Matt fishes for tuna at a cost of $4 per ton. John fishes at a cost of $6 per ton. Each has a 1,000-ton ITQ. The current market price is $8 per ton. What amount could Matt pay John to induce him to sell his ITQ?

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Matt can profit $4 per ton ($8 market price - $4 cost), while John can profit $2 per ton ($8 market price - $6 cost). Matt could pay John up to $2 per ton (the difference in their profits) to make it worthwhile for John to sell his ITQ. For 1,000 tons, this amounts to $2,000. However, Matt can pay up to $3,000 to still make a profit, as he would still gain $1,000 ($4,000 profit from 1,000 tons minus $3,000 payment).

Matt Fishes for Tuna at a Cost of $4 Per