Tax Versus Quota Regulation: A Stochastic Model of the Fishery

In a deterministic setting, it has been demonstrated that taxes and quotas can be equivalent regulatory instruments and that both can in principle induce an optimal allocation of resources in markets where externalities are problematic. In this paper we consider growth, harvest, and demand uncertainty within the context of Canada's Pacific halibut fishery and find that, while taxes remain the preferred instrument, the welfare losses arising from the use of individual boat quotas are minor.