

Recreational fishers will now be able to catch seven snapper a day, after the Government abandoned plans to slash
the quota from nine to three.
But the fishers will now have to catch bigger fish - and they are not happy.
Primary Industries Minister Nathan Guy said this afternoon the limit reduction was needed because recreational
fishers in the upper North Island's east coast had been catching well above the set allowance in recent years.
The announcement follows ministry consultation on how to manage and rebuild New Zealand's northern snapper
population, which has "collapsed" alarmingly in recent years.
The process sparked outrage among recreational fishers due to a plan to cut the daily catch to three.
Fishers will now be allowed to catch seven snapper a day, measuring 30 centimetres long - up from 27cm.
Thousands of submitters emailed the Government opposing the original quota cut, with many furious at the perceived
hypocrisy of changing recreational limits while commercial quotas went largely untouched.
The reaction to today's decision was swift.
Mandy Kupenga, spokeswoman for recreational fishing advocacy group LegaSea, said the reduced limit and bigger
size was unfair.
"Theyre reducing peoples ability to catch fish for something thats not going to make a material difference on the
rebuild of the fishery, she said.
Three centimetres may not sound like much but 40 per cent of people fish from the shore and it will make a huge
difference to them.
Angler Forsyth Thompson said the decision was "utterly disgraceful'.
"Its a blatant disregard for normal people of New Zealand.
The changes relate to what is called the Snapper 1 Fishery area, which runs from the top of eastern Northland to the
Bay of Plenty.
The fishery is one of the most heavily used by recreational anglers in New Zealand and the Ministry for Primary
Industries said it was those fishers who were pushing the number of snapper into danger.
Since 1997 recreational fishers in the area had been allowed to take 2550 tonnes a year. But on average for the last
five years the recreational catch has been estimated at 3365 tonnes a year.
Recreational fishers believe they have been unfairly landed with the responsibility of rebuilding the snapper stock.
Since 1985 they have had four cuts to their bag limits and size. Commercial fishing limits have remained largely
unchanged since 1986.
During the consultation, there were three major positions under consideration - keeping the total commercial,
customary, and recreational catch at 7550 tonnes, raising the limit by 500 tonnes, or lowering it by 500 tonnes.
Guy also announced an increase in Total Allowable Catch in the area. The amount of snapper allowed to be taken will
increase from 7550 tonnes a year to 8050 tonnes. The extra 500 tonnes will all be allocated to the recreational sector.
This will mean a commercial allocation of 4550 tonnes and 3050 for the recreational sector.
Guy said the scientific advice from the ministry suggested the Snapper 1 fishery could handle an increase of 500
tonnes and still continue the rebuild.

There will also be extra monitoring of commercial fishing in the area to prevent unlawful behaviour such as illegal
dumping. The changes relate to what is called the Snapper 1 Fishery area, which runs from the top of eastern
Northland to the Bay of Plenty.
There will also be extra monitoring of commercial fishing in the area to prevent unlawful behaviour such as illegal
dumping.
- Fairfax NZ News

Accessed via http://www.stuff.co.nz/national/politics/9176019/Middle-groundin-snapper-quota-cuts