Efficiency of ITQs in the Presence of Production Externalities
- 1 April 2000
- journal article
- research article
- Published by University of Chicago Press in Marine Resource Economics
- Vol. 15 (1) , 37-43
- https://doi.org/10.1086/mre.15.1.42629287
Abstract
Individual transferable quotas (ITQs) are a form of property rights that can solve the inefficiencies of open-access fisheries and generate a Pareto-optimal market solution in a fishery. Some writers have pointed out that if there are some production externalities in the fishery, ITQs will not be able to generate a first-best solution. In this paper, it is argued that this is incorrect. It is proved that ITQs solve the production externalities associated with crowding, as well as the stock externality they are primarily designed to solve. In a more general setting, ITQs can form a basis for trade in the production externalities and generate a first-best solution. In this case, the contracts for transfer of quotas must include clauses that restrict further sales of quotas.Keywords
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