abstract:This paper aims to profile the potential externality in Taiwanese eel aquaculture. It provides a model to incorporate the negative environmental impact from the eel aquaculture industry. It also answers what the optimal output levels and prices of the Taiwanese eel aquaculture industry should be. Our simulations suggest that the optimal production for Taiwanese eel industry will decrease by 5.71% (9.10%) from the baseline for the period 2001–2005, when the cost of groundwater use (pollution prevention) is internalized. If the costs of groundwater use and water pollution are included, eel production further drops by 14.95%. The optimal prices, regardless of the retail or farm price, are driven up because of the environmental concerns.