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Designing Environmental Markets for Trading Catch Shares

Author

Listed:
  • Martin Bichler

    (Technical University of Munich, Munich 80333, Germany;)

  • Douglas Ferrell

    (Department of Primary Industries, Mosman, New South Wales 2088, Australia;)

  • Vladimir Fux

    (Technical University of Munich, Munich 80333, Germany;)

  • Jacob K. Goeree

    (AGORA Center for Market Design, University of New South Wales, Sydney, New South Wales 2052, Australia)

Abstract

Overfishing is a prime environmental concern. Catch-share systems are an effective way to combat overfishing, but they introduce economic inefficiencies when the allocation of shares does not align with industry needs. This paper describes the implementation of a market-based approach to reallocating fishing shares in New South Wales (NSW), Australia. The design of the market needed to address several nonstandard requirements, including the possibility of all-or-nothing offers, fair prices, and an endogenously determined subsidy. These features were crucial for the adoption of the reform, but also led to computationally challenging allocation and pricing problems. The market operated from May to July 2017 and successfully reallocated shares from inactive fishers to those who were impacted the most by the introduction of catch shares, with significant savings for the taxpayer. It provides a template for the reallocation of catch shares elsewhere and of resource rights in other applications (e.g., water rights, pollution rights, and environmental offsets). We provide a project description, practical examples, and implementation details of the implemented exchange.

Suggested Citation

  • Martin Bichler & Douglas Ferrell & Vladimir Fux & Jacob K. Goeree, 2019. "Designing Environmental Markets for Trading Catch Shares," Interfaces, INFORMS, vol. 49(5), pages 324-337, September.
    • Handle: RePEc:inm:orinte:v:49:y:2019:i:5:p:324-337
    DOI: 10.1287/inte.2019.1003
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    References listed on IDEAS

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    1. Péter Biró & Gyula Magyarkuti, 2021. "The Work of Milgrom and Wilson in the Theory and Practical Application of Auctions," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 20(1), pages 127-151.

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