Don't free that lobster!

Last month, BBC reports that a well-meaning vegan bought a 10.4 kg giant lobster, in order to set it free. While on the surface, this act of inter-species kindness seems like a good idea, if it catches on in a big way and many people do likewise, it is easy to envisage this leading to unintended consequences. Here's how:

Say that the market for lobster (shown in the diagram below) is initially in equilibrium with the price P0 and the quantity of lobster taken from the ocean is Q0. Now, many well-meaning vegans decide to buy lobsters in order to free them. Because there are now more buyers in the market for lobster, this simply increases the demand for lobsters. Increased demand for lobsters (from D0 to D1) increases the price of lobsters (from P0 to P1), and importantly increases the quantity of lobsters caught (from Q0 to Q1). So setting lobsters free actually increases creates incentives that lead to an increase in the quantity of lobsters caught - the opposite of what was intended!

Of course, this is very similar to the problems of slave redemption in the Sudan that I have blogged about before. There is one important difference though, not accounted for in the above diagram. In many countries, the lobster catch is governed by a transferable quota system (which I've written on here and here). Even if demand for lobster increases, the number of lobsters caught cannot rise because fishermen are limited in the quantity that they are allowed to catch. In this case (shown in the diagram below), the quantity of lobster caught does not increase (it stays at Q0), but the increase in demand instead leads to a substantial increase in price (to P2 instead of P1). So, the actions of the vegans cause everyone's lobster meals to be significantly more expensive. Nice.

[HT: Marginal Revolution]