Static analysis shows that individual transferable quotas (ITQs) can dramatically increase economic efficiency comparable to a limited entry (LE) management by releasing excess capital. However, the transition from LE to ITQ management presents further efficiency questions. This paper shows that the rate of retirement of excess capital is determined by the opportunity cost of holding ITQ harvest rights on cost inefficient vessels. While restructuring is immediate with perfect foresight, delayed exit occurs with uncertainty and low opportunity costs of holding ITQ. Nearly cost-efficient fishers anticipate increasing their payoff by waiting for higher ITQ prices, e.g., game theoretic principles rather than static Marshallian principles apply. The results raise policy questions about allocating ITQ to incumbent fishers at no charge. The Mid-Atlantic surf clam and ocean quahog fishery which switched from LE to ITQ management in 1990 is analyzed as a case study. Results show that a large surplus was possible but unattained under LE management but also that adjustment has been slow and costly, consistent with the results of this paper.
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
5225.
Length: Date of creation: 01 Mar 2002 Date of revision: Publication status: Published in Natural Resource Modeling, Winter 1997, Vol. 10, No. 1, pp. 53-83. Handle: RePEc:isu:genres:5225
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Find related papers by JEL classification: L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
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