Method to analyse welfare effect of transferable quotas in an open economy with rent-seeking for quotas

Abstract

Governments have introduced local individual transferable quotas (ITQs) to maintain fishery resource sustainability. However, quota rent-seeking activities by fishermen may weaken ITQ's resource conservation effect in countries with immature private property systems. This method is developed to analyse how opening-up trade impacts resource management and welfare under quota rent-seeking activities by applying rent-seeking for emission permits to rent-seeking for ITQ in a two-country model to investigate the policy effect of opening-up trade on renewable resources. The method helps analyse ITQ's welfare effect in an open economy with quota rent-seeking activities and the welfare effect of opening-up trade via quota lobbying, comparing an autarky with an open economy. Quota changes in the foreign country specialising in fishery production influence quota prices in both the foreign country and the home country, diversifying away from fishery to manufacturing production, thereby affecting fishery and manufacturing goods production in the home country. Thus, fishery policy indirectly affects welfare in the home country. The method can be applied to investigate fisheries disputes under international resource management. In sum, this method facilitates:•Analysing the welfare effect of quotas with quota lobbying in a two-country model;•Examining the policy effect of opening-up trade on quota rent-seeking and fisheries production, comparing an autarky with an open economy; and•Investigating fisheries disputes under the international management of fishery resources.