Prices versus Quantities for Common Pool Resources
In Weitzman (1974) the choice between price and quantity regulation under imperfect information is analysed. It is shown that the choice between the two regulatory instruments depends on the sign of the sum of the curvatures of the cost and benefit functions. If the marginal benefit function is steep and the marginal cost function is flat quantity regulation is preferred over price regulation, while price regulation is preferred over quantity regulation if the marginal benefit function is flat and the marginal cost function is steep. The results in Weitzman (1974) are sometimes quoted in studies of fisheries management. In this paper an analysis of conditions for generalising the Weitzman result to fisheries economics is presented. It is shown that the result can be generalised if the cost function is additively separable in stock size and catches. This leads to the conclusion that the results hold for a schooling fishery. However, for a search fishery the condition that the cost function must be additively separable is seldom fulfilled and quotation of the classical article is therefore not reasonable. A further result is that for a schooling fishery, taxes are likely to be preferred over individual transferable quotas in the case where there is imperfect information about costs. The reason is that the marginal cost function is likely to be steeper than the demand function. In the light of this result, the fact that individual quotas regulate over 55 fisheries while taxes regulate none is surprising.
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- Ireland, N J, 1977. "Ideal Prices vs. Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 183-86, February.
- Hoel, Michael & Karp, Larry, 2001.
"Taxes versus Quotas for a Stock Pollutant,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt5fx9p7kf, Department of Agricultural & Resource Economics, UC Berkeley.
- Andersen, Peder, 1982. "Commercial fisheries under price uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 9(1), pages 11-28, March.
- Ragnar Arnason, 1990. "Minimum Information Management in Fisheries," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 630-53, August.
- Parzival Copes, 1986. "A Critical Review of the Individual Quota as a Device in Fisheries Management," Land Economics, University of Wisconsin Press, vol. 62(3), pages 278-291.
- Wilen, James E., 2000. "Renewable Resource Economists and Policy: What Differences Have We Made?," Journal of Environmental Economics and Management, Elsevier, vol. 39(3), pages 306-327, May.
- Newell, Richard G. & Pizer, William A., 2003.
"Regulating stock externalities under uncertainty,"
Journal of Environmental Economics and Management,
Elsevier, vol. 45(2, Supple), pages 416-432, March.
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