ITQs, Firm Dynamics and Wealth Distribution: Does Full Tradability Increase Inequality?

Concerns over the re-distributive effects of individual transferable quotas (ITQ’s) have led to restrictions on their tradability. We consider a general equilibrium model with firm dynamics to evaluate the redistributive impact of changing the tradability of ITQs. A change in tradability would happe...

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Bibliographic Details
Published in:Environmental & resource economics 2017-10, Vol.68 (2), p.249-273
Main Authors: Da-Rocha, José-María, Sempere, Jaume
Format: Article
Language:English
Subjects:
Assets
Economic inequality
Economic models
Economic Policy
Economics
Economics and Finance
Environmental Economics
Environmental Law/Policy/Ecojustice
Environmental Management
Equilibrium
Fisheries
Inequality
Ownership
Property
Quotas
Redistribution
Revenue
Wealth distribution
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Summary:Concerns over the re-distributive effects of individual transferable quotas (ITQ’s) have led to restrictions on their tradability. We consider a general equilibrium model with firm dynamics to evaluate the redistributive impact of changing the tradability of ITQs. A change in tradability would happen, for example, if permits are allowed to be traded as a separate asset from ownership of an active firm. If the property right is associated with ownership of an active firm, the permit can be leased in each period but it is not possible to exit the industry and keep the right. However, allowing the permits to be traded as a separate asset has two effects. First, it leads to a greater concentration of production in the industry. Second, it directly converts a non-tradable asset into a tradable one, and this is equivalent to giving a lump sum transfer to all firms. The first effect implies a concentration in revenues, while the second implies a redistribution of wealth. We calibrate our model to match the observed increase in revenue inequality in the Northeast Multispecies (Groundfish) U.S. Fishery. We show that although observed revenue inequality—measured by the Gini coefficient—increases by 12 %, wealth inequality is reduced by 40 %.
ISSN:0924-6460
1573-1502
DOI:10.1007/s10640-016-0017-3