Consequences of Local Government Involvement in the Icelandic ITQ Market

Abstract

This paper gives an account of the development of fishery regulation and management in Iceland, including the development of cod stocks, and the fishing fleet in Iceland since 1945. There was considerable experimentation with fishery management systems in Iceland beginning in 1975. Many economists and others predicted that the fishing fleet would be reduced as a result of the new regimes, but this has not happened to the extent anticipated. Local governments have traditionally had a stake in the Icelandic fisheries. The motives of local municipalities might conflict with the motives pursued by the fishery managers. A theoretical model is developed to understand the consequences of local politicians' involvement in the quota market. Furthermore, it is indicated that the degree of ease with which the less effective fishing firms find ways to circumvent the profitability consequences of the management regime depends on the initial allocation of fishing rights.