Measuring Welfare Losses from Hypoxia: The Case of North Carolina Brown Shrimp

Abstract

While environmental stressors such as hypoxia (low dissolved oxygen) are perceived as a threat to the productivity of coastal ecosystems, policy makers have little information about the economic consequences for fisheries. Recent work on hypoxia develops a bioeconomic model to harness microdata and quantify the effects of hypoxia on North Carolina’s brown shrimp fishery. This work finds that hypoxia is responsible for a 12.9 percent decrease in North Carolina brown shrimp catches from 1999 to 2005 in the Neuse River Estuary and Pamlico Sound, assuming that vessels do not react to changes in abundance. The current paper extends this work to explore the full economic consequences of hypoxia on the supply and demand for brown shrimp. Demand analysis reveals that the NC shrimp industry is too small to influence prices, which are driven entirely by imports and other domestic U.S. harvest. Thus, demand is flat and there are no measurable benefits to shrimp consumers from reduced hypoxia. On the supply side, we find that the shrimp fleet responds to variation in price, abundance, and weather. Hence, the supply curve has some elasticity. Producer benefits of reduced hypoxia are less than a quarter of the computed gains from assuming no behavioral adjustment.

Keywords: hypoxia, dead zones, nutrient pollution, welfare analysis, bioeconomics, ecosystem-based management

JEL Classification: Q22