Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

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

Itziar Lazkano () and Linda Nøstbakken ()
Additional contact information
Itziar Lazkano: University of Wisconsin-Milwaukee, Postal: Department of Economics, , University of Wisconsin-Milwaukee, , PO Box 413, Bolton Hall 840, Milwaukee,, WI 53201.
Linda Nøstbakken: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

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.

JEL-codes: Q20; Q22; Q28

34 pages, August 15, 2015

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