Water pollution would be less of a problem at TGCH Lagoon had the lagoon been zoned and its privatisation
regulated to keep natural waterways open. Retrospective zoning will require expropriation of shrimp farms or parts
of shrimp farms blocking these waterways. Market related compensation would no doubt help to expedite this
process, and so improve the water quality as less waste would accumulate near the shrimp farms and overload the
absorptive capacity of the local ecosystem. However, this would not eliminate the pollution and disease problems as
farmers will continue to over-utilise the lagoon water while it remains an open access resource.
In theory, pollution could be addressed by imposing physical restrictions on stocking rates, by introducing
market-based pollution abatement instruments, or by altering property rights to the lagoon water. Physical
restrictions include limits on production (output quotas), on inputs used (input quotas) or on the amount of pollution
discharged (pollution permits). Market-based measures refer to instruments like input taxes, output taxes, pollution
taxes, tradable output or input quotas, and tradable pollution permits. The environmental outcomes of non-tradable
and tradable quotas are the same as they both dictate limits on production. They also entail similar challenges in
monitoring and enforcing. However, transferable quotas are expected to result in better allocative efficiency over
time as they impose an opportunity cost on less effective farmers who stand to earn more by selling or leasing their
quotas to more effective farmers. To better realise these allocative efficiency advantages, input and output quotas
should be detached from farmers’ rights to the lagoon water and lagoon bed. In the sections that follow, all
references to quotas imply tradable quotas.
Changing the property rights regime refers to either privatisation or ‘unitisation’† *of an open access common
pool resource. Privatising the lagoon water (as opposed to the lagoon bed) is not feasible owing to natural movement
of water through the Lagoon. In addition, privatising the lagoon water to individual shrimp farmers will not
eliminate its over-exploitation if farmers are still able to externalise the cost of pollution by discharging
contaminated water into public waterways. Unitisation is discussed in Section 4.4 as a complementary setting for
market-based instruments.