AbstractThis paper studies the optimal design of the Pacific Salmon Treaty, which was signed by the U.S. and Canada in 1999 to share salmon on the Pacific coast. Moral hazard exists because countries may steal from each other. If a countrys observed output is suspiciously too high, the treaty either reduces the countrys future share, or asks the country to make a monetary transfer to its opponent. A calibrated version of our model shows that it is optimal for the U.S. to pay Canada $328.93 million every 30.78years. Switching to the optimal contract improves the total welfare by 1.55%.
