Market Impacts of a Toxic Algae Event: The Case of California Dungeness Crab

Perceptions of seafood safety are a known driver of seafood demand, and misinformation about seafood safety has generated documented welfare losses in seafood markets. Welfare losses known as avoidance costs can occur when consumers respond to imperfect information about a contamination event, perceiving a health risk from seafood consumption where one does not exist. Furthermore, contamination events can enable other indirect economic impacts in the form of welfare transfers within the seafood supply chain. Here we explore the indirect economic impacts generated by the prolonged 2015 harmful algal bloom event in California. During this event, harmful algae produced high levels of domoic acid (a neurotoxin), resulting in closures for all commercial Dungeness crab fisheries in California that lasted roughly four and a half months. To estimate the impacts of the event, we investigate whether Dungeness crab prices, both at the ex-vessel and consumer levels, were negatively impacted by the event after the closures were lifted and the crab was declared safe to eat. We find ex-vessel prices fell by at least 9.6% while consumer prices were not impacted. We put forth three competing theories to explain these outcomes and discuss the efficiency and distributional implications of each alternative.