Sluggish exit and entry of labour and capital, stability and effects of taxes and subsidies in models of fisheries

Asgeir Danielsson

Economics from Department of Economics, Central bank of Iceland

Abstract: It is assumed that exit and entry of fishermen, as well as vessels, is not instantaneous. The wage rate varies with the fortunes of the fishing firms and affects the endogenous labour supply creating a second transmission mechanism from profits to effort. There are realistic cases where this mechanism has important effects on the stability of the dynamic system and on the effects of taxes (subsisdies) on the size of the fish stock. If labour supply depends negatively on the wage rate, the immediate effect of an increase in the tax rate is to increase effort and harvest. In some cases the increase in the tax rate increases overexploitation also in the long term. This outcome is highly probable if the dynamic system is unstable.

Date: 2004-01
New Economics Papers: this item is included in nep-lab and nep-pbe
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