How Institutions Affect Outcomes in Laboratory Tradable Fishing Allowance Systems

Abstract

The objective of this paper is to illustrate that economic institutions matter, i.e., that different rules of trade present different incentives for bidding, asking, and trading in new markets, and that these different incentives lead to different price discovery patterns, which yield materially different outcomes. In a laboratory tradable fishing allowance system, when trade takes place through a double auction, which parallels an institution common in extant tradable allowance systems, markets are characterized by high volatility, and equilibrium does not obtain. However, when only leases, and not permanent trades, are permitted in the early periods, volatility is significantly reduced and equilibrium obtains. This dependence of equilibration and outcomes on institutions implies policy-oriented economists must consider institutions in designing new market-based management systems.