ABSTRACT
Tradable allowance systems are being increasingly applied to address numerous environmental and natural resource management problems, including water use, pollution and overfishing (Tietenberg, 2002). In a typical application of tradable allowances, a management authority sets an allowable level of activity, allocates allowances to that level among users and permits users to trade their allocations. In theory, the ensuing market allows inefficient resource users to transfer their use or pollution rights to efficient users who can earn more profit from them, in exchange for a payment that exceeds the profits sellers would make from using them. While economically defensible, the resulting industry transformation can threaten local economies and traditional ways of life, especially in applications such as irrigation rights and fishery management, where the affected parties are usually small and family businesses. The fear of consolidation can often lead stakeholders to oppose implementation of market-based management, even in cases where market fundamentals suggest consolidation is unlikely.
