Nobody used to own the fish in the sea and so fishermen could catch them without paying for them. This led to chronic overfishing and so declining fish stocks. This is really a case of 'lack of information' and failing to take account of externalities. The fishermen maximise profits according to their private costs which do not include any cost of fish themselves.
The way to regulate this is not easy. With the Commons on land the answer was to enclose them and confer property rights on individuals. The farmers then consider the full costs of the land (well nearly, most ignore the effects of intensive farming on the environment) and farm it sensibly.
It was not possible to confer private property rights on the sea, but in the last forty years EU governments have established government control of the sea for 200 nautical miles offshore.
The solution taken by the EU to the problem of fish stocks is quotas. Each fishing boat is allowed to catch so much a year and can only fish for so many days each month. In this way fewer fish are taken and stocks should recover. Of course the fishermen earn less and some leave the industry. Others are compensated by the higher fish price as supply in the markets fall.
So that's easy then! Problem solved? Except fish stocks have not recovered. Every year they seem to decline, or at least not improve. Every year the fishermen complain they will never survive and need higher quotas (obviously stupid as fish will then run out and they all lose their livelihood). And each year each EU government tries to negotiate their fisherman's quota higher.
Overall this is an example of an attempt to correct market failure that has turned into a classic example of government failure. It does have some sense. Hayek would applaud it for using the rule of law to enforce a solution that attempts to be fair. Others would point out that the lower quotas raise fish prices and so use the market to reallocate resources more fairly.
However the obvious point is that after 40 years of fishing quotas the policy has not worked. This is because the quotas chosen were wrong (due to imperfect information, 'accidental' fishing AND cheating). The other obvious solution is to offer tradeable fishing permits to operators of vessels. Price the fish accordingly and the fishermen won't try to overfish. A tax is another possible solution, but much more expensive to administer (as each catch must be weighted and taxed, permits could apply to boat capacity per day).
The annual quota negotiation has just finished. The BBC cover the story below.
