Individual Transferable Quota System Research Articles

Measuring Quality of Property Rights: Development of User Rights Quality in the Icelandic Fisheries

Strong user rights in fisheries are fundamental drivers of efficiency and profitability in the utilization of those resources. These user rights refer to the rights of fishers to harvest from fish stocks. The rights can be weak, or they can be strong, in terms of security, duration, exclusivity, and transferability. For this a definition of and a measure of the strength of user rights is needed, which we present in the property rights quality index, so-called Q-measure. By strong user rights in fisheries, we mean fishing rights that score highly on the quality of property rights, or Q-measure. Weak user rights are fishing rights that score low on the quality of property rights. We then explain how this approach can be applied to analyze and score the quality of actual user rights in fisheries. This we do first by relating the characteristics of property rights to harvesting rights or vessel quota systems in fisheries and we then look at the case of Iceland which implemented an individual transferable quota system in its fisheries in the latter half of the 20th century. We recount the story of the implementation and score the different property rights attributes. We then relate this to the change in performance of the fisheries by comparing the quality score to the economic value of the fishing quotas, and indirectly to the profitability of the fisheries. It turns out that there is a high correlation between the quality score and the value of the quotas.

Efficiency of a common natural forest exploitation by the system of individual transferable quotas with overlapping generations, capital, and monetary inheritance

This article focuses on the economic analysis of the exploitation of a renewable natural resource in common property, namely forests. In the Sahelian zone of West Africa with little forest cover, these natural assets are exposed to overexploitation despite the participation system established as a mode of their management for more than three decades. Thus, another mode of management is necessary to avoid the extinction of forests in certain countries like Niger to continue to benefit from the countless services that they provide. This paper proposes another mode of management by analyzing the effectiveness of the operating system through free distribution of transferable individual quotas with overlapping generations, capital, and monetary inheritance. From a general equilibrium model, the resolutions of the optimization programs using the Lagrangian show that the system in question provides the conditions for optimal management of the forest in common property. Moreover, it allows for an intergenerational transmission of renewable natural resources without any other incentive instrument such as taxes or subsidies despite the non-cooperative behavior of the actors.

Youth and newcomers in Icelandic fisheries: opportunities and obstacles

Privatized fishery management schemes, alongside other cultural and social changes, have led to a high average age in some fisheries, where youth and newcomers are not meaningfully present in the industry. This research explored the current and future opportunities and constraints for youth and newcomers in Icelandic fisheries, which are managed by an Individual Transferable Quota system. Data were collected through participant observation and 25 semi-structured interviews with key individuals in fisheries. Inductive qualitative analysis of interview data determined recurrent themes that illustrate how rural outmigration, cost, and changing social expectations have led to a decrease of youth and newcomers in Icelandic fisheries. Results show that the perception of fishers in Iceland by the general society fluctuates as the economic and cultural climate of the country changes. The ageing of the fleet in small-scale fisheries is explained by the limited access to consolidated fisheries rights, and the inability for youth to secure capital and invest in a fishery operation. Large-scale fisheries, on the other hand, have a different set of barriers for youth, such as lack of career advancement opportunities and a heavy workload. This research also documents how the absence of youth in small-scale fisheries is partially linked to a high turnover of youth in large-scale fisheries. Youth have more opportunities in large-scale fisheries, but over time, they do not receive adequate training or support to further an independent career, thereby creating a negative feedback loop leading to further reduction of recruitment in small-scale fisheries. Findings from the study support the continued call from academics and practitioners to include issues of access for newcomers in fishery management goals.

Appropriation of economic values in a rights-based fishery

This study integrates resource-based and stakeholder theories to explore how values are generated and appropriated in a rights-based fishery. We argue that in the fish harvesting industry, a firm's ability to create values is critically dependent on stakeholders outside the firm's boundaries, such as society in general (the principal owner of the natural resource) and the fisheries management of the government. The latter protects the resource from being overfished, and it decides who will get the rights to fish. The empirical context is the seagoing Norwegian purse seine fleet, which has gradually created significant values relative to revenues through the 32-year study period (1985–2016). Specifically, the value appropriation between key stakeholders under a stepwise, more liberalized individual transferable quota system is described and analyzed. The findings show that the vessel owners' share of added values increased gradually from approximately 7% in 1985 to 45% in 2016. Conversely, the labor share dropped from 75% to 42% during the study period. The society's share of the values added (corporate taxes) increased from −5% (net subsidies) to +9% (net tax income). The present study concludes by discussing the findings and their policy implications.

The economics of deemed values

In 2001, New Zealand substantially modified its approach to implementation of the Quota Management System to make deemed values a central administrative tool. Catches in excess of a fisher’s annual catch entitlements (ACE) incur payments, called deemed values. Deemed values are an example of a price cap tool within a cap-and-trade regulatory system. The purpose of this paper is to develop four economic explanations for why deemed values may improve administration of individual transferable quota systems. First, deemed values can reduce transactions costs for catch balancing for both industry and government. Second, deemed values can provide liquidity in thin markets and improve the functioning of markets for ACE. Third, deemed values can reduce the incentives for discarding. These three administrative advantages are achieved because deemed values provide simpler administrative processes and because deemed values provide the industry greater flexibility in catch balancing. But the flexibility to land against deemed values carries the risk that deemed values could intentionally be set so low that intentional over-quota catches are incentivized. Fourth, differential deemed values can create an increasing marginal cost of overfishing incentive structure for harvesters.

Sustainability and wealth creation, but no consensus: Recent decades in Iceland’s ITQ-managed fisheries

This paper describes the main developments, issues, and disputes surrounding Iceland’s fisheries and the individual transferable quota (ITQ) system governing them. The path to the ITQ system in Iceland started in 1979 in some pelagic fisheries. A substantial step was made in demersal fisheries when moving toward an individual vessel quota (IVQ) system in 1984. The biggest milestone in management was reached in 1990 when a comprehensive ITQ system was introduced that covered most Icelandic fisheries. Overfishing was a problem in the early days of the ITQ system. The path to sustainable fisheries was long and gradual, and now, most fish stocks are sustainably managed. There is clear evidence that the current fishing rights holders in Icelandic fisheries have demonstrated environmental stewardship because they have not opposed reductions in the total allowable catch (TAC) of important species. The economic performance of the industry has improved, and both the fishing and processing parts of Iceland’s fisheries are now very profitable, and the fishing component is paying significant resource rent taxes. The industry has changed considerably, fishing rights have been consolidated, primary fish markets have been liberalized, and vertically integrated firms dominate the Icelandic fishing industry. Fishing rights (permanent quota shares) are very valuable, so entering the industry for new participants is difficult. The Icelandic ITQ system is now and has always been very controversial and under heavy political debate and scrutiny.

A realist evaluation of the individual transferable quota system used in Finnish herring fisheries

Abstract Rights-based management, such as the individual transferable quota (ITQ) system, is a popular approach for pursuing economic, social, and environmental sustainability in fisheries, with a variety of outcomes. This variety appears to be explained by the contextual differences between the targeted fisheries. By acknowledging that each fishery is unique, we need to apply holistic evaluation methods to understand the mechanisms causing different outcomes in fisheries interventions. Here, we apply the realist evaluation (RE) approach to evaluate the ITQ system implemented in the Finnish herring fishery. This study serves two purposes: (1) it outlines the realized outcomes of the Finnish management system in relation to the expected outcomes and (2) it introduces the RE method to the field of fisheries management. Measured in economic terms, the results indicate the new management system to be a success, although the benefits are more prominent for large-scale fishers. The context did not allow small-scale fishers to reap the theorized benefits of the ITQ system, leading to a somewhat more uncertain future for the sector. The RE approach proved to be a useful tool, well-suited to the evaluation of fisheries management systems.

Derby versus ITQ: Iceland’s coastal fisheries explained and compared to its ITQ-managed fisheries

Iceland adopted a derby fishery strategy throughout its coastal fisheries, which opened for all vessels in 2009. For simplicity, this paper refers to these fisheries as coastal fisheries (strandveiðar), in which small vessels mostly catch cod (Gadus morhua) during the summer. This article describes the coastal fisheries and compares their results to those of other fisheries in Iceland, all of which are managed by an individual transferable quota (ITQ) system. The profitability and the rate of accidents are examined. According to observations of numerous fisheries around the world, the coastal fisheries are assumed to be much less profitable than other fisheries in Iceland – indeed, nonprofitable – because of the derby nature of the fisheries. The findings of this study validate this assumption: the coastal fisheries have been on average generating losses, while other fisheries in Iceland have been profitable. Moreover, it was hypothesized that the derby management system of the coastal fisheries might lead to the rate of accidents in the coastal fisheries being higher than others in Iceland because of incentives generated by the race to fish, which could result in coastal fishers disregarding safety. The findings did not support this; accidents in which a person was injured were uncommon in the coastal fisheries and were relatively less frequent than in other fisheries. However, reported incidents without personal injuries, which were mostly caused by mechanical failures, occurred comparatively more often in the coastal fisheries than in other Icelandic fisheries.

The Exploitation-Exploration Dilemma of Fishing Vessels With Institutionally Protected Quota Shares

It is an established “truth” in the literature that a company which restricts itself to utilize existing resources without exploring new business opportunities is doomed to fail in the long run. An underlying premise for the claim is that the competition arena is dynamic and organized according to free competition principles. This study, however, examines whether it is more profitable for a fishing vessel to primarily exploit existing resources when the quota shares of the players are institutionally protected so that there is no real competition between them. The context is Norwegian seagoing purse seiners, which in 2005 experienced the introduction of a more market oriented individual transferable quota (ITQ) system with some distinct modifications. The vessels in the study were classified into strategic groups based on their exploitation versus exploration approaches. Financial accounts covering the period 2003- 2017 were collected and analyzed to empirically address the issue. Some vessels did considerable explorative activities in the period studied by fishing related species, investing in quotas, and in new vessel technology. The findings suggest that firms which did not explore, but instead exploited their existing resource base performed relatively better than their peers except for EBITDA (earnings before interest, tax, depreciation and amortization) margin. Finally in the paper, the findings are discussed and implications outlined.

Individual Transferable Quotas (ITQ), Rebuilding Fisheries and Short-Termism: How Biased Reasoning Impacts Management

Recent research on global fisheries has reconfirmed a 2006 study that suggested global fisheries would collapse by 2048 if fisheries were not better managed and trends reversed. While many researchers have endorsed rights-based fishery management as a key ingredient for successful management and rebuilding fisheries, in practice the results are mixed and success varies by geographic region. Rights-based approaches such as individual transferable quota (ITQ) provide a necessary help to the important task of rebuilding fisheries, but we assert that they are sometimes less effective due to the human component of the system. Specifically, we examine the issue of setting an appropriate total allowable catch (TAC) in Individual Transferable Quota (ITQ) systems. ITQ are designed on the premise that economic ownership is sufficient incentive to entice fishers to be stewards of the resource. However, an excessive short-term orientation and an affective risk response by fishers can overwhelm feelings of ownership. In such cases, fishers and fishing communities can exert sufficient pressure on TAC setting and reduce the effectiveness of ITQ fisheries toward rebuilding fish stocks. Based on our analysis that draws on cognitive psychology, short-termism, and affective risk, we suggest heightened and wider democratic involvement by stakeholders in co-managed ITQ fisheries along with potential pilot tests of government-assisted financial transfers to help in transitioning ITQ fisheries to sustainable states.

Precarity, Indigeneity and the Market in Māori Fisheries

This paper contributes to debates on growing inequalities in the maritime domain by using the concept of precarity to interrogate the market in Māori fisheries. To understand the particularities of this ocean precarity, I draw attention to the interrelated dynamics of dispossession, as it occurred historically in Māori fisheries through various economic orders, and indigeneity, as it articulates with both alienation and the reclamation of fishing rights. I argue that the incorporation of Māori fisheries into an Individual Transferable Quota system has generated a “political ecology of the precarious,” positioning socio-natures as working against ecological demise at the same time as contributing to it. This transforms the ancestral guardianship relationship between people and their sea, exacerbates colonially-created dispossessions and hardens divisions between economic and cultural spheres, or commercial and customary fisheries. However, precarious conditions may also be conceived of as mobilising phenomena, giving rise to attempts to breach these divides.

Priced out of ownership: Quota leasing impacts on the financial performance of owner-operators

Individual transferable quotas (ITQs) have been widely promoted as a means to improve the conservation and economic outcomes of fisheries by enabling the transfer of quota access privileges to the most efficient operators who in turn have a strong financial incentive to safeguard the long-term sustainability of the fishery. The British Columbia Pacific halibut fishery has long been held up as an example of successful ITQ management. An in-depth investigation of this fishery, however, has identified significant failings of the ITQ system. The ownership profile of the fishery has changed dramatically under ITQs, transitioning from predominantly owner-operated to absentee owners and lessee fishermen. An analysis of fishing enterprise financial performance demonstrates the overwhelming impact of leasing on the viability of fishing enterprises. A representative owner-operator fishing enterprise leasing more than 80% of the quota that it fishes, which characterizes all of the owner-operators that have entered the fishery since 2001, cannot earn enough from the fishery to re-invest, including replacement of the vessel or purchasing of quota. The fishery, under current leasing and purchase price conditions, is not self-sustaining as an owner-operator fishery. Socio-economic objectives for the fishery are not being met, raising important questions about the design and implementation of ITQ management systems.

Cod and climate: a systems approach for sustainable fisheries management of Atlantic cod (Gadus morhua) in coastal Danish waters

This study applied the Systems Approach Framework (SAF) to address the issue of declining Atlantic cod fishery in coastal areas. Interviews of 58 fishers from 26 harbours and meetings with national fisheries organisations and managers revealed the perception of an offshore movement of coastal cod. Numerical modelling based on fishing survey data did not substantiate these perceptions in the data-poor coastal waters. However, Data Storage Tag (DST) information combined with bottom sea water temperature data from the spatio-temporal hydrodynamic Baltic Sea Ice-Ocean Model showed changes in potential cod habitat distribution in the Skagerrak-Kattegat and western Baltic from 1979 to 2016. Subsequently, cod habitats were defined in three categories: (i) potentially suitable (T ≤ 12 °C); (ii) episodic (12 16 °C). The environmental changes were linked to the socio-economic component of cod fishery. Cod catches (weight and monetary value) were retrieved using logbook information and data from the Vessel Monitoring System (VMS, 2005–2016) and the Automatic Identification System (AIS, 2006-2016). General additive modelling significantly showed the largest proportion of catches took place in the potentially suitable habitat whereas catches were lower in the episodic habitat and rare in the unsuitable habitat. The results of this first large-scale SAF application are highly valuable for adapting existing fisheries management by: (i) providing information on habitat shrinkage for Maximum Sustainable Yield (MSY) based stock assessments; (ii) adding a spatio-temporal dimension for coastal productivity relative to the vessel-based Individual Transferable Quota (ITQ) system; and (iii) providing a predictive scenario simulation tool for sustainable management under changing environmental conditions.

Late arrival: The development of resource rent in Icelandic fisheries

The development of resource rent in Icelandic fisheries has been charted since the introduction of the individual transferable quota system in 1990. An estimation of the rent capture of the fishing fee, which is a form of resource rent taxation, is also presented. Two methods were applied to calculate the resource rent. One method is based on the weighted average cost of capital of the Icelandic fishing industry, and the other method involves comparing the return of the capital of fisheries to the general aggregate Icelandic economy. The findings indicate no presence of the resource rent in Icelandic fishing and processing until 2008. Since that time, the rent has been, on average, 16–19% of the export value of the fishing industry, depending on the methods that were applied. The most obvious reason for the long delay before the rent appeared is the almost continual decline of fish catches from 1990–2008. The industry was rationalized during that time, but the rationalization kept up only with the reductions in landings; thus, no resource rent was produced. The rent appeared when the catches started to increase in 2009. In addition, the exchange rate and the weakening of the Icelandic krona were major contributors to the emergence of rent after 2008. The fishing fee captured approximately 13–15% of the calculated rent from 2009. The fee has been relatively modest but was significant in 2016, when it was increased and set at approximately 26–29% of the estimated resource rent of Icelandic fisheries.

Structure and evolution of cod quota market networks in Iceland over times of financial volatility

The quota market is the instrument through which fishing operations under an individual transferable quota (ITQ) system achieve greater efficiency. It allows fishing companies to optimally configure their quota portfolios to their catches. Globally, fisheries corresponding to ~25% of landings have adopted ITQ systems. However, there is surprisingly little empirical information on quota markets functioning. Here we study the development of quota share and lease markets and assess market activity and functioning for the cod fishery in Iceland. We use a social network analysis to assess changes in four Icelandic quota markets, distinguished by boat size (large versus small) and permanence of transfers (leases versus shares). The quota market for permanent trades in small-boat quota shows a sharp increase in trade and network connectivity between 2004 and 2006, resulting in a high rate of quota concentration. The quota markets for permanent quota shares were the most fragmented and sparse during the years of the financial crash in Iceland and never regain the same activity. Our results suggest that quota systems evolve towards a consolidated state and that their markets are not entirely resilient to financial instability. We also found some evidence that better-connected traders could sell quota at higher prices in the lease markets, though price dispersion was generally low.

Why marginality persists in a governable fishery\u2014the case of New Zealand

This paper examines reproduction of marginality evident in fisheries. Uneven relations are widespread across geography and scale; between distant water fishing nations and coastal developing countries; between fishers on large-scale trawlers and smaller boats; between local elites and peasant operators; and between boat owners and crews working in poor and slave-like conditions. With inequality and social exclusion being such a pervasive phenomenon, we ask why do these relationships persist? Using governability, developed within the interactive governance approach, as an overarching basis for interpreting this issue, the purpose of this paper is to demonstrate the possibility that marginality is not only a feature of ungovernability but might also occur in a highly governable system. To advance this insight, we apply theoretical tools associated with Marxist-Gramscian political ecology to the case of small-scale fisher exclusion brought on by the implementation of an individual transferable quota system in New Zealand’s commercial fishery. In particular, we identify social and economic relations that give rise to an accentuated capitalist structure whereby the quota-owning sector of the population (e.g., processing companies and Maori tribal organizations) control the ways in which fishers access economic benefits from their labor. Over the years, the quota system has gained acceptance as a resource management strategy, an intervention that is now ideologically hard to break away. The result is the reproduction of fishers’ exclusion, which contributes to a governable fishery, rather than an ungovernable one. This understanding casts a critical note on what we mean by governability, directing our attention to the ethical questions regarding how fisheries are to be governed and the risks that come with its pursuit.

Collective Rights–Based Fishery Management: A Path to Ecosystem-Based Fishery Management

Fishery rents may be dissipated across margins not well defined or controlled by an individual transferable quota system. Collective rights–based fishery management (CRBFM), where catch rights are held by a group, can sometimes generate greater benefits and can also address external impacts of the fishery. I discuss potential failures of individual quotas and how these problems were addressed by CRBFM institutions. I then focus on the role of CRBFM in addressing environmental and social impacts external to the group of fishers, such as bycatch, habitat impacts, and spatial conflicts. The review suggests that CRBFM can effectively address both intrafishery and external impacts, provided there is sufficient incentive to do so, including maintaining access to preferred markets or the threat of further regulation. However, CRBFM can create moral hazard and adverse selection problems, and successful CRBFM institutions generally have homogeneous membership with well-aligned interests and/or formal contracts with monitoring and enforcement provisions.

Investigating trade-offs in alternative catch share systems: an individual-based bio-economic model applied to the Bay of Biscay sole fishery

An individual-based bio-economic model is presented and applied to the Bay of Biscay sole (Solea solea) fishery to investigate alternative quota management systems from a multicriteria perspective. For this study, the model integrates several institutional arrangements related to catch share management. The current French co-management system with nontransferability of quota is compared with an alternative individual transferable quota (ITQ) system in a context of transition to maximum sustainable yield. Trade-offs between ecological and socioeconomic impacts are highlighted and the effectiveness of governance scenarios is discussed in regard to the challenge of capacity adjustment. Results emphasize that the introduction of ITQs is expected to reduce by 40% the number of vessels in the fishery. While effectively mitigating the economic impacts of the transition phase to maximum sustainable yield, ITQs are also expected to increase substantially the fishing effort by trawlers, which may cause ecological concerns. The scenarios tested also include the simulation of a decommissioning scheme where subsequent decommissioned vessels are considerably different from the vessels that would lease out their quotas in an ITQ system, resulting in differentiated ecological and socioeconomic impacts between scenarios.

Fishing for a fee: Resource rent taxation in Iceland's fisheries

In 1990, Iceland established a comprehensive fisheries management system based on individual transferable quotas (ITQs). Simultaneously, low-cost licence fees, which the fishing industry paid to the government, were introduced. As the ITQ system became more mature and the financial performance of the fisheries improved, there was increasing public demand for the sharing of its resource rent. A special resource committee was set up in 1998 to address these views and concluded that a new fishing fee should be established to cover the cost associated with managing and supervising the use of marine resources, as well as making certain that a visible share of the resource rent accrued to the public. Although the fishing fee has changed since its introduction in 2004, the basic principles behind the taxation remain the same. Five issues have made the introduction and implementation of the fishing fees difficult. The first regards the fee amount for different species. The second relates to the variance in profitability between harvesting companies. The third concerns measurement of revenue and profits from harvesting in vertically integrated firms. The fourth issue is related to how to deal with the debt burden that became quite large for many Icelandic harvesting firms after the financial crisis of 2008. Finally, obtaining reliable data has been a major challenge. This paper provides a background to the implementation of the Icelandic fishing fee, describes and investigates fishing fees issues and their address by the government. In 2014, the fee amounted to 52 million euros, 6.0% of the catch value of Icelandic fishing vessels and around 1.2% of the total revenue of the Icelandic Treasury.

Mapping the geographical consolidation of fishing activities in Iceland during the maturation of the ITQ fisheries management system

Consolidation of the fishing industry worldwide is an issue heavily debated among scholars. Many economists have argued for its necessity, while others – such as sociologists, anthropologists and geographers – have pointed out negative effects of consolidation on fishing communities.The aim of this paper is to measure the geographical consolidation of fishing in Iceland since the introduction of the quota management system in 1984, and during its development into an individual transferable quota system (ITQ). Lorenz curves, Gini calculations and maps are used for this purpose. Consolidation of the fishing sector is a logical outcome of ITQs and the analysis shows that the ITQ system has led to increased geographical consolidation in the demersal and pelagic sectors in Iceland. Regions and communities are unequally affected by geographical consolidation and many small fishing communities are vulnerable to changes in the industry.The results are of value for fisheries management policy formation. When designing fisheries policy for the 21st century it is important to not only consider economic efficiency, but also geographical consolidation and its impact.