Environmentally Conscious Fishing Communities and Fishing Quota Negotiations: The Impact of Environmental Externalities

ABSTRACT This paper uses a Nash bargaining model for analyzing negotiations between a fishing community and a vessel over fishing quotas and wages, for a given Total Allowable Catch imposed by the regulator. The analysis considers the environmental awareness of the community and whether the entire quota allotment is being leased, to examine how environmental externalities, unrelated to fishery sustainability, affect wages, employment, and social welfare. It is argued that if the maximum number of quotas is leased to the vessel, a system of transferable fishing rights is a vehicle for pure transfer payments from the vessel to the community, in the form of higher wages and leased quota revenues. In this context, employment level and social welfare are not affected by the fishing communities' environmental consciousness. However, if less than the maximum number of quotas is leased to the vessel, both wages and revenues from leased quotas are higher, while employment is lower when the community is environmentally conscious compared to when it is not. In such case, social welfare is higher when the community is environmentally conscious provided that the inverse demand for fish does not decline too sharply relative to the rate at which marginal pollution damages increase. Finally, it is shown that the strictness of the Total Allowable Catch regulations impacts both the community's well‐being and the vessel's profitability.