Interest group incentives for post-lottery trade restrictions
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The rights to use publicly-managed natural resources are sometimes distributed by lottery, and typically these rights are nontransferable. Prohibition of post-lottery permit transfers discourages applicants from entering the lottery solely for profitable permit sale, so only those who personally value the use of the resource apply. However, because permits are distributed randomly and trade is restricted, permits may not be used by those who value them most. We argue that restrictions on permit transfers is a policy response designed to limit entry when interest group membership is not distinguishable ex ante, and characterize the economic/informational conditions under which post-lottery prohibitions on trade are likely to arise. We develop our model using the specific case of the Four Rivers Lottery used to allocate rafting permits on four river sections in Idaho.
KeywordsLottery Interest groups Tradable permits Welfare analysis
JEL ClassificationD45 D61
Funding for this research was provided by the United States Forest Service under agreement number 06-JV-1122167-125. Additional support was provided by the Washington State University Agricultural Research Center under project numbers WNP00539 and WPN0054. We thank Phil Wandschneider, Michael Crew, and two anonymous referees for helpful comments. Thanks also to participants at the 2009 the CU Environmental and Resource Economics Workshop and the 2007 Western Agricultural Economics Association Meetings.
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