OPTIMAL CONTROL OF PROPERTY RIGHT OF RESOURCES WHEN TWO EXTERNALITIES (ENVIRONMENTAL PROPERTY RIGHT DISTORTION AND PRODUCTION POLLUTION DISTORTION) CO-EXIST: THE SMALL ECONOMY CASE

Few studies investigate how environmental property right and production pollution distortions influence the economy when these two externalities co-exist. This case falls into a standard "second best theory". That is, it is important that pollution control policy should be coordinated with the reduction of environmental distortions. Given the non-linearity of production pollution distortion, the optimal property right may not be perfect. To guarantee the achievement of optimal total income via optimal property right, the monitoring agency should take into account the whole system and enforce different monitoring mechanisms in diversified situations. Empirical analysis is proposed on the reef fishery of Pacific island economies and the world.