multispecies fisheries. Water control authorities must cope with the consequences of trades on downstream users. These small-scale, complex resources with multiple externalities may be better managed by cooperative arrangements.
The academic community has emphasized the importance of co-management of environmental resources, with users having a substantial role. Although tradable permit systems in principle allow a variety of governance systems, only in fisheries and water is there any evidence of an evolution in this direction. The current predominant form in both air pollution control and fisheries seems to be a system of shared management, with users playing a smaller role than envisioned by most co-management proposals. For those resource regimes located in the United States, it is common for the goals to be set at the national level and considerable “top-down” management to be in evidence. The management of water resources seems closest to user-controlled co-management schemes. In those systems, the rights markets are at the “informal” end of the spectrum.
Although tradable permit systems in principle allow a variety of governance systems, the only evidence of an evolution toward true co-management has occurred in fisheries and water. The pollution and natural resource cases exhibit an important asymmetry. For air pollution control, the benefits from resource protection fall on the victims of air pollution, not on the polluters who use the resource. From a purely self-interest point of view, resource users (polluters) would be quite happy to pollute the air if they could get away with it. On the other hand, water users and fishers can both benefit from protection of the resource. Their collective self-interest is compatible with resource protection. This suggests that the incentives for collective action should be quite different in these two cases, and this difference could well explain the lower propensity for collective self-governance in the air pollution case.
A main element of controversy in tradable permits systems involves both the processes for deciding the initial allocation and the initial allocation itself. These problems seem least intense for air pollution and most intense for fisheries. Though a rich set of management and initial allocation options exists, current experience seems not to have been very creative in their use.
Tradable permit programs are sometimes held to be a relatively rigid approach to resource management. This expectation is created by the belief that once instituted, property rights cannot be changed. In fact, implemented tradable permit programs have exhibited a considerable amount of flexibility. A variety of new design features (such as zero-revenue auctions, bycatch quotas, and drop-through mechanisms) have emerged that are tailored to the characteristics of particular resources. These offer greater flexibility in meeting the needs of particular resource systems. For example, especially flexible adaptive management systems have evolved in programs designed to protect resources that exhibit higher degrees of supply variability (fisheries and water).
In their most successful applications, tradable permits have been able to simultaneously protect the resources and provide sustainable incomes for users.