The Welfare Effects of Hypoxia in the North Carolina Brown Shrimp Fishery

It is well known that hypoxia undermines the ecosystem functions of estuarine and marine environments. However, understanding the economic effects of hypoxia is critical to evaluating consequences for marine resources and fisheries. The Neuse River estuary, with increasing levels of anthropogenic nutrient loading from waste water treatment plants and confined animal feeding operations, has historically experienced periods of severe hypoxia. This estuarine ecosystem also provides essential nursery habitat for North Carolina’s most important commercial shrimp species, the brown shrimp (Farfantepenaeus aztecus). Previous research has shown a causal relationship between severe levels of hypoxia and increased mortality and avoidance behavior among fish and crustacean species. Furthermore, moderate levels of hypoxia have been associated with reduced metabolism and growth rates in brown shrimp. This research estimates the economic effect of hypoxia induced habitat degradation on the North Carolina brown shrimp fishery through econometric modeling of supply and demand. Based on this analysis, the demand for NC brown shrimp appears perfectly elastic and determined mostly by the world market, and that the supply is inelastic, determined by environmental factors. Furthermore, a hypothetical 30% reduction in hypoxic days would increase producer surplus by almost $2.5 million annually. This suggests that in this overcapitalized fishery, reductions in hypoxia could be a valuable mechanism to increase rents to fishers, assuming further entry is prohibited. These results also highlight the need for a continued focus on whole ecosystem based management regarding North Carolina fisheries, and greater alignment of land use policy and fishery habitat conservation goals in the Neuse River estuary.