Conference Agenda

This paper develops a theoretical framework to analyze the impact of transaction costs on Individual Transferable Quota (ITQ) markets, focusing on their effects on quota trading, fishing effort, and biomass dynamics. While ITQs are widely regarded as an efficient market-based instrument for fisheries management, empirical evidence suggests that transaction costs can introduce significant inefficiencies. Extending the insights of Stavins (1995) on tradable permits to the context of fisheries, this study formally incorporates transaction costs into an ITQ model and examines their implications. The analysis demonstrates that, contrary to the predictions of a frictionless market, transaction costs introduce market frictions that affect the reallocation of quotas. Our theoretical results show that initial quota allocations influence equilibrium fishing effort when transaction costs are present, challenging the standard Coasean neutrality result. Transaction costs reduce quota utilization by creating a wedge between buyers and sellers, leading to a misallocation of fishing rights and inefficient effort distribution. This, in turn, reduces harvest levels and results in higher biomass. Furthermore, this reduction in quota utilization affects biomass dynamics, as lower total harvest levels result in higher equilibrium biomass. While the increase in biomass may appear beneficial from a conservation perspective, it arises as a consequence of economic inefficiencies rather than a deliberate regulatory outcome. This highlights a fundamental ecological-economic tradeoff: reducing transaction costs improves efficiency but may reduce biomass levels, especially in low-growth or overexploited fisheries.