Fish, Sustainability, and Used Cars: Guest post by Dr. Martin Smith

[Editor’s preface: Yesterday, we opened our discussion of seafood eco-labeling with a guest post by Dr. Tim Essington of the University of Washington. Today we present the second perspective on the Marine Seafood Council’s report on environmental certification of seafood products. Dr. Marty Smith is the Dan and Bunny Gabel Associate Professor of Environmental Economics in the Nicholas School of the Environment at Duke University. ]

 

Dr. Martin D. Smith

The Marine Stewardship Council recently commissioned a report to evaluate its performance as an eco-label that aims to promote sustainable seafood. The release of this report provides a good opportunity to reflect on the economic issues surrounding MSC certification.

For starters, what is the economic logic of certification? The impetus for certification is the problem of asymmetric information, when one party in a transaction has more information than the other. The classic motivating example is the used car market as Nobel laureate George Akerlof described in his 1970 paper, “The Market for Lemons.” Akerlof sought to understand why the value of a new car plummets so precipitously when it is purchased and driven off the lot. The reason is that the new owner now has some private information about the car that a prospective future buyer does not have. The prospective buyer reasons that the current owner is more likely to sell if the car is a lemon and assumes the worst. Since the price of a used car is now lower than the value of a car that is not a lemon, only lemons get supplied to the used car market. Certification is one possible solution to this dilemma. A disinterested third party essentially attests to the quality of the product in question. By fixing the asymmetric information problem, the market can function effectively.

So, are fish like used cars? In some respects, they are. Producers of seafood know more about the stock status, fishing methods, and handling of the product than prospective consumers. Many consumers purport to care about these issues. MSC provides a means to attest to the quality of the seafood, where quality in this case is intended to be measured by product sustainability. However, there are some critical differences in the certification of sustainable seafood and the used car market. First, the used car case is much simpler with one buyer and one seller in a direct transaction. In contrast, with sustainable seafood the eco-label is seeking to solve a collective action problem in which a complex marketing chain separates the consumer from the producer (the fisherman). Somehow the certification of seafood products must create incentives for the institutions governing the resource to change, and these incentives must then “trickle down” so that individual fishermen behave more sustainably. This is no easy task. Even if individuals are willing to pay more for sustainable seafood, how these price premiums are then transmitted through the marketing chain to influence institutions that affect practices on the water is unclear. Second, there is also a collective action problem on the land. Buying a lemon is purely a loss in private benefits, whereas seafood sustainability primarily provides public benefits that are shared by society at large. A seafood consumer’s private benefit from sustaining marine ecosystems is a small fraction of the public benefit. As a result, the consumer has an incentive to free ride and under-contribute to sustainability.

MSC and other seafood eco-labels are often compared to certified organic foods. Would we expect MSC price premiums to be as big as premiums for organic food? In the organics case, we worry about free riding because the potential environmental benefits of organic are shared by all and not just the individual consumers. But many consumers of organics, whether reasonably are not, also believe that there are private health benefits. These perceived private benefits would dampen the free rider effect. Could the same be said of sustainable seafood? It is hard to imagine that consumers would believe that gear choices or collective action that limits overfishing would generate health benefits. So, free riding is likely to be more pronounced in sustainable seafood.

These theoretical issues raise a number of empirical questions. Are there premiums for sustainable seafood? So far, economists have been able to document some evidence of price premiums, but premiums do not appear to be very large. There is also empirical support for modest price premiums from hypothetical experiments to assess consumer willingness to pay for sustainable seafood.  Proponents of MSC also point to market access as a separate incentive from price premium. The idea is that seafood that is not certified will not be able to sell to certain wholesalers or even retail chains. But even if we believe market access provides a separate incentive, it is important to quantify these effects and compare them to price premiums.  Methods for this comparison remain nascent and hamper our ability to understand the links in the chain from eco-label to impacts on the water.

Ultimately, we would like to know whether MSC certification has caused improvements in fisheries. Empirically, this is a very tough question because MSC certified fisheries might have improved anyway; simply showing improvements is confounding correlation and causation. What is really needed is a quasi-experimental approach that compares certified fisheries before and after certification to otherwise similar non-certified fisheries. The MSC report fails to do this but might be a first step in collecting such a data set. If fish are enough like used cars, MSC may help address market failures and turn out to be an important contributor to marine conservation. But until there is more empirical evidence, we must continue to rely on other approaches to governing our oceans.

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