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

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 requires
alternative perspectives in the economic analysis of legal reforms
to encourage sustainable development. The perspective pre-
sented herein, at its core, challenges economic analysis of law
theorists to more fully encapsulate normative issues relating to
sustainable development. This perspective equally challenges
rights-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 the
assessment of value, the process of exchange and the choices
made in the allocation of scarce resources, and this particular
branch of legal theory evaluates the economic ‘efficiency’ of a
legal rule or governing tool that affect these processes. The alter-
native viewpoint offered here evolves from a more progressive
conception 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 of
legal 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
2080577_TRARES.book Page 583 Monday, December 15, 2008 11:44 AM

584 jovita l. de loatch
a law and economic model of sustainability derived as the
Rawls-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 January
2003, the CFP contains provisions for integrating environmental
protection 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 CFP
to encourage “the development of sustainable aquaculture.” (3) The
methodology used herein raises questions regarding the efficiency of
the legal incentives and redress this reform provide to mitigate
environmental damage to external third countries resulting from
EC salmon aquaculture activities and policy. Yet, any evaluation of
this reform effort depends heavily upon the definition of ‘sustaina-
ble’ and how more precise criteria for measuring sustainability
might provide the correct incentives in which the ‘sustainable’ feed-
ing and care of farmed salmon to market weight can be achieved for
the salmon aquaculture production chain. A fundamental query
needs to be made as to what measure can be justifiably used to
evaluate the efficiency of CFP reform with respect to the Commis-
sion’s ultimate goal of “sustainable aquaculture.”
I. – The Dilemma
of 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 market
weight. Aquaculture of herbivorous species, such as carp, has been
practiced 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 at
Stockholm University and dissertation (De Loatch 2006) completed at Centre d’études et de
recherches 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.

economic responsibility in environmental governance 585
to make a significant contribution to the world food supply until
the 1970’s, helping worldwide consumption of fish to nearly double
in 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 imports
into the EC through countries like Norway and Chile, led to dra-
matic price drops for market salmon and helped to spur changes in
consumer preferences away from herbivorous species to carnivorous
species (Eagle et al. 2004). In addition to imports, these changes
have been bolstered by ever-increasing production of farmed salmon
within 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’s
resources than they add to the global stock (Naylor, Goldburg,
Mooney et al. 1998). A common assumption is that all types of
aquaculture 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), this
assumption is considered to be generally valid (FAO 1998). Herbiv-
orous species can reduce the environmental impacts on external
third country fisheries, because they typically do not require wild
fish to be caught and processed for fish feed or fish oil. China and
India’s increased farming of largely herbivorous freshwater fish is
thought 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. estimates
that as much as two to four pounds of wild fish are required for
every pound of farmed carnivorous fish raised on processed meal
(Naylor et al. 2000). Concurrently, the expansion of farmed salmon
supply in the market, in particular, has been a key factor in the
development 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 to
250,000 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, with
carp 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 and
preferences for the health benefits from high omega-3 fatty acid
content, currently unavailable from other sources (Barlow 2002).
Consequently, a third of the world’s wild fish catch is presently
used for manufacturing fishmeal and fish oil (Tacon 2003). Further,
approximately 80% of world wild-caught pelagic fish are reduced to
fishmeal and fish oil (Delgado et al. 2003). As well, nearly half of
world annual production of fishmeal and 80% of fish oil is currently
being used for aquaculture feed. Salmon represent less than 7% by
weight of all aquaculture production, but use 41% of the fish oil
consumed 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–Chilean
system, because the pressure on the small pelagic used for fishmeal
would affect the entire food fish chain; and (b) the poor, because
price increases would take the small pelagic out of their reach”
(World Bank 2004). With the depletion of northern Atlantic and
Baltic fish stocks, the European Community, as well as Norway and
other nations have become increasing dependent on the Chilean and
Peruvian fisheries (5). In Chile’s fisheries “only 4% of the species
studied have no signs of overexploitation, 38% are in an uncertain
stock 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 production
of fish oil and fishmeal and must help to mitigate the trend toward
environmental damage to external third countries’ fisheries.
II. – The Aspirations of CFP
CFP was intended to start a new approach that “integrates the
sustainable 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 fishing
pressure, 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 fish
feed 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 by
outlining its Strategy for the Sustainable Development of European
Aquaculture, where it advised the Council and European Parlia-
ment that “[e]fforts should possibly be oriented to species such as
seaweed, mollusks and herbivorous fish, that are able to utili[z]e the
primary production more efficiently;” (7) but did not explicitly
address the importation of farmed carnivorous fish or production
inputs of fish oil and fishmeal. In addition, the Commission’s intent
for CFP reform in addressing environmental damage to third coun-
tries resulting from Community activities and policy must take into
account “the environmental, economic and social aspects in a bal-
anced manner.” (8) The balance it aims to strike places sustainable
development within a nexus of competing policy interests, including
striving for a high level of employment and the smooth functioning
of the internal market (De Loatch 2006).
The reform admits that “[g]iven that many fish stocks continue
to decline, the Common Fisheries Policy should be improved to
ensure 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, customarily
interpreted as an employment sector, not necessarily the fisheries’
ecosystem. Second, it should be noted that the construction of the
precautionary 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, in
order to achieve its goals the Treaty bases its approach “… on the
precautionary principle and on the principles that preventive action
should be taken, that environmental damage should as a priority be
rectified at source and that the polluter should pay.” Therefore, the
(6) Directorate-General for Fisheries and Maritime Affairs, The European Community External
Fisheries Policy, KL-70-05-188-EN-C, 2005.
(7) Communication from the Commission to the Council and the European Parliament, A
Strategy 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 4
states that “[t]he objective of the Common Fisheries Policy should therefore be to provide for
sustainable 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 (hereafter
the “Treaty”) 24.12.2002, Official Journal of the European Communities C 325/33.

focus on ‘preventative action’ contrasts with the priority of having
the polluter pay for the environmental damage. It introduces some
ambiguity by relying on the presumption that prevention and
remediation shall occur only after the fact that damage has been
established, and not on legal incentives built into the policy instru-
ment to avoid damage in the first instance. How far into the future
one anticipates and acts upon potential damage, as well as the size
and the scope of the damage are critical issues in formulating a pol-
icy of ‘sustainable development.’ Given the web of competing policy
interests served by the Treaty, the approach of cost and benefit
damage assessment for third countries’ resource depletion, and the
lack of legal incentives built into the policy instrument to avoid
damage, 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 the
lack of legal incentives to avoid damage, leaving authorities
dependent on the establishment of causation only after damage has
occurred. Each of these elements poses an economic trade-off that
weighs 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 clarify
the issues related to the specific case of sustainable salmon aquac-
ulture, it is helpful to first devise a workable legal and economic
definition of what is meant by ‘sustainable development.’ By doing
so, finding a middle way between these competing interest and
approaches 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 their
needs.” (10) These policy recommendations harken back to much ear-
lier models, such as the ‘seventh generation’ philosophy of the
Native American Iroquois Confederacy that mandated considera-
tion of the effects of all tribal actions on their descendants through
seven future generations (The Colombia Electronic Encyclopedia
2003).
However, beyond this conceptual understanding, there continues
to be much debate regarding the public policy meaning of ‘sustain-
ability’ (Revesz and Stavins in Polinsky & Shavell 2007). From a
legal perspective, the International Legal Association (‘ILA’) offers
from its New Delhi 2002 conference, the Declaration Of Principles
Of International Law Relating to Sustainable Development (ILA
2002). They include : (1) The principle of integration and
interrelationship; (2) the principle of equity and the eradication of
poverty; 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 to
ensure sustainable use of natural resources by ensuring that activ-
ities within their jurisdiction or control do not cause significant
damage to the environment of other States or of areas beyond the
limits of national jurisdictions (11). By directly using these four legal
definitions as a benchmark, we embark on the development of their
economic embodiment in order to elucidate what should be meant
by ‘sustainable development.’
IV. – Economics of Sustainable Development
Sustainable development’s quest to strike a balance, as outlined
in Principle 1, requires a theoretical economic framework that can
clearly portray not simply an individual benefit, but the interde-
pendence of social, economic, financial, and environmental and
human rights objectives and their interrelationships. In economic
terms, 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, 4
and 1, respectively (ILA 2002).

culture producer is driven to consume fish feed from the open access
ocean fisheries by maximizing their private individual economic
incentives to increase their individual marginal benefits. This
results in high levels of consumption of wild fish derived feed to
produce more farmed salmon, accelerating the depletion of the glo-
bal fish stock. Thus, the individual’s efficiency assessment conflicts
with the socially efficient assessment. This ‘free rider’ problem leads
to, in the case of cost imposition, the under supply of a collective
public good, such as the ocean fisheries resources, through the over
use of these resources (12).
Another economic dilemma posed by carnivorous aquaculture
can be illustrated by Partha Dasgupta’s paradigm in The Control
of Resources (Dasgupta 1982), which portrays an open access fish-
ery in order to discuss problems of common resources and market
failures. “[T]he excessive rates of catch, leading to bio-mass falling
below the species’ threshold level, results in the permanent
destruction of the stock.”(ibidem : 5) This problem radiates from
the inter-temporal misalignment of resources to regenerate stock.
This regenerative flow is complicated by uncertainty even among
experts as to the specific consequences of various fish catch rates.
From a theoretical economic perspective these complications make
the analysis of sustainability of regenerative flow a formidable
task. Notably, “the environmental impact of current production
and consumption activities occur in the future; in some cases quite
far away in the future; it is on occasion irreversible, and always
uncertain.”(ibidem : 11) Thus, the individual aquaculture pro-
ducer’s efficiency assessment not only conflicts with the socially
efficient 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 to
establish norms of self restraint and enforcement) where “… local subsistence fisherman have
strong 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 remedy
common oil pools (like fish stock) depletion. (Libecap and Wiggins 1984) Rose argues that “…a
middle ground between regimes in which the resource is…difficult to privatize…and regimes in
which 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…” (Rose
1986 : 749) The important lesson from these studies “is that more solutions exist than Hardin
proposed.” (Ostrom et al. 1999 : 278) Strategies for fish feed production must involve economic
considerations that are not merely a byproduct of competition or simply framed by the choice
between the tragedy, government regulation or spontaneous self-regulation.

most efficient institutional governance structure to ‘internalize the
externalities,’ by protecting the potential ‘bundle of rights’ for cur-
rent and future generations to exert control over the actual or
future use of scarce ocean fisheries resources, further complicates
our seemingly arduous undertaking. Efficiency is only achieved by
seeking an “alternative arrangement capable of bringing about a
net gain … judged within the complete framework.”(Werin 2003 :
383). As expressed in Principle 2 above, both inter-generational
equity (the rights of future generations to enjoy a fair level of the
common patrimony) and intra-generational equity (the rights of all
peoples within the current generation of fair access to the current
generation’s entitlement to the Earth’s natural resources) needs to
be addressed in such a framework.
A. Law and Economics of Sustainable Development
To incorporate the issues introduced above by the first two ILA
principles for sustainable development requires us to formulate a
methodology that more clearly confronts these distributional
issues and better incorporates the uncertainty of the resilience or
permanent destruction of the ocean fisheries stock as well as the
estimated costs to current and future generations, so as to achieve
the desired activity level of aquaculture producers. From the per-
spective of the economic analysis of law, assuming zero transaction
cost (13) and complete information, in the attempt to define sus-
tainable development’s optimum entitlement, a socially efficient
level of an externality will be achieved though the direct private
negotiations of all stakeholders, regardless of the initial allocation
of property right. This idea has come to be known as the Coase
Theorem (Coase 1960). Stavins and Revesz necessarily qualified
this theorem to impose three additional conditions to assess
(13) Even Coase, in both his seminal articles (Coase 1937 and Coase 1960) recognized that
transaction costs can be “extremely costly,” noting that “…the assumption … there were no
costs 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) the
existence 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 to
relying 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 are
great, the choice of legal rule will affect the amount of pollution and hence the level of social
welfare.” See also Polinsky (1974) who highlights the limitations of market based solutions and
Talley (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 income
effects (14), (2) private goods (15), and (3) no third-party impacts
(Stavins and Revesz 2007 : 503). As they observed, “at least some
of these conditions (most typically, the [second and third]) are
unlikely to hold in the case of most environmental problems.”
Thus, despite the apparent promise of the Coase Theorem, as in
our 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 criteria
needed 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 are
significant transaction costs involved in the implementation of sus-
tainable development.
To remedy this failure many law and economics theorists have
leaned towards leaving concerns regarding transaction cost relating
to distributional issues outside the framework of the efficiency
model (Kaplow and Shawell 2001). Yet, as Calabresi and Melamed
acknowledged, “[d]ifficult as wealth distribution preferences are to
analyze, it should be obvious that they play a crucial role in the
setting of entitlements.” (Calabresi and Melamed 1972 : 1098) Dis-
tributional considerations matter (Sunstein 2004) and clearly
remain 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 input
substitution (i.e. raising salmon on feeds not derived from threat-
ened fish stocks) and technological progress (16) that will make it
feasible to sustain the needs of future generations despite finite
resource constraints (Revesz 1999). A discount rate is typically cal-
culated to estimate this phenomenon and as long as the future is
not 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 is
sufficiently small relative to the firms’ or individuals’ incomes or wealth that payment and
receipt has no effect on respective supply and demand functions.” (Stavins and Revesz 2007
503 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 questions
arise 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 a
more utilitarian perspective on intergenerational distribution by
strong sustainability advocates (Pezzey and Toman 2001).
Conversely, the ‘catastrophist’ approach of strong sustainability
advocacy such as ecologists, social theorists and many others out-
side the neoclassical economics subscribe to versions of absolute
limits to input substitution in the face of finite resource constraints
and emphasize rights-based theories of intergenerational equity or
broader notions of distributive justice that “result in stewardship
obligations for the current generation to preserve options over time.
These obligations assume particular importance when there is
uncertainty 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 enslavement
by 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 adopting
a definition that can be universally seen to maximize the welfare of
both current and future generations.
B. Can Sustainability Be Efficient?
The cornerstone of sustainability’s efficiency is the question of
whether distributive concerns can be incorporated. The question of
distributive concerns’ effect on efficiency is certainly not new. Nine-
teenth and early twentieth century economists and philosophers
developed paradigms of welfare that required that all affected indi-
(17) Revesz (1999 : 947), quoting Clifford S. Russell, “‘Discounting Human Life’ (Or, the
Anatomy of a Moral-Economic Issue)”, Resources, Winter 1986, at 8.

viduals had to be taken into account for any evaluation of social
welfare to be validated. In 1896, Vilfredo Pareto conceived of what
is now know as the Pareto efficient criterion prescribing that if at
least one person is made better off, no other person is to be made
worse off (Pareto 1897). Although appealing as a method to address
distributive concerns, from a policy perspective it proves to be an
untenable criteria for improvements in social welfare since it
requires full consensus for policy changes to be made. Invariably,
few public policies can achieve this goal, as inevitably some will
gain 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-Hicks
efficiency criterion providing support for any policy where gainers
gain more than the losers lose, namely, the positive difference
between benefits and costs is greatest. This is considered a ‘potential
Pareto improvement’ when this condition is satisfied, because the
gainers 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 schools
of law and economics, this approach has enjoyed great popularity,
but how to compensate the losers in this two step process is often
ignored (18).
Although often referred to as positive in its evaluation, it also
suffers the same limitations inherent in normative analysis by rely-
ing on a set of value judgments imbedded within its cost-benefit
calculation (19). As with interest groups being left susceptible to
enslavement by their own value judgments of sustainable develop-
ment, Kennedy argues “… that Kaldor-Hicks provides a rhetoric
within which liberals debate conservatives, rather than an analytic
sufficiently 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 that
the greatest happiness of the greatest number, put forth in his essay “An Introduction to the
Principles of Morals and Legislation,” (1789) establishes the ideological underpinning of a moral
calculus for judging the value of a pleasure or a pain in terms of a quantifiable summation of
individual 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.” (Sunstein
2004 : 2). Hence, even this so called positive approach involves a
great degree of judgment, conversion and arbitrary guesswork.
Failing to focus on the inherent normative nature underlying
cost-benefit assumptions, including their distributional implica-
tions, there has been a general tendency by many liberal law and
economics practitioners to undertake a two-stage optimization in
the development of models for governance (Parisi 2004). The first
stage being, the assumption of a puritanical cost-benefit analysis
and the second, deferring to the tax system to address distribu-
tional concerns. This separation often has been rationalized by
focusing on the costs of using the legal system as an instrument for
distribution (20), and idealizing presumed advantages (and assumed
use) of the tax system as an effective and efficient tool for wholesale
and just reallocation of wealth without considering the cost of the
institutional failures of the tax distribution system and the hidden
costs of the distributional implications underlying cost-benefit
assumptions. This reliance on a model for the potential ‘separate
but equal’ (21) distribution by the winners of the efficiency gains to
compensate the losers arguably has a greater potential to facilitate
the unequal and lesser distribution of gains when separated from
the 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 the
maximization 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) argue
that 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) distributional
objectives 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 US
by 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 to
be 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 developed
aspects of distributive justice arising from a social contract. Some
early progressive law and economic scholars, such as Robert Hale,
Thomas Hill Green, Richard Ely and John Commons, among others
maintained that the central concern of government was “the proper
distribution of income.” (22) This line of reasoning has been in an on-
going process of developing a foundation for a sustainable ideology
through more contemporary theorists of distributive justice such as
John Rawls, Robert Nozick, Amartya Sen, Ronald Dworkin, John
Roemer, and others such as John Harsanyi, Ken Binmore and
David Gauthier who more directly incorporate distributive justice
into bargaining theory, guided by the historical landmarks of
Arrow’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 bias
them toward their future social advantage or disadvantage, will
adopt the principle that justifies a redistribution to the least advan-
taged. These risk adverse individuals will opt for this redistribution
of wealth because they might turn out to be among those who are
least advantaged when the ’veil of ignorance’ is lifted. Often
referred 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 welfare
functions rely on the maximization of the total utility (essentially
a measure of value or preference) of all members of society, the
Rawlsian social welfare function seeks to maximize the utility of
the least well-off individual (Pindyck and Rubinfeld 2001). The
shortcoming 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 and
Progressivism 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 be
understood 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 functional
power 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 2002
citing 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 are
aspects of an individual’s environment and actions which are either
beyond his control, or for which we (society) wish not to hold him
responsible….” (Roemer 2002 : 19) For our purposes we will focus
on the consequences of circumstances of the natural environment
that 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 theory
that we turn to John Nash’s framework rooted in the von Neu-
mann-Morgenstern theory of utility, but in stark contrast to their
use of a cooperative paradigm for decision-making. Nash envisioned
the 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 is
impeded (Nash 1950a : i) and in which the bargaining model leads
to the maximization of the mathematical product of the parties’
utilities (Nash 1950b). “The Nash collective utility function emerges
as a sensible compromise between the egalitarian and classical util-
itarian ones.” (Moulin 2003 : 65) He derived the grand product from
the chain of products of all the utilities. Hence, very small numbers
drive 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’ as
Applied 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 ILA
legal definitions, cited above, provide a more limited set of parameters that could potentially be
manageable within the bargaining model. See Roemer (1986 : 88-110) for a detailed discussion
of 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 to
aggregate individual preferences; like the strength of a chain is
determined by the strength of its weakest link, so the chain of prod-
ucts in an algebraic multiplication is heavily affected by its smallest
multipliers (Parisi 2004).
It is from within this framework that distributive concerns can
be efficiently included, hence validating sustainability’s efficiency,
by the use of the algebraic product to aggregate current and future
generations’ wealth of natural resources. When the welfare levels of
different 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 must
be maximized by using the product of the societal stakeholders’
utilities (or wealth.)
A simple illustration will help to emphasize and provide a base
for comparison of the three efficiency criteria discussed :
Note : Geno endowment assumed to be 5.
CHART 1 :
Sustained Natural Resource Base Alternatives
Geno Gen1 Gen2 Genn
Pareto
Max Wi
K-H
Max Wi
Rawls-Nash
Max Wi
Sustained
Natural
Resource Base
5 5 5 5 Yes, Egality = 20 = 625
Alternative (A) 5 12 3 0
No Gen2 and Genn
worse off
Same
= 20
No
= 0
Alternative (B) 5 3 6 6 No Gen1 worse off Same
= 20
No
= 540
Alternative (C) 5 6 4 5 No Gen2 worse off Same
= 20
No
= 600
Alternative (D) 5 8 2 6 No Gen2 worse off Yes
= 21
No
= 480
Alternative (E) 5 7 3 6 No Gen2 worse off Yes
= 21
Yes
= 630
Alternative (F) 5 6 5 5 Yes
Yes
= 21
Yes
= 750

Whereas, the Pareto criteria favors the status quo and only advo-
cates policy change when a generation is expected to gain without
causing other generations to have their endowment lessened and the
Kaldor-Hicks criterion explicitly ignores distributional concerns
and seeks only to maximize the summation of the raw expected
endowment 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 requires
two conditions to be met : (1) that a true expected increase in wel-
fare is obtained over the existing natural resource base and (2) that
there is only a small deviation in the endowments of each genera-
tion, only met in Alternatives E and F. Otherwise the status quo is
preferred. This would imply that such real world scenarios as the
overexploitation of the natural resource base by one generation to
the point of extinction, as depicted in Alternative A, or overexploi-
tation that eventually corrected itself (through natural or future
generational ingenuity), as depicted in Alternatives C, and even if
overexploitation 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 under
the Rawls-Nash criteria. Interestingly, even voluntary depravation
by an altruistic generation that eventually leads to an expansion of
the resource base fails the Rawls-Nash criteria, as shown in Alter-
native B (27). Only if there is a true expected increase in welfare over
the existing natural resource base and only a small deviation in the
endowments for each generation will the Rawls-Nash criteria be
met, with the maximum reached when full generational egality is
maintained.
At this stage the focus will be placed on the product of the nat-
ural resource wealth of each generation as proxy for their utility
in that natural resource base, thus redefining sustainability
toward 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, as
developed by Reinhold Selten as subgame-perfect equilibria, excludes imperfect Nash equilibria
containing irrational strategies (Harsanyi and Selten 1972 : 75).

greater capacity to take into account the distributional issues but
avoids the difficult, if not impossible, problem of finding an objec-
tive measure of utility directly (28). This approach seems also to
better directly incorporate the distributional concerns of the
stated policy goal of meeting the needs of the present generation
without compromising the ability of future generations to meet
their needs. Choices driven by pragmatic or methodological con-
siderations such as the one developed here hold greater sway and
lead 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 Under
Uncertainty
Recall that the environmental impact of current production and
consumption activities of the natural resource base occur in the
future and at times quite far away in the future, leading to, on
occasion, 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 little
appetite for fish or interest in their surrounding ocean
environment); (2) the uncertainty regarding the resilience of the
natural resource base; (3) the uncertainty of the substitutability
through technologies given future constraints on economic activity;
and (4) the uncertainty regarding the human causation of damage
attributable 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, as
it can double count and over stress the interdependencies of individual utility. However, given
the 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 and
Kaplow agree that “…legal rules should be selected entirely with respect to their effects on the
well-being of individuals in society.” Their conception of welfare economics of individuals’ well
being is a comprehensive one. “We defend not this popular conception of the normative economic
approach, but rather the encompassing framework of welfare economics.” They conclude that
there is no tension between their “… accepting the legitimacy of distributive judgments within
welfare 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 the
degradation of the natural resource base. Therefore, appropriate
attitude toward risk must incorporate. From an economic perspec-
tive, every reduction of each generation’s utility level caused by
the enterprise’s actions could be regarded as damage. When there
is uncertainty about future events, an ex ante measurement of well-
being, "expected utility" of the societal stakeholders is used and
refines 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 on
reversibility.” (Arrow and Fisher 1987 : 318) Equally, given the
narrow deviation allowed, the Rawls-Nash criteria tend toward
risk aversion. Using expected utility of current and future stake-
holders meets the requirement of Principle 3, the precautionary
approach 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 the
Rawls-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 oil
made up of these threatened fish stocks, ex ante, holding them
responsible for significant deviations to the fish stock. This tool
also helps us model our first concern regarding uncertainty, that is,
the uncertainty regarding changing generational preferences and
sets the standard for how an ex ante environmental impact assess-
ment should be evaluated.
Recall, the second and third type of uncertainty : how to address
the resilience or permanent destruction of the ocean fisheries stock
and the uncertainty of substitutability through technologies. “The
expected value of benefit under uncertainty is seen to be less than
the 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 economic
activity. 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’s
capability in its natural resource base (Kaplow and Shavell 2001).

are particularly susceptible to uncertainty (31). Freeing ourselves of
the 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 ex
ante environmental impact assessment becomes the center of the
protective tool offered to stakeholders. The producers can be
required to identify and respond to communities of interest within
their functional form (32), by having the obligation to share the envi-
ronmental impact assessment with these stakeholders to convince
them of the sufficiency of the producer’s care and activity level
safeguards. If stakeholders are unconvinced, no change in activity
can take place. If the aquaculture feed producers are able to con-
vince the stakeholders but fail to have perfect information as to the
resilience 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 by
producers in the environmental impact assessment.
The fourth concern to be addressed in testing our optimal rule is
the uncertainty of the human causation of damage. Nature itself
may alter the resource base (relating to its resilience to natural
events) for the aquaculture feed producers and societal stakehold-
ers. One important observation regarding adopting the Rawls-Nash
criteria as our utility standard for a sustainable development policy
is that it alters the requirements for causation. Under the Rawls-
Nash criteria, the burden is placed less on societal stakeholders and
more on feed producers in order to subsume within the efficiency
criteria the expected concerns of future generations. Given that
maintaining 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 not
the 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 of
healthy relationship between humans and ecosystems….within some kind of acceptable
bounds…” (Farber 2003 : 880).
(32) Étienne Le Roy provides three appealing challenges in the identification of communities
of concern to ‘patrimonial governance,’ of which I find two relevant to this paradigm, adapting
them to set a further benchmark to test the soundness of the model : 1) the need to identify the
diversity of the interests and 2) the conception of a functional design of the community. (Le Roy
2008 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 “technically
irreversible development [and] could be characterized as one that
would 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 to
learn from experience, underinvestment can be remedied before the
second 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 always
borne 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 transfer
risks to each citizen (Arrow in Dionne and Harrington 1992). These
citizens may be the least advantaged and/or the least capable of
altering the risk to the ecosystem. Principle 4 imposes the duty on
States to ensure sustainable use of natural resources. It places on
them 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 again
becomes the center of the protective tool offered to stakeholders. By
redefining sustainability, as suggested by the Rawls-Nash efficiency
criteria, EC reforms to avoid external damage to third parties would
be better positioned to incorporate the risk profiles of stakeholders
of 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 way
between raw capitalism (some refer to as bourgeois liberalism) and
state socialism or collectivism (Childs 1936). Finding a middle way
between utilitarian (or libertarian) and egalitarian social welfare, or
the tragedy of unfettered consumption of open access resources and
an absolute prohibition of activities, is the balance that the Rawls-
Nash criteria for sustainability endeavors to strike. It also makes a
modest effort to translate, as I adapt François Ost’s contribution to
this collection (Ost 2008 in this volume), beyond our own social,
cultural, intellectual and even disciplinary fortresses, so that we can
begin to be heard across the barriers that separate us, as well as
takes a first step to translate non-cooperative games theory to the
real world challenges of sustainable development.
This contribution offers a novel approach to add to concepts of
philosophy 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 the
social welfare function. The theory presented postulates that
Rawls-Nash efficacy criteria can better manage the distributional
concerns, uncertainty, preventative incentives and causation of
damage attributable to salmon aquaculture and feed producers by
limiting the deviation from the current natural resource base by
requiring 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 are
taken. Abel argues that, the “… primary objective ought to be to
control risk; compensation and punishment must be subordinate.”
(Abel 1982 : 695) It is the goal of economic analysis of law to find
and strive for the most efficient management of these risks, namely,
to provide the correct incentives to the parties. By adopting the
Rawls-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 Treaty
within the calculus of this law and economic methodology that
directly 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 Swedish
welfare state. See Reimer Myrdal with Gunnar Myrdal (1934).

ex ante legal incentives to avoid damage, shifting the burden of
proof and uncertainty to the party most able to affect the risk, and
abandoning the cost-benefit approach. Thus, it would better
embody the intent and spirit of the CFP. The hope is that the new
use of the Rawls-Nash efficiency criteria may establish a framework
for a more in-depth discussion of the role the economic analysis of
environmental legal policy could play in safeguarding the welfare of
current and future generations.
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