Applying Deemed Value Concepts to Other Cap-and-Trade Rights Public Deposited

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  • In the administration of its quota management system (QMS), New Zealand sets a “deemed value” fee that must be paid for any landings in excess of annual catch entitlements (ACE.) The deemed value system is an example of a price-capped cap-and-trade system (Roberts and Spence 1976). This paper argues that there are two aspects of the deemed value system that could be applied to non-fisheries cap-and-trade programs. First, deemed values lower the transactions costs of conducting the market transactions to balance landings against ACE. Other cap-and-trade systems that involve large numbers of small trades might benefit from using deemed values. Second, the New Zealand system also incorporates “differential deemed values” that escalate as the margin by which landings exceed ACE increases. The differential deemed values are essentially options to acquire ACE at increasing prices. These options allow the implementation of not a single price cap in the traded rights, but rather several different price caps that depend upon the extent to which the quota is exceeded. The differential deemed values are implicitly a marginal cost of overfishing schedule established by the government. Other cap-and-trade programs could also use options to allow the government to supply additional emissions to the market along a pre-determined marginal cost schedule.
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  • Townsend, Ralph. 2010. Applying Deemed Value Concepts to Other Cap-and-Trade Rights. 12 pages. In: Proceedings of the Fifteenth Biennial Conference of the International Institute of Fisheries Economics & Trade, July 13-16, 2010, Montpellier, France: Economics of Fish Resources and Aquatic Ecosystems: Balancing Uses, Balancing Costs. Compiled by Ann L. Shriver. International Institute of Fisheries Economics & Trade, Corvallis, Oregon, USA, 2010.
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