Efficiency Costs of Social Objectives in Tradable Permit Programs

Abstract

Objectives of tradable permit programs are often broader than internalizing an externality and improving economic efficiency. Many programs are designed to accommodate community, cultural, and other non-efficiency goals through restrictions on trading. However, restrictions can decrease economic efficiency gains. We use a policy experiment from the Alaska halibut and sablefish tradable permit program, which includes both restricted and unrestricted permits, to develop one of the few empirical measurements of the costs of meeting non-efficiency goals. We estimate that restrictions are reducing resource rent in the halibut and sablefish fisheries by 25% and 9%, respectively.

Optimal Management Under Institutional Constraints: Determining a Total Allowable Catch for Different Fleet Segments in the Northeast Arctic Cod Fishery

“…The focus does not lie on the political economy considerations that may explain why a fishery is managed suboptimally (Boyce 2004;Johnson and Libecap 1982), but rather on providing second-best management strategies given insti-tutional constraints and corresponding welfare effects. This idea is related to Kroetz et al (2015) who quantify the welfare effects of constraints on quota tradability from the Alaska halibut and sablefish fishery. Their paper empirically disentangles the welfare losses from restricting quota use on specific vessel classes, and having the quota in indivisable blocks, effectively posing a cap on the quota each vessel can hold.…”

Tradable permit programs: What are the lessons for the new Alaska halibut catch sharing plan?

“…Commercial fishers are subject to many limits on ITQ trading that are maintained in the new system, and well cataloged elsewhere [26]. The focus here is on provisions related to the new CSP.…”

“…In Montgomery County, baseline zoning in the 90,000-acre sending area was reduced from 0.2 to 0.04 residential units per acre, which provided a large incentive for property owners to sell their development rights to developers in receiving areas. 26 At the other extreme is the Calvert County TDR. Baseline zoning of Calvert County sending areas was initially not reduced and a very large amount of land -40% of the county's area -was designated as receiving areas where density could exceed the baseline level [29].…”

“…Permit holders' ability to transfer permits across their own facilities or vessels represent the most basic form of trading, and one that is excluded from the table because it is allowed in all of the programs. Though external transfers may allow for greater cost savings when participants are heterogeneous, McCann [28] finds that internal transfers "often involve the least transaction costs, the least uncertainty about legal claims, and no value attached to future scarcity 26 This means that a rural landowner with 100 undeveloped acres could have built 20 units before the downzoning; after downzoning at most 4 could be built or 20 sold. In this example, the rural landowner could supply at least 16 credits to the TDR market, having no incentive to keep them as they have no in situ value, but the program would allow for up to four more credits to be transferred as well.…”

“…As shown in the second columns of Table 2, each class of commercial fisher was free to trade quota with others in his/her class, up to quantity restrictions designed to prevent market power. Trading across classes was restricted to unidirectional trades, giving small operators the flexibility to "fish-down" by using quota designed for larger vessels on their own boats [26]. Under the new CSP, these trading restrictions persist for the commercial sector, but now that the charter sector is regulated with the trading program, a new system of unidirectional trading has emerged.…”