Pricing whales

In the recent edition of Nature, researchers suggest a creative way to reduce whaling - by a market based cap and trade system (1,2). Although some may object to this idea as insensitive, it makes good sense. The optimal societal outcome is the maintenance of the number of whales that will keep the possibility of extinction of them to close to zero. The researchers point out that environmental groups spend close to $25 Mil per year campaigning against the whaling industry that makes a profit of $31 Mil. In effect, the whole problem can be solved if the environmentalists hand over $25 Mil to the whalers every year. This will assuredly stop all whaling. However, this is unlikely to happen. Also, it may not be an optimal outcome as the stoppage of whaling and a sudden rise in their population can have unanticipated impacts on the whole system.

Setting a price for the bad (in this case, whaling) and designing a cap and trade system is the next best solution. The number of whales that can be captured per year may be capped based on the current population of the different types of whales. Such a cap then will force a market based price and a flow of the right to capture whales to the most efficient whaling organization. It also allows flexible policy that can assure healthy numbers of all types of whales and the possible elimination of the system when the numbers are above a calculated threshold.

Policy makers have to think creatively to solve problems. The amount of resources expended to defend or attack binary policy choices is a lot higher than what is needed to implement market based solutions in most areas.

(1) comment in  Nature entitled "Conversation Science: A market approach to saving the whales," Christopher Costello and Steven Gaines of the University of California, Santa Barbara, and Leah Gerber of Arizona State University, Tempe

(2) Science Insider, by Erik Stokstad on 11 January 2012, 4:08 PM