If a factory pollutes a river, leading to a decline in fish populations, what is the primary underlying cause of this environmental issue in economic terms?

The main economic problem is that the factory creates a negative externality: it produces pollution that hurts the river and fish, but it does not pay for the damage it causes. Because the factory does not bear those costs, it is free to pollute more than would be socially optimal. This mismatch between private cost and social cost leads to over‑pollution, reducing fish populations. For example, a textile plant may dump dye into a stream; the plant saves money by not cleaning up, but the local fishermen lose income as the fish die. Thus, the underlying issue is the failure to internalize the external costs of pollution.