Fishing quota markets

In 1986, New Zealand responded to the open-access problem by establishing the world's largest individual transferable quota (ITQ) system. Using a 15-year panel dataset from New Zealand that covers 33 species and more than 150 markets for fishing quotas, we assess trends in market activity, price dispersion, and the fundamentals determining quota prices. We find that market activity is sufficiently high in the economically important markets and that price dispersion has decreased. We also find evidence of economically rational behavior through the relationship between quota lease and sale prices and fishing output and input prices, ecological variability, and market interest rates. Controlling for these factors, our results show a greater increase in quota prices for fish stocks that faced significant reductions, consistent with increased profitability due to rationalization. Overall, this suggests that these markets are operating reasonably well, implying that ITQs can be effective instruments for efficient fisheries management.     

An agent-based model for simulating trading of multi-species fisheries quota

Individual transferable quotas (ITQs) are increasingly seen as a way to make fisheries more profitable and halt over-capitalisation. ITQs allocate to users of a resource a share of a total allowable catch (TAC) which they are free to use, lease, or sell. We outline an approach to modelling the effect of an ITQ system in a multi-species, multi-sector fishery and apply it to the Coral Reef Fin Fish Fishery (CRFFF) in Queensland, Australia. An ITQ model, based on the assumption that operators seek to maximize profits, simulates the use of tradeable quota units by operators in the fishery, taking account of the initial quota allocation to operators, seasonal fish prices and individual operator variable costs, their fishing efficiency and experience, and constraints on vessel movements. Rationalization of the fishery is predicted to occur under an ITQ system for the CRFFF, which will lead to reductions in effort, increases in profits, and changes over time in quota prices. The ecological consequences of transferable quota in the multi-species fishery are seen in the catch and discard levels of the less profitable species, even though a TAC was set. This had flow-on effects on biomass. For example, simulations showed that the TAC for the primary target species, coral trout, was used more fully than that for a less valuable target species, red throat emperor, and that this was achieved through increased discarding of red throat emperor. Catches of both coral trout and red throat emperor that were derived from the model were higher than those recently observed in the fishery. The effort predicted by the model, however, closely approximated the actual effort observed in the fishery following implementation of ITQ management.     

An experimental analysis of compliance in dynamic emissions markets

Two important design elements for emission trading programs are whether and to what extent firms are able to bank emissions permits, and how these programs are to be enforced. In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions.     

An experimental analysis of compliance in dynamic emissions markets

Two important design elements for emission trading programs are whether and to what extent firms are able to bank emissions permits, and how these programs are to be enforced. In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions.     

Modeling the impact of uncertainty in emissions trading markets with bankable permits

The various forms of uncertainty that firms may face in bankable emission permit trading markets will affect firms’ decision making as well as their market performance. This research explores the effect of increased uncertainty over future input costs and output prices on the temporal distribution of emission. In a dynamic programming setting, the permit price is a convex function of stochastic prices of coal and electricity. Increased uncertainty about future market conditions increases the expected permit price and causes a risk neutral firm to reduce ex ante emissions in order to smooth out marginal abatement costs over time. Finally, safety valves, both low-side and high-side, are suggested to reduce the impact of uncertainty in bankable emission trading markets.     

Equilibrium Prices in a Vertically Coordinated Fishery

Competition among processing firms is analyzed in a fishery that is managed under a total allowable catch constraint. Firms compete first in the ex-vessel market for round fish and then in the downstream consumer market. Nash equilibrium prices are characterized at each stage of the vertical market. When the number of processors is sufficiently large, equilibrium prices are approximately Walrasian. The ex-vessel price is close to the processor marginal valuation of the round fish and the consumer price clears the total quantity of processed fish. Implications for market structure, conduct and performance, and fisheries management policy are drawn.     

Emissions Trading with Shares and Coupons when Control over Discharges Is Uncertain

Two important decisions in designing markets for tradable emissions permits are whether to allow banking of permits (coupons) and whether to allow trading in entitlements to future permits (shares). Banking is predicted to reduce price instability when firms trade in a reconciliation market after the quantity of emissions has been determined. Tradable shares are a common feature in proposals for emissions trading in Canada. We conduct a laboratory experiment to investigate how bankable coupons and tradable shares affect efficiency and prices under uncertainty. Cognitive demands on the subjects are reduced by computerized advice on the optimal allocation of coupons across periods and the implied marginal values of coupons and shares. Banking, share trading, and uncertainty conditions are introduced in a complete factorial design with three observations per cell. High efficiencies are observed across all treatments. Uncertainty in the control of emissions leads to substantial price instability when banking is not allowed. Banking virtually eliminates the instability, but reduces the efficiency of the market institution. Share trading reduces trading volumes, increases price stability, and improves efficiency.     

Budget-Balancing Incentive Mechanisms

A. P. Xepapadeas [J. Environ. Econom. Management20, 113-26, 1991] developed a pollution abatement incentive mechanism that both reduces the information requirements of a regulator and is "budget-balancing," drawing only on the social gains from pollution abatement to encourage firm compliance. This paper demonstrates that, contrary to Xepapadeas, the budget-balancing system of random penalties cannot be used to induce compliance with the regulator′s objectives if firms are risk neutral. However, the mechanism can be successfully applied if firms are sufficiently risk averse [E. Rasmusen, RAND J. Econom.18, 428-435, 1987].     

Incentives and prices in an emissions trading scheme with updating

Emissions trading schemes where allocations are based on updated baseline emissions give firms less incentive to reduce emissions for a given quota (or allowance) price. Nevertheless, according to Böhringer and Lange [On the design of optimal grandfathering schemes for emission allowances, Europ. Econ. Rev. 49 (2005) 2041–2055], such allocation schemes are cost-effective if the system is closed and allocation rules are identical across firms. In this paper, we show that the cost-effective solution may be infeasible if marginal abatement costs grow too fast. Moreover, if a price cap or banking/borrowing is introduced, the abatement profile is no longer the same as in the case with an auction (or lump-sum allocation). In addition, we show that with allocation based on updated emissions, the quota price will always exceed marginal abatement costs, possibly misguiding policy makers and investors about abatement costs. Numerical simulations indicate that the quota price most likely will be several times higher than marginal abatement costs, unless a significant share of allowances is auctioned.     

Private aquaculture and commercial fisheries: Bioeconomics of salmon ranching

This paper shows that common property problems associated with open access salmon ranching in the absence of a commercial fishery result in inefficiency characterized by overstocking. The presence of an open access fishery presents additional common property problems which will inhibit the development of fish ranching. At prices where salmon ranching does occur, the open access commercial fishery will tend to overexploit the natural fish stock to a greater extent than if there were no salmon ranching. It is shown that there exists a range of prices where both fish stocks can coexist with open access. However, there is a limit price above which the natural stock will be driven to extinction through overfishing stimulated by stock from salmon ranchers. The range of prices under which both species can coexist can be increased through either restrictions of fishery effort or reducing the catchability of aquacultured stock. Cooperative management of both aquaculture and commercial fishing results in profits from both activities and will not cause extinction of the natural fish stock.     

Discrete modelling of supply response under uncertainty: The case of the fishery

In the absence of complete control in a regulated industry, effective management requires prediction of firms' behavioral responses to public policy. This paper develops a discrete choice model of supply response under uncertainty and applies it to fishery choice problems of New England fishing firms. While fishermen demonstrate a bias towards remaining within the same fishery, sufficient incentives, in terms of changes in expected returns and risk, are shown to elicit response. Due to extreme uncertainty concerning population dynamics of fish stocks, a satisficing approach to management, facilitated by this type of modelling, may be more appropriate than bioeconomic optimization.     

An economic analysis of sardine fishing in the Gulf of Valencia (Spain)

The optimal management of a particular fishery is illustrated. Using data describing previous fishery exploitation, relevant biological and economic relationships are estimated, then the optimum levels of catches, effort, and stock are calculated. The prices that, if implemented, would ensure the current efficient exploitation of the fishery are also calculated. Finally, the welfare gains that can be achieved by a movement from the freemarket equilibrium to the socially optimum solution are demonstrated.     

Poaching, enforcement, and the efficacy of marine reserves.

Marine reserves are promoted as an effective supplement to traditional fishery management techniques of harvest quotas and effort limitation. However, quantitative fishery models have ignored the impact of noncompliance (poaching). Here we link a model of a harvested fish population to a game-theoretic representation of fisherman behavior to quantify the effect of poaching on fishery yield and the enforcement effort required to maintain any desired level of reserve effectiveness. Although higher fish densities inside reserves will typically entice fishermen to poach, we show that the initial investment in enforcement efforts provides the greatest return on maintaining the benefits of the reserve to the fishery. Furthermore, we find that poaching eliminates the positive effect of fish dispersal on yield that is predicted by traditional models that ignore fisherman behavior. Our results broaden a fundamental insight from previous models of marine reserves, the effective equivalence of the harvest quota and reserve fraction, to the more realistic scenario in which fishermen attempt to maximize their economic payoffs.     

The effects on welfare of the imposition of individual transferable quotas on a heterogeneous fishing fleet

This paper examines the determination of effort levels, the rental price of quotas and the number of participants in a fishery managed with a total allowable catch and individual transferable quotas. How these variables change is determined for three phases of the management process. Potential participants in the fishery are assumed to be heterogeneous in their catching capabilities so that almost all active fishers earn positive net profits from fishing activities. It is shown that these quasirents are reduced during any of the management phases considered here. The impact of free allocations of permanent quota rights on fishers’ welfare is also considered. This may increase the welfare of all fishers if the allocation is based on catch history. However, an example is provided where the welfare of some highliners is reduced when the allocation is based on effort history.     

Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade

This paper provides a first analysis of a “policy bloc” of fossil fuel importers which implements an optimal climate policy, faces a (non-policy) fringe of other fuel importers, and an exporter bloc, and purchases offset from the fringe. We compare a carbon tax and a cap-and-trade scheme for the policy bloc, in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe. The policy bloc is shown to prefer a tax over a cap, since only a tax reduces the fuel export price and by more when the policy bloc is larger. Offsets are also more favorable to the policy bloc under a tax than under a cap. The optimal offset price under a carbon tax is below the tax rate, while under a cap and free quota trading the offset price must equal the quota price. The domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small. When the policy bloc is larger, the offset price can be higher under a cap. Fringe countries gain by mitigation in the policy bloc, more under a carbon tax since the fuel import price is lower.     

Fuel prices and new vehicle fuel economy—Comparing the United States and Western Europe

Several recent papers have documented an effect of fuel prices on new vehicle fuel economy in the United States. This paper estimates the effect of fuel prices on average new vehicle fuel economy for the eight largest European markets. The analysis spans the years 2002–2007 and uses detailed vehicle registration and specification data to control for policies, consumer preferences, and other potentially confounding factors. We find fuel prices to have a statistically significant effect on average new vehicle fuel economy in Europe. The effect estimated for Europe is much smaller than comparable estimates for the United States.     

Environmental regulation as a double-edged sword for housing markets: Evidence from the NOx Budget Trading Program

We investigate the effects of environmental regulations on housing markets using a quasi-experimental setting—the NO_x Budget Trading Program (NBP). Hedonic theory predicts that house prices should rise as pollution levels decrease. However, environmental regulations may also affect labor markets, and thus housing demand. Employing a difference-in-differences framework, we find that house prices shifted up in the regulated areas with low manufacturing intensity, whereas in the areas with high manufacturing intensity, housing markets were weakened. We also find that in high-manufacturing-intensity areas, loan application volume declined, rejection rate augmented, and the probability of loan default increased.     

Is energy efficiency capitalized into home prices? Evidence from three U.S. cities

We test for evidence that energy efficiency features are capitalized into home prices in three U.S. metropolitan areas. Using hedonic regressions and multiple matching procedures, we find that Energy Star certification is associated with higher sales prices in two of the markets: the Research Triangle region of North Carolina and Portland, Oregon. We find that local “green” certifications in Portland and in Austin, Texas, are also associated with higher prices and that the estimated price impacts are larger than those from Energy Star. Matching on observables proves to be important in some cases, reducing the estimated impacts compared with models without matching. We calculate the implied energy savings from the estimated premiums and find that, in the Research Triangle market, the Energy Star premiums approximately equal the savings that program is designed to achieve, but in Portland, the premiums are slightly greater than the program's savings due to low energy costs in the region.     

Markets and environmental management with a storable pollutant

Lee [J. Environ. Econ. Manag., in press] investigates possibilities where pollutants may be stored for a period of time and later released into the environment when adverse effects are minimal. The treatment and storage of pollutants before their release into the environment is a crucial part of many abatement programs. Surprisingly, emission charges will not induce optimal abatement when storage is possible. This occurs because the firms' response to the dynamic tax is indeterminant. We suggest alternative controls, whereby rights to emit pollutants are sold competitively and demonstrate that markets provide incentives for the optimal generation-storage-emission of pollution by firms. In deriving this result an important difference between markets and taxes is revealed. With markets there is still indeterminacy at the firm level, but the aggregate response of all firms is dictated by market forces that insure pollution is reduced by some desired amount.     

A dynamic simulation model to support reduction in illegal trade within legal wildlife markets

Sustainable wildlife trade is critical for biodiversity conservation, livelihoods, and food security. Regulatory frameworks are needed to secure these diverse benefits of sustainable wildlife trade. However, regulations limiting trade can backfire, sparking illegal trade if demand is not met by legal trade alone. Assessing how regulations affect wildlife market participants’ incentives is key to controlling illegal trade. Although much research has assessed how incentives at both the harvester and consumer ends of markets are affected by regulations, little has been done to understand the incentives of traders (i.e., intermediaries). We built a dynamic simulation model to support reduction in illegal wildlife trade within legal markets by focusing on incentives traders face to trade legal or illegal products. We used an Approximate Bayesian Computation approach to infer illegal trading dynamics and parameters that might be unknown (e.g., price of illegal products). We showcased the utility of the approach with a small-scale fishery case study in Chile, where we disentangled within-year dynamics of legal and illegal trading and found that the majority (∼77%) of traded fish is illegal. We utilized the model to assess the effect of policy interventions to improve the fishery's sustainability and explore the trade-offs between ecological, economic, and social goals. Scenario simulations showed that even significant increases (over 200%) in parameters proxying for policy interventions enabled only moderate improvements in ecological and social sustainability of the fishery at substantial economic cost. These results expose how unbalanced trader incentives are toward trading illegal over legal products in this fishery. Our model provides a novel tool for promoting sustainable wildlife trade in data-limited settings, which explicitly considers traders as critical players in wildlife markets. Sustainable wildlife trade requires incentivizing legal over illegal wildlife trade and consideration of the social, ecological, and economic impacts of interventions.