Question

5. Suppose a government attempts to compare two potential remedies to reduce fishing effort. The first remedy is increasing the per-unit tax on fishing effort. The per-unit tax on effort is represented as a leftward rotation of the total cost curve around the zero-effort point (i.e. the marginal cost of fishing effort increases). The second remedy is increasing the cost of a fishing license. The increase in the license fee is represented as a parallel upward shift of the total cost curve (i.e. marginal cost of fishing effort does not change). Assume that these two remedies raise the same amount of cost at the open-access outcome. In addition, the fishery under these remedies would still be profitable.

b) Assume the fishery is governed under an open-access regime, which does not have exclusivity. Compare the effect on fishing effort of these two remedies.

Answer 1

Solution

Given that there are 2 remedies - one is to increase the per-unit tax on the effort and the other is to increase the license fee.

In my view,the second option is better and thus will be chosen by the fishermen.This is because,in this case the license fee is a fixed one -time fee.So,they can earn according to their effort.Higher their effort,higher their yield i.e., their marginal cost of effort will not increase.

But in the second case,the marginal cost of their fishing effort increases.Also,since the license fee (initial cost) is less in this option,more fishermen will be interested.So due to non-exclusivity and open regime nature of the fisheries,it will lead to more competition.When there is more competition,the effort has to increase in order comparatively to get the same amount of fish as before as the supply (fish) is constant but demand (number of fishermen) has increased.But since in this option the fishermen are charged based on their effort.they will have to shell comparatively more amount .

So,they will not increase their effort and are motivated towards just catching the quantity of fish that yield them sufficient revenue to cover up their license fee.

Hope this revenue helps !! Please give a " Thumbs Up " rating for this solution !!