A SUSTAINABLE ‘MIDDLE WAY’ TO ECONOMIC RESPONSIBILITY IN ENVIRONMENTAL GOVERNANCE : THE CASE OF...

A SUSTAINABLE ‘MIDDLE WAY’TO ECONOMIC RESPONSIBILITY

IN ENVIRONMENTAL GOVERNANCE :THE CASE OF EC SALMON AQUACULTURE

par

Jovita L. DE LOATCH

Université Paris 1 Panthéon-Sorbonne

Introduction

Discovering new paths to responsible governance requiresalternative perspectives in the economic analysis of legal reformsto encourage sustainable development. The perspective pre-sented herein, at its core, challenges economic analysis of lawtheorists to more fully encapsulate normative issues relating tosustainable development. This perspective equally challengesrights-based theorists advocating stewardship obligations to bet-ter appreciate the importance of economic incentives that per-meate virtually all of our lives and drive the global economy,thus providing a translational bridge between these interdiscipli-nary landscapes. In general, economics asks questions about theassessment of value, the process of exchange and the choicesmade in the allocation of scarce resources, and this particularbranch of legal theory evaluates the economic ‘efficiency’ of alegal rule or governing tool that affect these processes. The alter-native viewpoint offered here evolves from a more progressiveconception of the economic analysis of law. Although more nar-rowly focused liberal approaches have in the recent past over-shadowed other lines of reasoning in the economic evaluation oflegal rules, broader interpretations like this one may prove use-ful, particularly with regards to environmental issues. Accord-ingly, this chapter introduces a sustainable ‘middle way’ to eco-nomic responsibility in environmental governance by employing

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584 jovita l. de loatch

a law and economic model of sustainability derived as theRawls-Nash economic efficiency criteria (1).

To better illustrate this analytical approach, it may be instruc-tive to consider a specific case : The European Commission’s Com-mon Fisheries Policy (‘CFP’) reform (2). Implemented in January2003, the CFP contains provisions for integrating environmentalprotection requirements to curtail the substantial fish stock deple-tion in external third country waters by European Community(‘EC’) salmon aquaculture activities and policies. It is from this per-spective that the European Commission intended the reformed CFPto encourage “the development of sustainable aquaculture.” (3) Themethodology used herein raises questions regarding the efficiency ofthe legal incentives and redress this reform provide to mitigateenvironmental damage to external third countries resulting fromEC salmon aquaculture activities and policy. Yet, any evaluation ofthis reform effort depends heavily upon the definition of ‘sustaina-ble’ and how more precise criteria for measuring sustainabilitymight provide the correct incentives in which the ‘sustainable’ feed-ing and care of farmed salmon to market weight can be achieved forthe salmon aquaculture production chain. A fundamental queryneeds to be made as to what measure can be justifiably used toevaluate the efficiency of CFP reform with respect to the Commis-sion’s ultimate goal of “sustainable aquaculture.”

I. – The Dilemmaof the ‘Fish Eat Fish World’

“Aquaculture,” i.e., the farming of fish for human consumption,requires the feeding and care of such fish until they reach marketweight. Aquaculture of herbivorous species, such as carp, has beenpracticed in Asia for thousands of years (The Economist 2003 : 20),and for at least the last 150 years in Europe with respect to fish fry(Guillotreau 2004). Widespread industrial aquaculture did not begin

(1) This contribution is based in part on my prior work on the Nash efficiency criteria atStockholm University and dissertation (De Loatch 2006) completed at Centre d’études et derecherches internationales Université de Montréal (CÉRIUM).

(2) European Commission, Green Paper on the Future of the Common Fisheries Policy, COM(2001) 135.

(3) Council Regulation (EC) No 2371/2002 of 20 December 2002 on the conservation and sus-tainable exploitation of fisheries resources under the Common Fisheries Policy Council.


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to make a significant contribution to the world food supply untilthe 1970’s, helping worldwide consumption of fish to nearly doublein the last half century (The Economist 2003 : 20), while concur-rently, shifting European consumer preferences (MacAlister Elliot &Partners LTD 1999). Dramatic increases in farmed salmon importsinto the EC through countries like Norway and Chile, led to dra-matic price drops for market salmon and helped to spur changes inconsumer preferences away from herbivorous species to carnivorousspecies (Eagle et al. 2004). In addition to imports, these changeshave been bolstered by ever-increasing production of farmed salmonwithin the EC, from countries such as Scotland (4).

The dilemma of the farming of salmon, shrimp and other carniv-orous species is that they often consume more of the ocean’sresources than they add to the global stock (Naylor, Goldburg,Mooney et al. 1998). A common assumption is that all types ofaquaculture add to the world’s food supply and help to relieve pres-sure on wild fisheries. For herbivorous species (still the most com-monly farmed fish worldwide and in France, within the EC), thisassumption is considered to be generally valid (FAO 1998). Herbiv-orous species can reduce the environmental impacts on externalthird country fisheries, because they typically do not require wildfish to be caught and processed for fish feed or fish oil. China andIndia’s increased farming of largely herbivorous freshwater fish isthought to have increased fish stock and food security without nec-essarily threatening ocean fisheries and coastal ecosystems (Gold-burg and Triplett 1997). By contrast, carnivorous farmed fish con-sume processed feed made from wild catches of herring, mackerel,sardine and other pelagic ocean varieties. Naylor et al. estimatesthat as much as two to four pounds of wild fish are required forevery pound of farmed carnivorous fish raised on processed meal(Naylor et al. 2000). Concurrently, the expansion of farmed salmonsupply in the market, in particular, has been a key factor in thedevelopment of the supply chain demands for fish oil. Generally,farmed salmon production allows the least flexibility in fish oil sub-stitutes. Farmed salmon require significant consumption of fish oil

(4) From 1988-1998, Western European aquaculture production increased from 195,500 t to250,000 t, with salmonids making up just over 85% of production and carp barely at 9% of pro-duction. At the same time in Eastern Europe, production fell from 411,500 t to 180,000 t, withcarp dominating aquaculture production at around 86% and salmonids limited to only 9.4%(FAO 2001).



to reach market weight and to meet consumer taste demands andpreferences for the health benefits from high omega-3 fatty acidcontent, currently unavailable from other sources (Barlow 2002).

Consequently, a third of the world’s wild fish catch is presentlyused for manufacturing fishmeal and fish oil (Tacon 2003). Further,approximately 80% of world wild-caught pelagic fish are reduced tofishmeal and fish oil (Delgado et al. 2003). As well, nearly half ofworld annual production of fishmeal and 80% of fish oil is currentlybeing used for aquaculture feed. Salmon represent less than 7% byweight of all aquaculture production, but use 41% of the fish oilconsumed by the industry (Tacon 2003). The World Bank acknowl-edges that, “the strong demand for fishmeal and fish oil may affect(a) sustainability of major ecosystems, such as the Peruvian–Chileansystem, because the pressure on the small pelagic used for fishmealwould affect the entire food fish chain; and (b) the poor, becauseprice increases would take the small pelagic out of their reach”(World Bank 2004). With the depletion of northern Atlantic andBaltic fish stocks, the European Community, as well as Norway andother nations have become increasing dependent on the Chilean andPeruvian fisheries (5). In Chile’s fisheries “only 4% of the speciesstudied have no signs of overexploitation, 38% are in an uncertainstock status, or at high risk of overexploitation, and 58% of the spe-cies analyzed are overexploited” (Pérez Matus and Bushmann 2003 :12). If the CFP reform is to be effective, it must provide legal incen-tives to limit and redress the damage attributed to the productionof fish oil and fishmeal and must help to mitigate the trend towardenvironmental damage to external third countries’ fisheries.

II. – The Aspirations of CFP

CFP was intended to start a new approach that “integrates thesustainable development principles agreed at the Johannesburg

(5) The Peruvian fisheries have already experienced periods of collapse (1972, 1977, 1987, 1992,1998, 2002), arguably due in part to global climate change, and to “…. extremely high fishingpressure, over-fishing is likely to have deepened the crashes and delayed the recoveries.” As well,within the European Community, only Denmark has been a significant market supplier of fishfeed inputs but no longer plays a significant role in fish oil production. (Deutsch et al. 2007 :238-249). Historically, Chile, Peru, Iceland, Norway, Denmark and the USA have been the pri-mary suppliers of fish oil, while Chile, Peru, Iceland, Norway, and Denmark are the world’s dom-inant suppliers of fishmeal (Barlow 2002). See also Weber 2003.



Summit....” (6) The Commission went further in September 2002 byoutlining its Strategy for the Sustainable Development of EuropeanAquaculture, where it advised the Council and European Parlia-ment that “[e]fforts should possibly be oriented to species such asseaweed, mollusks and herbivorous fish, that are able to utili[z]e theprimary production more efficiently;” (7) but did not explicitlyaddress the importation of farmed carnivorous fish or productioninputs of fish oil and fishmeal. In addition, the Commission’s intentfor CFP reform in addressing environmental damage to third coun-tries resulting from Community activities and policy must take intoaccount “the environmental, economic and social aspects in a bal-anced manner.” (8) The balance it aims to strike places sustainabledevelopment within a nexus of competing policy interests, includingstriving for a high level of employment and the smooth functioningof the internal market (De Loatch 2006).

The reform admits that “[g]iven that many fish stocks continueto decline, the Common Fisheries Policy should be improved toensure the long-term viability of the fisheries sector through sus-tainable exploitation of living aquatic resources based on sound sci-entific advice and on the precautionary approach,” First, however,it addresses long term viability of the fisheries sector, customarilyinterpreted as an employment sector, not necessarily the fisheries’ecosystem. Second, it should be noted that the construction of theprecautionary principle, sketched in Article 174 of the Treaty (9),relies on the economic criteria of cost-benefit analysis as the philo-sophical foundation to third party ecosystem damages. Third, inorder to achieve its goals the Treaty bases its approach “… on theprecautionary principle and on the principles that preventive actionshould be taken, that environmental damage should as a priority berectified at source and that the polluter should pay.” Therefore, the

(6) Directorate-General for Fisheries and Maritime Affairs, The European Community ExternalFisheries Policy, KL-70-05-188-EN-C, 2005.

(7) Communication from the Commission to the Council and the European Parliament, AStrategy for the Sustainable Development of European Aquaculture, Brussels, 19.9.2002 COM(2002) 511 final.

(8) Council Regulation (EC) No 2371/2002 of 20 December 2002 on the conservation and sus-tainable exploitation of fisheries resources under the Common Fisheries Policy. Paragraph 4states that “[t]he objective of the Common Fisheries Policy should therefore be to provide forsustainable exploitation of living aquatic resources and of aquaculture in the context of sustain-able development…”

(9) The Consolidated Version of the Treaty establishing the European Community (hereafterthe “Treaty”) 24.12.2002, Official Journal of the European Communities C 325/33.

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focus on ‘preventative action’ contrasts with the priority of havingthe polluter pay for the environmental damage. It introduces someambiguity by relying on the presumption that prevention andremediation shall occur only after the fact that damage has beenestablished, and not on legal incentives built into the policy instru-ment to avoid damage in the first instance. How far into the futureone anticipates and acts upon potential damage, as well as the sizeand the scope of the damage are critical issues in formulating a pol-icy of ‘sustainable development.’ Given the web of competing policyinterests served by the Treaty, the approach of cost and benefitdamage assessment for third countries’ resource depletion, and thelack of legal incentives built into the policy instrument to avoiddamage, one must look for a clearer definition of sustainable devel-opment.

III. – Legally Redefining Sustainable Development

The difficulty is that a clear mandate for environmental govern-ance is illusive given the complex nexus of cultural, social and eco-nomic policy interests, the reliance on cost-benefit analysis, and thelack of legal incentives to avoid damage, leaving authoritiesdependent on the establishment of causation only after damage hasoccurred. Each of these elements poses an economic trade-off thatweighs on the efficiency and effectiveness of any program of envi-ronmental governance. The conceptualization of sustainable devel-opment inevitably implies the use of governmental power to bal-ance social and employment policy as well as economic production,efficiency and growth, on the one hand, with environmental protec-tion and distributive justice, on the other hand. In order to clarifythe issues related to the specific case of sustainable salmon aquac-ulture, it is helpful to first devise a workable legal and economicdefinition of what is meant by ‘sustainable development.’ By doingso, finding a middle way between these competing interest andapproaches may be possible.

In 1987, the World Commission on Environment and Develop-ment published Our Common Future (often referred as the “Brundt-land Report”) calling for the adoption of ‘sustainable development’policies that meet “the needs of the present generation without



compromising the ability of future generations to meet theirneeds.” (10) These policy recommendations harken back to much ear-lier models, such as the ‘seventh generation’ philosophy of theNative American Iroquois Confederacy that mandated considera-tion of the effects of all tribal actions on their descendants throughseven future generations (The Colombia Electronic Encyclopedia2003).

However, beyond this conceptual understanding, there continuesto be much debate regarding the public policy meaning of ‘sustain-ability’ (Revesz and Stavins in Polinsky & Shavell 2007). From alegal perspective, the International Legal Association (‘ILA’) offersfrom its New Delhi 2002 conference, the Declaration Of PrinciplesOf International Law Relating to Sustainable Development (ILA2002). They include : (1) The principle of integration andinterrelationship; (2) the principle of equity and the eradication ofpoverty; referring to both inter-generational equity and intra-gener-ational equity ; (3) the precautionary approach to human health,natural resources and ecosystems; and (4) the duty of States toensure sustainable use of natural resources by ensuring that activ-ities within their jurisdiction or control do not cause significantdamage to the environment of other States or of areas beyond thelimits of national jurisdictions (11). By directly using these four legaldefinitions as a benchmark, we embark on the development of theireconomic embodiment in order to elucidate what should be meantby ‘sustainable development.’

IV. – Economics of Sustainable Development

Sustainable development’s quest to strike a balance, as outlinedin Principle 1, requires a theoretical economic framework that canclearly portray not simply an individual benefit, but the interde-pendence of social, economic, financial, and environmental andhuman rights objectives and their interrelationships. In economicterms, as depicted in Hardin’s classic Tragedy of the Commons (Har-din 1968), the Prisoner’s Dilemma is manifested, where each aqua-

(10) Referencing the name of the Commission chaired by Norwegian Prime-Minister Gro Har-lem Brundtland.

(11) The principles referenced above are presented in the ILA Declaration as Principle 7, 2, 4and 1, respectively (ILA 2002).



culture producer is driven to consume fish feed from the open accessocean fisheries by maximizing their private individual economicincentives to increase their individual marginal benefits. Thisresults in high levels of consumption of wild fish derived feed toproduce more farmed salmon, accelerating the depletion of the glo-bal fish stock. Thus, the individual’s efficiency assessment conflictswith the socially efficient assessment. This ‘free rider’ problem leadsto, in the case of cost imposition, the under supply of a collectivepublic good, such as the ocean fisheries resources, through the overuse of these resources (12).

Another economic dilemma posed by carnivorous aquaculturecan be illustrated by Partha Dasgupta’s paradigm in The Controlof Resources (Dasgupta 1982), which portrays an open access fish-ery in order to discuss problems of common resources and marketfailures. “[T]he excessive rates of catch, leading to bio-mass fallingbelow the species’ threshold level, results in the permanentdestruction of the stock.”(ibidem : 5) This problem radiates fromthe inter-temporal misalignment of resources to regenerate stock.This regenerative flow is complicated by uncertainty even amongexperts as to the specific consequences of various fish catch rates.From a theoretical economic perspective these complications makethe analysis of sustainability of regenerative flow a formidabletask. Notably, “the environmental impact of current productionand consumption activities occur in the future; in some cases quitefar away in the future; it is on occasion irreversible, and alwaysuncertain.”(ibidem : 11) Thus, the individual aquaculture pro-ducer’s efficiency assessment not only conflicts with the sociallyefficient assessment but also with some measure of societal expec-tations of inter-temporal efficiency. The challenge of finding the

(12) Ostrom has documented that the ‘tragedy of the commons’ is not a monolithic construct(citing examples of close-knit communities with long traditions of mutual trust that serve toestablish norms of self restraint and enforcement) where “… local subsistence fisherman havestrong interests in the sustenance of an inshore fishery…” (Ostrom 2002 : 14) Libecap and Wig-gins suggests that access must drop to less than five firms if private agreements are to remedycommon oil pools (like fish stock) depletion. (Libecap and Wiggins 1984) Rose argues that “…amiddle ground between regimes in which the resource is…difficult to privatize…and regimes inwhich conflicting uses are managed by formal ownership…is the regime of the managed com-mons, where usage as a commons is not tragic but rather capable of self-management…” (Rose1986 : 749) The important lesson from these studies “is that more solutions exist than Hardinproposed.” (Ostrom et al. 1999 : 278) Strategies for fish feed production must involve economicconsiderations that are not merely a byproduct of competition or simply framed by the choicebetween the tragedy, government regulation or spontaneous self-regulation.



most efficient institutional governance structure to ‘internalize theexternalities,’ by protecting the potential ‘bundle of rights’ for cur-rent and future generations to exert control over the actual orfuture use of scarce ocean fisheries resources, further complicatesour seemingly arduous undertaking. Efficiency is only achieved byseeking an “alternative arrangement capable of bringing about anet gain … judged within the complete framework.”(Werin 2003 :383). As expressed in Principle 2 above, both inter-generationalequity (the rights of future generations to enjoy a fair level of thecommon patrimony) and intra-generational equity (the rights of allpeoples within the current generation of fair access to the currentgeneration’s entitlement to the Earth’s natural resources) needs tobe addressed in such a framework.

A. Law and Economics of Sustainable Development

To incorporate the issues introduced above by the first two ILAprinciples for sustainable development requires us to formulate amethodology that more clearly confronts these distributionalissues and better incorporates the uncertainty of the resilience orpermanent destruction of the ocean fisheries stock as well as theestimated costs to current and future generations, so as to achievethe desired activity level of aquaculture producers. From the per-spective of the economic analysis of law, assuming zero transactioncost (13) and complete information, in the attempt to define sus-tainable development’s optimum entitlement, a socially efficientlevel of an externality will be achieved though the direct privatenegotiations of all stakeholders, regardless of the initial allocationof property right. This idea has come to be known as the CoaseTheorem (Coase 1960). Stavins and Revesz necessarily qualifiedthis theorem to impose three additional conditions to assess

(13) Even Coase, in both his seminal articles (Coase 1937 and Coase 1960) recognized thattransaction costs can be “extremely costly,” noting that “…the assumption … there were nocosts involved in carrying out market transactions … is, of course, a very unrealistic assump-tion” and could prevent efficient bargaining. Coase further noted in his Nobel Lecture (1991) theexistence of transaction cost “implies that methods of co-ordination, alternative to the market,which are themselves costly and in various ways imperfect, may nonetheless be preferable torelying on the pricing mechanism, the only method of coordination normally analy[z]ed by econ-omists.” Further, as Stavins and Revesz (2007 : 503) observed, “[w]hen transaction costs aregreat, the choice of legal rule will affect the amount of pollution and hence the level of socialwelfare.” See also Polinsky (1974) who highlights the limitations of market based solutions andTalley (1994) who in pursuing another approach finds that, generally, legal rules that best mit-igate the effects of transaction costs are often the most efficient.



whether there are zero transaction costs : (1) no wealth or incomeeffects (14), (2) private goods (15), and (3) no third-party impacts(Stavins and Revesz 2007 : 503). As they observed, “at least someof these conditions (most typically, the [second and third]) areunlikely to hold in the case of most environmental problems.”Thus, despite the apparent promise of the Coase Theorem, as inour case “private negotiation will not – in general – fully internal-ize environmental externalities.” (Stavins and Revesz 2007 : 503).Although the Coase Theorem’s falls short of meeting the criterianeeded to fully internalize the distributional issues and uncer-tainty of ocean fisheries stock depletion through direct bargaining,one issue the theorem does help focus attention on is that there aresignificant transaction costs involved in the implementation of sus-tainable development.

To remedy this failure many law and economics theorists haveleaned towards leaving concerns regarding transaction cost relatingto distributional issues outside the framework of the efficiencymodel (Kaplow and Shawell 2001). Yet, as Calabresi and Melamedacknowledged, “[d]ifficult as wealth distribution preferences are toanalyze, it should be obvious that they play a crucial role in thesetting of entitlements.” (Calabresi and Melamed 1972 : 1098) Dis-tributional considerations matter (Sunstein 2004) and clearlyremain central (Rose-Ackerman 1994). In grappling with these dif-ficult distributional issues, generally, what have been termed mod-els of neoclassical (weak) sustainability assume properties of inputsubstitution (i.e. raising salmon on feeds not derived from threat-ened fish stocks) and technological progress (16) that will make itfeasible to sustain the needs of future generations despite finiteresource constraints (Revesz 1999). A discount rate is typically cal-culated to estimate this phenomenon and as long as the future isnot discounted too rapidly (Revesz 1999), it will remain optimal.However, the choice of the discount rate to be employed in an anal-ysis can be difficult, particularly where impacts are spread across

(14) Robert Stavins and Richard L. Revesz define this as “when the size of the payments issufficiently small relative to the firms’ or individuals’ incomes or wealth that payment andreceipt has no effect on respective supply and demand functions.” (Stavins and Revesz 2007503 footnote 3 :).

(15) In their interpretation, Stavins and Revesz specifically exclude ‘public goods.’(16) For an extensive review of the major economic literature on sustainable development, see

Pezzey and Toman in Tietenberg and Folmer ed. 2002/2003.



the span of generations (17). Stavins and Revesz conclude that“[c]hoosing an intergenerational rate is difficult, because the prefer-ences of future generations are unknowable, and ethical questionsarise about trading off the well-being of future generations.”(Stavins and Revesz 2007 : 509). However, this ‘cornucopian’approach of relatively elastic substitutability is often criticized as amore utilitarian perspective on intergenerational distribution bystrong sustainability advocates (Pezzey and Toman 2001).

Conversely, the ‘catastrophist’ approach of strong sustainabilityadvocacy such as ecologists, social theorists and many others out-side the neoclassical economics subscribe to versions of absolutelimits to input substitution in the face of finite resource constraintsand emphasize rights-based theories of intergenerational equity orbroader notions of distributive justice that “result in stewardshipobligations for the current generation to preserve options over time.These obligations assume particular importance when there isuncertainty about the future resilience or viability of natural sys-tems.”(Pezzey and Toman 2001 : 58).

Under closer scrutiny, even these expanded definitions of sustain-able development that attempt to incorporate some form of distri-butional consideration, still have notoriously elusive policy clarity.Absent a clear methodological foundation for sustainable develop-ment, interest groups are left to formulate or adopt their own inter-pretations of this supposition, leaving it susceptible to enslavementby their own value judgments. Disentangling the various interpre-tations of sustainability and clearly addressing the inherent uncer-tainty that lies at the core of the trade-offs is essential in adoptinga definition that can be universally seen to maximize the welfare ofboth current and future generations.

B. Can Sustainability Be Efficient?

The cornerstone of sustainability’s efficiency is the question ofwhether distributive concerns can be incorporated. The question ofdistributive concerns’ effect on efficiency is certainly not new. Nine-teenth and early twentieth century economists and philosophersdeveloped paradigms of welfare that required that all affected indi-

(17) Revesz (1999 : 947), quoting Clifford S. Russell, “‘Discounting Human Life’ (Or, theAnatomy of a Moral-Economic Issue)”, Resources, Winter 1986, at 8.



viduals had to be taken into account for any evaluation of socialwelfare to be validated. In 1896, Vilfredo Pareto conceived of whatis now know as the Pareto efficient criterion prescribing that if atleast one person is made better off, no other person is to be madeworse off (Pareto 1897). Although appealing as a method to addressdistributive concerns, from a policy perspective it proves to be anuntenable criteria for improvements in social welfare since itrequires full consensus for policy changes to be made. Invariably,few public policies can achieve this goal, as inevitably some willgain while others will lose, leaving the status quo to prevail.

In 1939 Nicholas Kaldor (1939) and John Hicks (1939) independ-ently formulated the potential Pareto improvement or Kaldor-Hicksefficiency criterion providing support for any policy where gainersgain more than the losers lose, namely, the positive differencebetween benefits and costs is greatest. This is considered a ‘potentialPareto improvement’ when this condition is satisfied, because thegainers can, in principle, compensate the losers. However, compen-sation does not actually have to be made, even though it is possible,in principle. In the more utilitarian and libertarian leaning schoolsof law and economics, this approach has enjoyed great popularity,but how to compensate the losers in this two step process is oftenignored (18).

Although often referred to as positive in its evaluation, it alsosuffers the same limitations inherent in normative analysis by rely-ing on a set of value judgments imbedded within its cost-benefitcalculation (19). As with interest groups being left susceptible toenslavement by their own value judgments of sustainable develop-ment, Kennedy argues “… that Kaldor-Hicks provides a rhetoricwithin which liberals debate conservatives, rather than an analyticsufficiently determinate to solve the legitimacy problem …”(Kennedy in Newman ed.1998 : 471) Sunstein contends that “regu-lators must make difficult and often speculative judgments...” (Sun-stein 2004 : 2) and often are found favoring an emphasis on the cost

(18) Often considered the main founder of the utilitarian ideology, Jeremy Bentham held thatthe greatest happiness of the greatest number, put forth in his essay “An Introduction to thePrinciples of Morals and Legislation,” (1789) establishes the ideological underpinning of a moralcalculus for judging the value of a pleasure or a pain in terms of a quantifiable summation ofindividual utilities under a single metric.

(19) For a range of critiques of cost benefit analysis methods and value judgments see Revesz(1999), Ackerman and Heinzerling (2003), Sunstein (2002).



with its own empirical challenges, and belittling benefits for the “…identification of benefits presents even harder empirical problems -- and knotty normative and conceptual ones as well.” (Sunstein2004 : 2). Hence, even this so called positive approach involves agreat degree of judgment, conversion and arbitrary guesswork.

Failing to focus on the inherent normative nature underlyingcost-benefit assumptions, including their distributional implica-tions, there has been a general tendency by many liberal law andeconomics practitioners to undertake a two-stage optimization inthe development of models for governance (Parisi 2004). The firststage being, the assumption of a puritanical cost-benefit analysisand the second, deferring to the tax system to address distribu-tional concerns. This separation often has been rationalized byfocusing on the costs of using the legal system as an instrument fordistribution (20), and idealizing presumed advantages (and assumeduse) of the tax system as an effective and efficient tool for wholesaleand just reallocation of wealth without considering the cost of theinstitutional failures of the tax distribution system and the hiddencosts of the distributional implications underlying cost-benefitassumptions. This reliance on a model for the potential ‘separatebut equal’ (21) distribution by the winners of the efficiency gains tocompensate the losers arguably has a greater potential to facilitatethe unequal and lesser distribution of gains when separated fromthe efficiency criteria.

C. The Economic Rationale for Distributive Justice

Abandoning the illusion of an unadulterated cost-benefit frame-work, other paradigms depart from this utilitarian rooted approach,suggesting that social efficiency requires something more than themaximization of total payoffs to the gainers in society over the los-ers. Undeniably, the philosophical foundations of sustainable devel-

(20) As championed by Kaplow & Shavell (1994); Kaplow and Shavell (2001 : 992-3) arguethat the two stage approach is preferred because, (1) as a matter of analytical convenience, (2)many legal rules probably have little effect on the distribution of income and (3) distributionalobjectives can often be best accomplished directly, using the income tax and transfer (welfare)programs.

(21) This phrase is associated with the legitimization of segregation laws, upheld by the U.S.Supreme Court by Plessy v. Ferguson 163 U.S. 537 (1896), but was finally outlawed in the USby Brown v. Board of Education, 347 U.S. 483 (1954). In practice in the US and through apart-heid in South Africa, among other examples, the quality of services and facilities were found tobe lower for non-whites than those reserved for whites.



opment’s distributional goals are deeply rooted in the Western uto-pian visions of much earlier writers such as Plato, Thomas Hobbes,Jeremy Bentham and Jean-Jacques Rousseau who developedaspects of distributive justice arising from a social contract. Someearly progressive law and economic scholars, such as Robert Hale,Thomas Hill Green, Richard Ely and John Commons, among othersmaintained that the central concern of government was “the properdistribution of income.” (22) This line of reasoning has been in an on-going process of developing a foundation for a sustainable ideologythrough more contemporary theorists of distributive justice such asJohn Rawls, Robert Nozick, Amartya Sen, Ronald Dworkin, JohnRoemer, and others such as John Harsanyi, Ken Binmore andDavid Gauthier who more directly incorporate distributive justiceinto bargaining theory, guided by the historical landmarks ofArrow’s models of the aggregation of preferences and Nash’s bar-gaining concepts of non-cooperative games.

In John Rawls’ groundbreaking work, A Theory of Justice (23),individuals veiled by ignorance of the knowledge that may biasthem toward their future social advantage or disadvantage, willadopt the principle that justifies a redistribution to the least advan-taged. These risk adverse individuals will opt for this redistributionof wealth because they might turn out to be among those who areleast advantaged when the ’veil of ignorance’ is lifted. Oftenreferred to as maximize the minimum, or ‘maximin’ strategy.Whereas egalitarian social welfare functions require that all mem-bers of society receive equal amounts and utilitarian social welfarefunctions rely on the maximization of the total utility (essentiallya measure of value or preference) of all members of society, theRawlsian social welfare function seeks to maximize the utility ofthe least well-off individual (Pindyck and Rubinfeld 2001). Theshortcoming of this rationalization of the redistribution of wealth,as argued by Robert Nozick, is that it will not only validate redis-tribution of gains from unequal wealth, it will also unjustly redis-tribute gains from the use of an individual’s talents (Nozick 1974).Amartya Sen refined the distributive justification by approaching

(22) Fried (1998 : 34), citing James Kloppenberg’s Uncertain Victory : Social democracy andProgressivism in Europe and American Thought, 1870-1920, 311 (1986).

(23) See Rawls (revised edition 1999). See also Michelman’s interpretation of Rawls’ “fair-ness”and his assertion that apparent evenhandedness of the utilitarian approach may also beunderstood as requiring a form of fairness. (Michelman 1967 :1226).



wealth in terms of the capability to attain a fair share of resources(Sen 1999). In the same vein, much earlier Thomas Hill Green refor-mulated the classic notion of liberty by replacing ‘…freedom as for-mal license to pursue one’s desires with freedom as the functionalpower to achieve them.’’ (24) Ronald Dworkin builds on this refine-ment of Rawls’ idea and distinguishes between a person’s prefer-ences and his resources, arguing that people should be held respon-sible for their preferences but not their resources. (Roemer 2002citing Dworkin 1981a et 1981b) Expanding on this proposition Roe-mer defines “…the outcomes individuals sustain are the conse-quence of circumstances, effort, and policy, where circumstances areaspects of an individual’s environment and actions which are eitherbeyond his control, or for which we (society) wish not to hold himresponsible….” (Roemer 2002 : 19) For our purposes we will focuson the consequences of circumstances of the natural environmentthat would be beyond the control of third party and future gener-ations to embody the distributive justification, for crafting a bench-mark for wealth of natural resources (25).

It is from this refinement of Rawls’ distributive justice theorythat we turn to John Nash’s framework rooted in the von Neu-mann-Morgenstern theory of utility, but in stark contrast to theiruse of a cooperative paradigm for decision-making. Nash envisionedthe social welfare function as a result of a different type of bargain-ing, a game of non-cooperation, where the “possibility … of coali-tions, communication, and side-payments” among the parties isimpeded (Nash 1950a : i) and in which the bargaining model leadsto the maximization of the mathematical product of the parties’utilities (Nash 1950b). “The Nash collective utility function emergesas a sensible compromise between the egalitarian and classical util-itarian ones.” (Moulin 2003 : 65) He derived the grand product fromthe chain of products of all the utilities. Hence, very small numbersdrive down the total, leading to a strong tendency to equality. Per-fect equality will maximize wealth. The intuition that the well

(24) Fried (1998 : 44), citing Thomas Hill Green, On the Different Senses of ‘Freedom’ asApplied to Will and to Moral Progress of Man (1879), II Works 308, 323 (3rd ed. 1893) repro-duced as “Senses of Freedom” in The Political Theory of T. H. Green 75, 88.

(25) Roemer and others object to the use of bargaining theory to rationalize concepts of justice.Although concepts of justice and sustainable development are related, in my view, using the ILAlegal definitions, cited above, provide a more limited set of parameters that could potentially bemanageable within the bargaining model. See Roemer (1986 : 88-110) for a detailed discussionof his arguments.



being of a society is judged according to the well being of its weak-est members is captured by the use of an algebraic product toaggregate individual preferences; like the strength of a chain isdetermined by the strength of its weakest link, so the chain of prod-ucts in an algebraic multiplication is heavily affected by its smallestmultipliers (Parisi 2004).

It is from within this framework that distributive concerns canbe efficiently included, hence validating sustainability’s efficiency,by the use of the algebraic product to aggregate current and futuregenerations’ wealth of natural resources. When the welfare levels ofdifferent persons are compared, “the trade-offs inherent in the addi-tive [welfare functions] are unacceptable… [a] different criterion,one more protective of individual rights as in the multiplicative[welfare functions, such as the Rawls-Nash criteria], is required…”(Mueller 2003 : 580) This means that for aquaculture feed govern-ance to be efficient, as framed by the Rawls-Nash efficiency crite-ria, the social welfare function of current and future generations’natural resource base beyond the control of each generation mustbe maximized by using the product of the societal stakeholders’utilities (or wealth.)

A simple illustration will help to emphasize and provide a basefor comparison of the three efficiency criteria discussed :

Note : Geno endowment assumed to be 5.

CHART 1 : Sustained Natural Resource Base Alternatives

Geno Gen1 Gen2 GennPareto

Max Wi

K-H Max 6 Wi

Rawls-Nash Max 3�Wi

Sustained NaturalResource Base

5 5 5 5 Yes, Egality 6 = 20 3�= 625

Alternative (A) 5 12 3 0No Gen2 and Genn worse off

Same6 = 20

No3 = 0

Alternative (B) 5 3 6 6 No Gen1 worse off Same6�= 20

No3 = 540

Alternative (C) 5 6 4 5 No Gen2 worse off Same6 = 20

No3 = 600

Alternative (D) 5 8 2 6 No Gen2 worse off Yes6 = 21

No3 = 480

Alternative (E) 5 7 3 6 No Gen2 worse off Yes 6 = 21

Yes 3 = 630

Alternative (F) 5 6 5 5 Yes Yes 6 = 21

Yes 3 = 750



Whereas, the Pareto criteria favors the status quo and only advo-cates policy change when a generation is expected to gain withoutcausing other generations to have their endowment lessened and theKaldor-Hicks criterion explicitly ignores distributional concernsand seeks only to maximize the summation of the raw expectedendowment for each generation (as seen in Alternatives A, B and C,or greater than the existing natural resource base, as in Alterna-tives D, E and F) (26). By contrast, the Rawls-Nash criteria requirestwo conditions to be met : (1) that a true expected increase in wel-fare is obtained over the existing natural resource base and (2) thatthere is only a small deviation in the endowments of each genera-tion, only met in Alternatives E and F. Otherwise the status quo ispreferred. This would imply that such real world scenarios as theoverexploitation of the natural resource base by one generation tothe point of extinction, as depicted in Alternative A, or overexploi-tation that eventually corrected itself (through natural or futuregenerational ingenuity), as depicted in Alternatives C, and even ifoverexploitation were eventually to lead to an expansion in the nat-ural resource base under the stewardship of some future generation,as depicted in Alternative D, still would not be acceptable underthe Rawls-Nash criteria. Interestingly, even voluntary depravationby an altruistic generation that eventually leads to an expansion ofthe resource base fails the Rawls-Nash criteria, as shown in Alter-native B (27). Only if there is a true expected increase in welfare overthe existing natural resource base and only a small deviation in theendowments for each generation will the Rawls-Nash criteria bemet, with the maximum reached when full generational egality ismaintained.

At this stage the focus will be placed on the product of the nat-ural resource wealth of each generation as proxy for their utilityin that natural resource base, thus redefining sustainabilitytoward an economic ‘middle way,’ as suggested by the Rawls-Nash economic criteria. By doing so the ‘middle way’ has a

(26) To see a more complete technical representation and development as well as broader inter-pretations of bargaining theory please see : Gauthier (1986); Harsanyi and Selten (1972);Binmore (1989 : 84-102); Harsanyi (1987) and (1975).

(27) Even strategy combinations completely satisfying the Nash equilibria may contain irra-tional strategies. An important distinction between perfect and imperfect Nash equilibria, asdeveloped by Reinhold Selten as subgame-perfect equilibria, excludes imperfect Nash equilibriacontaining irrational strategies (Harsanyi and Selten 1972 : 75).



greater capacity to take into account the distributional issues butavoids the difficult, if not impossible, problem of finding an objec-tive measure of utility directly (28). This approach seems also tobetter directly incorporate the distributional concerns of thestated policy goal of meeting the needs of the present generationwithout compromising the ability of future generations to meettheir needs. Choices driven by pragmatic or methodological con-siderations such as the one developed here hold greater sway andlead to a clearer conceptual foundation for sustainable develop-ment and other policy goals than those choices based on ideolog-ical commitment (29).

D. Striving for Optimal Aquaculture Sustainability UnderUncertainty

Recall that the environmental impact of current production andconsumption activities of the natural resource base occur in thefuture and at times quite far away in the future, leading to, onoccasion, irreversible impacts, and always under uncertainty. Pre-sumably, there are at least four main categories of uncertainty : (1)the uncertainty regarding the changing generational preferences(although hard to imagine, our future generations may have littleappetite for fish or interest in their surrounding oceanenvironment); (2) the uncertainty regarding the resilience of thenatural resource base; (3) the uncertainty of the substitutabilitythrough technologies given future constraints on economic activity;and (4) the uncertainty regarding the human causation of damageattributable to a party.

The question then evolves to whether our new criteria for sus-tainable development can reap efficient solutions in the face of

(28) Caution must be taken when using the maximization of the product of utility directly, asit can double count and over stress the interdependencies of individual utility. However, giventhe diminishing marginal utility of wealth, it may be appropriate when there are network exter-nalities and/or interdependent utility functions are present.

(29) Even such often-cited cost-benefit theoreticians of law and economics, as Shavell andKaplow agree that “…legal rules should be selected entirely with respect to their effects on thewell-being of individuals in society.” Their conception of welfare economics of individuals’ wellbeing is a comprehensive one. “We defend not this popular conception of the normative economicapproach, but rather the encompassing framework of welfare economics.” They conclude thatthere is no tension between their “… accepting the legitimacy of distributive judgments withinwelfare economics...” and distinguish this internal assessment from external conceptions of fair-ness, (Kaplow and Shavell 2001 : 968 and 989).



uncertainty, instilling incentives for the efficient deterrence of thedegradation of the natural resource base. Therefore, appropriateattitude toward risk must incorporate. From an economic perspec-tive, every reduction of each generation’s utility level caused bythe enterprise’s actions could be regarded as damage. When thereis uncertainty about future events, an ex ante measurement of well-being, "expected utility" of the societal stakeholders is used andrefines the theory of how utility represents each generation’s pref-erences, incorporating the value of protection against risk (30).“…[T]he ‘feel’ of risk aversion is produced by the restriction onreversibility.” (Arrow and Fisher 1987 : 318) Equally, given thenarrow deviation allowed, the Rawls-Nash criteria tend towardrisk aversion. Using expected utility of current and future stake-holders meets the requirement of Principle 3, the precautionaryapproach to human health, natural resources and ecosystems;where activities may cause serious long-term or irreversible harm,the burden of proof is placed on the person or persons carrying out(or intending to carry out) the activity. Hence, adopting theRawls-Nash criteria shifts the burden of proof regarding uncer-tainty from third countries for the protection of their ecosystems,ex post, to the enterprises wishing to produce fish meal and fish oilmade up of these threatened fish stocks, ex ante, holding themresponsible for significant deviations to the fish stock. This toolalso helps us model our first concern regarding uncertainty, that is,the uncertainty regarding changing generational preferences andsets the standard for how an ex ante environmental impact assess-ment should be evaluated.

Recall, the second and third type of uncertainty : how to addressthe resilience or permanent destruction of the ocean fisheries stockand the uncertainty of substitutability through technologies. “Theexpected value of benefit under uncertainty is seen to be less thanthe value of benefit under certainty.” (Arrow and Fisher 1987 : 317)This finding affects the expected value of technological substituta-bility, given the uncertainty of future constraints on economicactivity. As with most major environmental issues, discussing sus-tainability inevitably involves aspects of long-term decisions that

(30) Expected utility refers to the sum of the utilities associated with all possible outcomes,weighted by the probability that each outcome will occur for the well-being of each generation’scapability in its natural resource base (Kaplow and Shavell 2001).



are particularly susceptible to uncertainty (31). Freeing ourselves ofthe constraints of the cost-benefit mentality, incorporating distribu-tional concerns and assessing potential cost spanning into the dis-tant future requires a different paradigm of ‘stewardship.’ An exante environmental impact assessment becomes the center of theprotective tool offered to stakeholders. The producers can berequired to identify and respond to communities of interest withintheir functional form (32), by having the obligation to share the envi-ronmental impact assessment with these stakeholders to convincethem of the sufficiency of the producer’s care and activity levelsafeguards. If stakeholders are unconvinced, no change in activitycan take place. If the aquaculture feed producers are able to con-vince the stakeholders but fail to have perfect information as to theresilience or damage threshold of ocean resource flows and techno-logical substitutability, they can still be held responsible for signif-icant deviations to the fish stock. The risk adverse societal stake-holders’ expected utility is therefore required to be adopted byproducers in the environmental impact assessment.

The fourth concern to be addressed in testing our optimal rule isthe uncertainty of the human causation of damage. Nature itselfmay alter the resource base (relating to its resilience to naturalevents) for the aquaculture feed producers and societal stakehold-ers. One important observation regarding adopting the Rawls-Nashcriteria as our utility standard for a sustainable development policyis that it alters the requirements for causation. Under the Rawls-Nash criteria, the burden is placed less on societal stakeholders andmore on feed producers in order to subsume within the efficiencycriteria the expected concerns of future generations. Given thatmaintaining the status quo is the rule for the maximization of wel-fare (or directly in terms of utility) under the Rawls-Nash criteria,producers also must show that their activity and care level is notthe proximate cause of any deviation from the existing natural

(31) Farber concludes that “[g]iven the nature of complex dynamic systems, long-term predic-tion may be fraught with irreducible uncertainties. Instead, we often must seek some kind ofhealthy relationship between humans and ecosystems….within some kind of acceptablebounds…” (Farber 2003 : 880).

(32) Étienne Le Roy provides three appealing challenges in the identification of communitiesof concern to ‘patrimonial governance,’ of which I find two relevant to this paradigm, adaptingthem to set a further benchmark to test the soundness of the model : 1) the need to identify thediversity of the interests and 2) the conception of a functional design of the community. (Le Roy2008 in this volume).



resource base without producing a net gain with minimal distribu-tional effects on future generations. As Arrow and Fisher point out,the destruction of the natural resource base may be a “technicallyirreversible development [and] could be characterized as one thatwould be infinitely costly to reverse.” (Arrow and Fisher : 1987 :315) They add, “if we are uncertain about the payoff to investment,we should err on the side of underinvestment, rather than overin-vestment, since development is irreversible. Given an ability tolearn from experience, underinvestment can be remedied before thesecond period, whereas mistaken overinvestment cannot, the conse-quences persisting in effect for all times.” (Arrow and Ficher 1987 :317).

It is important to keep in mind that the burden of a risk is alwaysborne somewhere, or more precisely, with someone (often less devel-oped third countries or future generations in the case of environmen-tal damage). These third parties are left to bear the brunt of an envi-ronmental risk. Without a clear EC policy, as Arrow recognized,through the power of taxation, governments ultimately transferrisks to each citizen (Arrow in Dionne and Harrington 1992). Thesecitizens may be the least advantaged and/or the least capable ofaltering the risk to the ecosystem. Principle 4 imposes the duty onStates to ensure sustainable use of natural resources. It places onthem the responsibility to ensure that activities within their juris-diction or control do not cause significant damage to the environ-ment of other States or of areas beyond the limits of national juris-dictions. Thus, the ex ante environmental impact assessment againbecomes the center of the protective tool offered to stakeholders. Byredefining sustainability, as suggested by the Rawls-Nash efficiencycriteria, EC reforms to avoid external damage to third parties wouldbe better positioned to incorporate the risk profiles of stakeholdersof interest within its initial assessment.

V. – The ‘Middle Way’ to Sustainability

In 1936 Marquis Childs published “Sweden : The Middle Way”where he observed a political movement lead by Gunnar Myrdal (33),

(33) Graduating from Stockholm University with both a law degree and a PhD. in Economics,he is considered a father-figure of social policy and social democratic thinking. See Myrdal (1960).



Alva Reimer Myrdal (34), and others who advocated a middle waybetween raw capitalism (some refer to as bourgeois liberalism) andstate socialism or collectivism (Childs 1936). Finding a middle waybetween utilitarian (or libertarian) and egalitarian social welfare, orthe tragedy of unfettered consumption of open access resources andan absolute prohibition of activities, is the balance that the Rawls-Nash criteria for sustainability endeavors to strike. It also makes amodest effort to translate, as I adapt François Ost’s contribution tothis collection (Ost 2008 in this volume), beyond our own social,cultural, intellectual and even disciplinary fortresses, so that we canbegin to be heard across the barriers that separate us, as well astakes a first step to translate non-cooperative games theory to thereal world challenges of sustainable development.

This contribution offers a novel approach to add to concepts ofphilosophy and the economic analysis of law of environmental gov-ernance, meeting the criteria set down by the Johannesburg Sum-mit and the Brundtland Commission on sustainable development,by implicitly incorporating distributive justice concerns within thesocial welfare function. The theory presented postulates thatRawls-Nash efficacy criteria can better manage the distributionalconcerns, uncertainty, preventative incentives and causation ofdamage attributable to salmon aquaculture and feed producers bylimiting the deviation from the current natural resource base byrequiring producers to maximize the mathematical product of cur-rent and expected future generations’ natural resource bases. Some-one, somewhere, at sometime will bear the cost of the risks that aretaken. Abel argues that, the “… primary objective ought to be tocontrol risk; compensation and punishment must be subordinate.”(Abel 1982 : 695) It is the goal of economic analysis of law to findand strive for the most efficient management of these risks, namely,to provide the correct incentives to the parties. By adopting theRawls-Nash criteria as its standard for sustainable development,the Commission may have a better chance of subsuming and resolv-ing the web of competing policy interest served by the EC Treatywithin the calculus of this law and economic methodology thatdirectly accounts for distributional issues. It may also provide the

(34) Ms. Alva Reimer Myrdal was one of the main driving forces in the creation of the Swedishwelfare state. See Reimer Myrdal with Gunnar Myrdal (1934).



ex ante legal incentives to avoid damage, shifting the burden ofproof and uncertainty to the party most able to affect the risk, andabandoning the cost-benefit approach. Thus, it would betterembody the intent and spirit of the CFP. The hope is that the newuse of the Rawls-Nash efficiency criteria may establish a frameworkfor a more in-depth discussion of the role the economic analysis ofenvironmental legal policy could play in safeguarding the welfare ofcurrent and future generations.

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A SUSTAINABLE ‘MIDDLE WAY’ TO ECONOMIC RESPONSIBILITY IN ENVIRONMENTAL GOVERNANCE : THE CASE OF...

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