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Individual Transferable Quotas in a Household Economy: Will The System Work?

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  • This paper analyzes the behavior of fishing households under individual transferable quotas (ITQ) system based on Singh, Squire and Strauss household model. ITQ system is sought to be the optimal fishery management regime in terms of economic efficiency. However, preceding theoretical analyses only considered implementing ITQ to a well established fisheries industry, in which fishermen are mere producer or employee of the industry. They also implicitly assume that all markets are functioning perfectly. Fisheries in developing countries, with prevailing overexploitation, have a very different picture: fisherman is a producer and consumer of its own harvest, and most importantly there are market imperfection everywhere. Hence the question: Is ITQ still the first-best fishery management regime under such conditions? The paper first analyzes when all markets are perfect as a benchmark. It is shown that ITQ perform as predicted by the literature; the social optimum is achieved. Throughout this paper, markets for fish and quotas are assumed to be perfect. Next the paper analyzes the effect of missing labor market to illustrate the consequences of ITQ under market imperfection. It analytically shows that ITQ achieving social optimum is no longer guaranteed, and it may not be the first-best regime either. To demonstrate these points, numerical simulations were carried out. Simulations showed that under certain condition, transfer of quotas could be reversed, i.e. from more efficient to less efficient fisherman. It also showed that transferability could do more harm than good in terms of social welfare.
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  • Uchida, Hirotsuga, James E. Wilen, Douglas M. Larson. 2004. Individual Transferable Quotas in a Household Economy: Will The System Work? Peer Review: No. In: Proceedings of the Twelfth Biennial Conference of the International Institute of Fisheries Economics & Trade, July 20-30, 2004, Tokyo, Japan: What are Responsible Fisheries? Compiled by Ann L. Shriver. International Institute of Fisheries Economics & Trade, Corvallis, Oregon, USA, 2004. CD ROM. ISBN 0-9763432-0-7
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