Rent-seeking and optimal regulation in replenishable resource industries

Eliakim Katz and J. Smith
Authors registered in the RePEc Author Service: Julie Patricia Smith and Barry Smith

Public Choice, 1988, vol. 59, issue 1, 25-36

Abstract: In this paper, wasteful rent-seeking behaviour has been shown to have important implications for the determination of the welfare maximizing regulatory policies of replenishable natural resource industries. In general, the incorporation of wasteful rent-seeking activity into the analysis leads to policies which suggest a greater level of industry output than has been advocated by tradition policies that do not take rent-seeking into account. Our analysis therefore supports a more laissez faire policy than has been recommended in the literature. Specifically, we find that when rents are completely dissipated by wasteful rent-seeking activity (t=1), the role of the regulator is simply to guarantee biological efficiency, should this be threatened by the economic equilibrium achieved by the free-access of firms. One of two possibilities can occur. In the first, the economic equilibrium determined by the free-access of firms is biologically efficient, i.e., the equilibrium steady state of the replenishable natural resource exceeds or is equal to the maximum sustainable yield stock size (x MSY ). If this occurs, the regulator needs to take no action whatsoever. In the second case, the economic equilibrium generated by the free-access of firms does not yield biological efficiency. The equilibrium is characterized by a steady state stock of the natural resource that is smaller that the maximum sustainable yield stock size, namely (x MSY > x MSY ). In this case, therefore, the regulator does need to intervene, but his best policy takes the simple form of setting the total quota equal to the maximum sustainable yield (MSY) of the resource. Thus, while the results are to some extent consistent to those derived by Buchanan for the regulation of externalities, the fact that we are dealing here with replenishable resources adds a further dimension to the issue and changes some of the policy implications. Copyright Kluwer Academic Publishers 1988

Date: 1988
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1007/BF00119447 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:pubcho:v:59:y:1988:i:1:p:25-36

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11127/PS2

DOI: 10.1007/BF00119447

Access Statistics for this article

Public Choice is currently edited by WIlliam F. Shughart II

More articles in Public Choice from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().