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How Many Instruments Do We Really Need? A First-Best Optimal Solution to Multiple Objectives with Fisheries Regulation

Author

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  • Christian Elleby

    (Department of Food and Resource Economics, University of Copenhagen)

  • Frank Jensen

    (Department of Food and Resource Economics, University of Copenhagen)

Abstract

Part of the existing economic literature on fisheries regulation focuses on addressing several objectives with one instrument. In an extension of this literature we investigate the following three objectives of fisheries regulation: A) Correcting a stock externality; B) Raising public funds, and; C) Solving problems with uncertainty. We analyze the implications of combining a non-linear tax on harvest and individual transferable quotas to address these three objectives and argue that a tax alone can fulfill all three objectives simultaneously. This result can be related to the theory on a first-best and a second-best optimum which state that the number of objectives must be identical to the number of instruments if a first-best optimum shall be reached. We show that one instrument (a tax based on the size of the harvest in this case) is enough to achieve a first-best optimum.

Suggested Citation

  • Christian Elleby & Frank Jensen, 2018. "How Many Instruments Do We Really Need? A First-Best Optimal Solution to Multiple Objectives with Fisheries Regulation," IFRO Working Paper 2018/05, University of Copenhagen, Department of Food and Resource Economics.
    • Handle: RePEc:foi:wpaper:2018_05
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    More about this item

    Keywords

    Stock externalities; double-dividend; uncertainty; taxes; quotas;
    All these keywords.

    JEL classification:

    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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