Using Taxes to Deter Illegal Fishing in ITQ Systems

Abstract

We study the effects of different tax schemes used in fisheries management in combination with an individual transferable quota system. We focus on the effects of taxes on equilibrium quota prices and on violations under the assumption that enforcement to induce compliance is imperfect and costly. The use of taxes is motivated by the regulator’s need to recover costs for enforcement activities. We propose the use of a tax on the price of the processed products based on its impact on violations and the information that is required to implement it. We also show that this tax has a double pay-off for enforcement because it reduces the demand for illegal fishing and increases revenue for enforcement activities without producing a deadweight loss in the quota market. We present an application of our model to the case of the red shrimp fishery in Chile. In our simulation example, a tax of 7 % on the price of fish exports could sufficiently reduce harvest demand and generate enough funding to completely eliminate quota violations, which, in the absence of taxes, can be more than 100 % of the total allowable catch. At the same time, this tax could increase the equilibrium quota price by 19 %.