Institutions in the Shark Fin Market: Externalities and Incentives

This study analyzes the role institutions have in shaping incentives within the shark fin market. It combines literature findings from multifarious fields of fisheries economics, shark biology, and institutional economics to provide an argument that institutions, both formal and informal, were fundamental in establishing the market, guiding how it operates currently, and are needed to find ways to correct for negative externalities engendered by sharks’ functions in ecosystems. The strength of the formal institutions of the primary nations involved was measured through the economic freedom index, and classified in terms of inadequate, ineffective, and effective based on how efficient those nations were at conserving shark populations. Developing nations generally provided inadequate institutions that lead to shark finning and overexploitation of their populations. Ineffective institutions are carried out by developed nations with strong enforcement capabilities and high economic freedom, but unproductive management or incentives are in place. Separate methods to properly align incentives in developing and developed nations are suggested. This study recommends using incentive-based strategies, such as a by-catch reward system, in developed nations due to their ability to centrally enforce such policies. For developing nations, locally structured property rights need to be distributed to allow fishermen a stake in the conservation of sharks. These applications can provide both economic and environmental sustainability for shark populations.