When producers are hard to monitor and property rights are too costly,________ is (are)an effective method to achieve efficient use of a(n)________.
A) individual transfer quotas; public good
B) making a government payment equal to the marginal private benefits; public good
C) individual transferable quotas; common resource
D) individual transferable quotas; excludable good
E) making a government payment equal to the marginal private costs; common resource

Question

Quizplus · Accepted Answer

Individual transferable quotas (ITQs) are an effective method to achieve efficient use of a common resource when monitoring producers is difficult and property rights are too costly to establish. Under ITQs, producers are assigned a quota which limits the amount they can harvest or extract from the resource. They are free to buy and sell their quotas, which allows for flexibility in the allocation of the resource. This leads to an efficient use of the resource as each producer has an incentive to use their quota efficiently in order to maximize their profits. Therefore, ITQs are a good option when managing a common resource like fisheries or forests.

When Producers Are Hard to Monitor and Property Rights Are