Quota Enforcement and Capital Investment in Natural Resource Industries

41 Pages Posted: 4 Sep 2015

See all articles by Itziar Lazkano

Itziar Lazkano

University of Wisconsin - Milwaukee - Department of Economics

Linda Nøstbakken

Norwegian School of Economics (NHH) - Department of Economics

Date Written: August 15, 2015

Abstract

We investigate the relationship between quota enforcement, compliance, and Capital accumulation in ITQ regulated fisheries. Over-extraction and over-capacity represent two of the main fisheries management challenges, and we aim to model and analyze the two jointly. In a stylized resource model, quota violating and complying firms invest in capital, buy quotas, and choose their harvest. We show that in the short run, more capacity increases illegal extraction, while a well-functioning quota market partially alleviates this effect. We also show how tougher enforcement yields a double benefit by directly improving compliance, and by indirectly reducing incentives to invest in capacity, which improves future compliance. Our analysis thus contributes to the literature on market-based management of renewable resources.

Keywords: Compliance; Excess capacity; Enforcement; ITQs; Resource management

JEL Classification: Q00, Q02, Q22, Q28

Suggested Citation

Lazkano, Itziar and Nøstbakken, Linda, Quota Enforcement and Capital Investment in Natural Resource Industries (August 15, 2015). NHH Dept. of Economics Discussion Paper No. 21/2015, Available at SSRN: https://ssrn.com/abstract=2655974 or http://dx.doi.org/10.2139/ssrn.2655974

Itziar Lazkano

University of Wisconsin - Milwaukee - Department of Economics ( email )

3210 N. Maryland Avenue, Bolton Hall 802
Bolton Hall 802
Milwaukee, WI 53211
United States

Linda Nøstbakken (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47-55959134 (Phone)

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