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Too Tasty to Fail

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Tags Legal SystemMonopoly and CompetitionPrivate Property

10/01/2008D.W. MacKenzie

While the current financial crisis has received much attention, another crisis has led to calls for government intervention. The Maryland blue crab population has dropped sharply in recent years.

The annual catch is now thirty percent of its previous level of 140 million crabs. Some people blame pollution, overharvesting, and development of nesting areas for the decline in the crab population. The Virginia Marine Resources Commission has failed to remedy this situation. Twenty-two regulatory measures (enacted in 1994) have failed to stem the decline in the crab population. New regulations and licensing requirements have been proposed to limit the ability to catch crabs.

Some senators are urging that the crab crisis be declared a federal disaster, so that Chesapeake crabbers can receive $20 million in aid. This is not the first time that there have been calls for subsidies for the Maryland crab industry.

While politicians think in terms of subsidies and production limits as solutions to the crab crisis, economics points to different solutions. The root cause of the crab crisis is that nobody owns the breeding grounds (which of course are water) for crabs or crabs themselves. Fishing areas and swamps are not generally private property, and crabs themselves for the most part roam freely and are not the property of any individuals. Lack of private-property rights leads to particular problems. The tragedy of the commons exists because nobody has an incentive to invest in communal property. In a true fishing commons, anyone can draw fish or crabs, simply by having access (by boat) and the necessary equipment. Private owners of cattle capture the gain from breeding and caring for their livestock, but anyone investing in breeding and maintaining crabs shares any gain with all other (noncontributing) fisherman.

Government regulations and licensing requirements set limits on the ability to harvest crabs, but these limits are arbitrary. Since the crab population is itself commonly owned, there is no price on any market for the crab population as an asset. So government restrictions on crab harvesting are not economically rational. A government-regulated crab industry will therefore not be coordinated with other lines of production. The ability to invest rationally in preserving or breeding crabs requires some estimate of the associated capital costs.

Of course, one could argue that there is no way to establish property rights for schools of crabs. But this is not true. There are many examples where people have established self-governing, self-organized associations to solve the type of problems that plague the Maryland crab industry. People all over the world have established "common pools resource" (CPR) associations that regulate access to water-related resources that are difficult to define in terms of normal property rights. The specific terms of CPRs vary according to local circumstances and problems, but the general idea behind a CPR is that the people who are directly involved in using resources where property boundaries are hard to define construct a set of rules for exploiting the resource in question. For example, fishermen in Alanya, Turkey established a CPR organization that defined rights to fishing areas. Central officials in government could not have crafted such rules, as only the local people understood the economic value of fishing areas (Ostrom, p. 20).

While CPR organizations do not produce property rights in exactly the same way as we are accustomed to, such arrangements do function very much like normal property-rights systems. CPR systems also have a good track record in comparison to overt government regulation. CPRs are in fact quasi-governmental arrangements that emerge to deal with tragedies of the commons.

Those who have publicized their concerns about the Maryland crab crisis have turned to governmental regulation and subsidies too quickly. CPR organizations can emerge out of individual trading and negotiating, and such arrangements are more likely to lead to economically efficient results. In fact, the government has already tried and failed to alleviate the Maryland crab crisis. Perhaps we should let capitalism have a crack at this problem.



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