Suppose the Alaskan king crab harvest is unregulated and any person with a crab boat and some diesel fuel can go offshore, lower a crab pot, and harvest king crab.As a result, this common resource is overused.Which of the following policy choices might create an outcome in which the king crab harvest is socially optimal?
A)The state of Alaska subsidizes the purchase of crab boats.
B)The state of Alaska auctions a limited number of licenses to harvest king crab.
C)The state of Alaska removes taxes on diesel fuel, which lowers the price of diesel.
D)The U.S.and Canadian governments remove trade barriers, which allows for more trade of products like king crab.

Question

Quizplus · Accepted Answer

A solution for overused common resources is to limit access to the resource through licensing or permits. By auctioning a limited number of licenses, the state of Alaska can limit the number of crab boats and create a market for the right to harvest king crab. This can lead to a more socially optimal outcome as the price to obtain a license takes into account the value of the resource and creates an incentive for fishermen to use the resource efficiently. Subsidizing the purchase of crab boats or removing taxes on diesel fuel would only increase the number of boats and the amount of king crab harvested, exacerbating the problem of overuse. Removing trade barriers would not directly impact the overuse of the resource.

Suppose the Alaskan King Crab Harvest Is Unregulated and Any