Individual vs. Collective Quotas in Fisheries Management: Efficiency and Distributional Impacts

This paper considers four alternative policies for controlling harvest within a fishery: (1) individual limits without a permit market, (2) individual limits with a permit market, (3) a collective limit with individual decisions, and (4) a collective limit with collective decisions. We focus on three issues: risk pooling, moral hazard, and the role of permit trading. We find that, as long as the penalty rates are set appropriately, all four policies can yield the first best. Thus, with a welfare-maximizing regulator who sets policy parameters optimally, there is no efficiency basis for preferring one over the other. In particular, allowing permit trading and risk pooling does not increase efficiency. However, the four policies differ in terms of their impact on the expected profit of harvesters. Thus, there is a distributional basis for distinguishing among the four policies. We find that in the absence of permit trading and moral hazard, the collective limit with collective decisions yields higher expected profits than the individual limits. However, the moral hazard problem that arises under the collective limit with individual decisions makes harvesters worse off in terms of distributional impact. Finally, although the permit market provides an opportunity for risk spreading for harvesters, the potential moral hazard problem leads to a detrimental distributional impact on harvesters under permit trading. Thus, contrary to standard results, here allowing permits to be traded has no efficiency impact and makes harvesters worse off.