Can collusion benefit the environment? It seems that way from the experience of fishermen in Australia and New Zealand. Instead of their earnings' coming from their individual catches, they get a share of the revenue of the industry as a whole. This has lead to an increase in profits because it gives the individual less incentives to fish, increasing fish stock. Now, when the fisherman venture out they do not have to go as far to find fish, lowering their costs. Higher prices for the fish, and lower operating expenses, translate into higher profits. More fish in the ocean and higher profits for fisherman-it seems to be a clear Pareto improvement.

Cartels usually benefit producers-and yet they usually break down, for a reason. Here, profits are up, but revenues are down. This suggests an incentive to cheat. Suppose the cartel works and the local fish supply rebounds. Meanwhile, the price of fish has risen substantially. The fisherman can now fish close to home, facing the lower costs, but has every incentive to sell some of his catch for a slightly lower price )even if he has to sell his catch on the black markets), increasing his profits further. Only a matter of times before the cartel breaks down. Commercial fishing can be extremely dangerous, but also very lucrative. If you take away the large upside of risking your life for an exceptional catch, what incentive do the fisherman have? Further, quite a bit of fishing occurs in international waters. There exists a rather contentious relationship between Alaskan and Canadian fisherman in the Pacific Northwest, cooperation between them is unlikely and if only one country colludes will the fishing stock still rebound?

Still, if these inherent problems can be overcome, an interesting policy question presents itself. If overproduction of the good in questions had negative externalities, does imposing a cartel provide an alternative to credit or taxation?

Based on the article 'In Cod We Trust' in Appendix A, discuss the following:

a)Discuss the externality involved in commercial fishing and its impact on stocks of fish. (5 marks)

b)Explain how collusion among fishermen can lead to socially efficient fishing activities. (4marks)

c)Discuss the potential problems/threat to the fishing cartel. Consider also the fact that commercial fishing occurs in international waters. (5 marks)