Abstract
The paper aims at identifying the effects exerted by a tax levy on an overexploited and previously unregulated fishery. The analysis is carried out by means of a dynamic model that includes fish stock and harvesting effort as state variables. Attention is focused on the role played by demand elasticity which is shown to affect both transients and equilibria. According to the analysis, a levy induces a contraction in effort, which is sharper in the short term. As a consequence, the fish population recovers and ultimately settles at a higher equilibrium level. Therefore, a larger amount of fish is caught in the long run and sold at a lower price than in the unregulated setting. The more inelastic the demand, the smaller both the equilibrium price for fish and the tax imposed.