Efficiency Costs of Social Objectives in Tradable Permit Programs

Objectives of tradable permit programs are often broader than internalizing an externality and improving economic efficiency. Many programs are designed to accommodate community, cultural, and other non-efficiency goals through restrictions on trading. However, restrictions can decrease economic efficiency gains. We use a policy experiment from the Alaska halibut and sablefish tradable permit program, which includes both restricted and unrestricted permits, to develop one of the few empirical measurements of the costs of meeting non-efficiency goals. We estimate that restrictions are reducing resource rent in the halibut and sablefish fisheries by 25% and 9%, respectively.

Co-authors:

James N. Sanchirico and Daniel K. Lew