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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 21/2015:
Quota Enforcement and Capital Investment in Natural Resource Industries.

Itziar Lazkano () and Linda Nøstbakken ()

Abstract: We investigate the relationship between quota enforcement, compliance, and Capital accumulation in ITQ regulated sheries. Over-extraction and over-capacity represent two of the main sheries 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.; (follow links to similar papers)

JEL-Codes: Q20; Q22; Q28; (follow links to similar papers)

34 pages, August 15, 2015

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