Question

Suppose that fishing has caused a certain species of fish to be threatened with extinction. After banning fishing for many years, the fish population has rebounded. Now the government is proposing to introduce a system of tradeable fishing permits, which would entitle the holder of each permit to catch a given number of fish each year. Explain how uncontrolled fishing led to a negative externality problem and how a system of tradeable fishing permits can potentially overcome the inefficiency caused by this negative externality.

Answer 1

Uncontrolled fishing leads to negative externality in form of bio diversity damage as fishes in the ocean helps manage ecological chain along with decomposition of the waste in our waters. The tradable permit will limit the fishing in the oceans as the amount of fishing will gets restricted to permits allocated.Hence ,this will lead to sustainable cycle where the fish won't deplete also permits when traded, will change hands with the fisherman with efficient processes will be able to compete in the industry.