Topic Area: Fisheries
Geographic Area:South Atlantic
Focal Question: What is the role of ITQs in the management of a fishery?
Sources:
(1) Gauvin, John R., et al. 1994. "Description and Evaluation of the Wreckfish Fishery Under Individual Transferable Quotas." Marine Resource Economics 9(2): 99-118. (2) Copes, Parzival. 1986. "A Critical Review Of The Individual Quota in Fisheries Management." Land Economics 62(3): 278-291.
Reviewer: Jonathan F. Nykvist, Colby College '97
Review:
The wreckfish (Polyprion Americanus) is a member of the temperate bass family and is closely related to the striped bass. It is found off the coast of Georgia at depths of 500 - 800 meters, about 300 meters deeper than traditional Southern Atlantic fish such as snappers or groupers. It resembles a grouper in size and appearance, with most wreckfish weighing in at around 30 pounds. The first wreckfish caught in the southern Atlantic was in the early 1980's; it was caught by mistake when a fisherman was using long-line to try to recover some lost equipment. The discovery of this large grouper-like fish was welcome as many of the other fisheries in the south Atlantic were already overfished and overexploited.

Since then, the wreckfish fishery has attracted more and more speculative fishermen. Because it was a relatively new fishery, it was not yet regulated in any way. Thus, it was treated as an open access fishery and many over-exploitation problems arose. During the late 1980's, it began to expand exponentially. Consider the following table:

Year	Vessels	Catch (lbs.)
1987	2	<30,000
1988	6	>300,000
1989	25	>2,000,000
1990	>40	>4,000,000

By 1990, the wreckfish fishery had become one of the largest revenue per trip fishing opportunities in the Southeast. It was expanding so rapidly that it was out of control.

In 1990, the South Atlantic Fisheries Management Council (SAFMC), a federally funded agency, attempted to bring the fishery back under control. They initially placed a cap on the Total Allowable Catch (TAC) at 2 million pounds. However, this only caused an increase in the pace of fishing. In fact, the TAC limit of 2 million pounds was met in the first two months of the 1990 season. The large number of fish caught in such a short period of time flooded the market for wreckfish and brought dockside prices to an all-time low. It also led to intense conflicts between the fisherman. While the TAC system did limit catch, it did not increase income or reduce overcapitaliztion. Thus, it was clear that the TAC method was not a valid approach to bring the fishery under control.

The SAFMC further analyzed the nature of the fishery and realized that a few factors made it a perfect candidate for an Individual Transferable Quota (ITQ) system. Namely: (1) the single-species nature of the fishery (wreckfish fisherman would only on occasion pull in a dolphinfish as well), (2) the relatively small number of participants (other comparable fisheries had over 1500 participants), and (3) the absence of a recreational component. Thus, after much research, the SAFMC decided to implement an ITQ system.

Under the ITQ system, a quota establishes the total number of allowable fish caught, just like with the TAC system. However, each fisherman receives permits representing a certain percentage of this quota. In the wreckfish fishery, 50 percent of these permits were allocated to the existing vessels based on documented historical catch over the 1987-1990 period, and the remaining 50 percent were divided equally among all existing vessels. This struck a balance between those who were relatively new to the fishery and those who had been fishing from the beginning. Any new vessel would have to buy a quota to enter the wreckfish fishery. These quotas are made completely transferable, which allows the fishermen to sell them if they have a surplus, or buy them if they have a strong need. For the initial allocation, no single business entity was allowed to receive more than 10 percent of the total quota. The permits were said to be of "indefinite duration," meaning that if the program was not going as planned, the SAFMC had the right to recall them.

The objectives of the ITQ system were well defined by the SAFMC. The economic incentives included decreasing the harvest pace, and decreasing the overcapitalization of the fleet. Some of the other objectives included decreasing conflicts among fisherman, creating incentives for compliance with fishery regulations, and incentives for conservation.

A main source of contention the SAFMC faced when planning the ITQ system was whether or not to place any restrictions on the maximum number of permits that one business entity could obtain after the initial allocation. Some people argued that without a cap, one business entity could obtain significant market power, thus being able to restrict supply and increase prices. However, it was argued that many fisherman would not be willing to sell their permits as they now had a vested interest in the fishery. Also, wreckfish are generally marketed as a grouper substitute, so that even if one party did obtain all of the allowable permits, they still would not be able to obtain significant market power due to the large numbers of groupers and other grouper substitutes. Thus, they decided to continue as planned without imposing this cap.

The results of the implementation of the ITQ system are fairly clear. Overcapitalization was clearly reduced by the tradable permit scheme. When the ITQ's were first implemented in April of 1992, there were 49 shareholders. By August of the same year, that number had decreased to 37, and by June of 1993, only 31 permit-holders remained. This has lead to efficiency gains for the fisherman. They no longer have the incentives to land as many fish as possible in the early part of the season as they did under the TAC system. Thus, the fishermen have applied less effort in the early months of the season, when the fishing is generally a bit less productive. Consolidation has clearly occurred, but for the same reasons that were mentioned above, this consolidation has not lead to monopoly power. In fact, consolidation was a necessary condition for efficiency, as the predicted economically efficient number of vessels in the wreckfish fishery is 20.

The market prices of wreckfish prior to the ITQ management program varied from $.90 to $1.55 per pound, with the mean approximately $1.20 per pound. This large variation in market price reflected the times when the market was flooded (in the early months under the TAC system) and prices depressed, and when the market was dry (in the later months), and prices were high. After the implementation of ITQ's, prices increased slightly to a mean of approximately $1.85 per pound and the variation around this mean decreased greatly.

Although the effects on conservation incentives are somewhat harder to observe, a few results of the ITQ implementation seem to signal that conservation incentives have improved. The first manifested itself at public hearings that were held once a year after the TAC system was implemented. Before the ITQ system was implemented, the fisherman were constantly arguing for increases in the Total Allowable Catch. However, after the ITQ's were set up, there was a blatant absence of any lobbying for increases in the Total Allowable Catch, thus seeming to indicate that the fishermen had a vested interest in the conservation of the wreckfish fishery for future purposes. Secondly, compliance with the quotas seems high. Since the implementation, there has only been one report of a vessel quota "busting," that is, exceeding their allowable quotas and not reporting them.

The discount rate is also a good indicator of whether conservation incentives exist. The discount rate, or rate of time preference, associated with a Free Access, Common Property resource is infinity. After the ITQ program, the discount rate measured in the wreckfish fishery was 150 percent. This was measured by taking the present value of a permit (price =$0.30) discounted over an infinite time period and setting it equal to $0.50, which was the price of a share, or a permanent harvest right. While this is clearly not infinity, it is still relatively high, indicating that conservation incentives may not be as prevalent as described above. One explanation for this relatively high discount rate is the "indefinite" nature of the permits. That is, if the fishermen feel that the program could be rescinded in the near future, they no longer have a vested interest in the fishery, and conservation effects are not as great. However, regardless of the relatively high discount rate of 150 percent, it is extremely clear that the ITQ system is much more effective on conservation than is Open Access or Total Allowable Catch.

The conflicts between fishermen that were becoming prevalent under both the Open Access and Total Allowable Catch systems seem to have been virtually eliminated with the ITQ system. After the ITQ system was in place, arguments about gear and general fishing practices between fishermen were significantly reduced. This is probably a result of the elimination of the confrontational open access fishery.

Thus, overall, the move of the wreckfish fishery to an Individual Transferable Quota system from Open Access and Total Allowable Catch systems has clearly had positive effects on the fishery. Most of the objectives set forth by the SAFMC are being realized to some degree. The wreckfish fishery is a good example that an ITQ system can work, and should be used as a reference for any other fishery considering the implementation of an Individual Transferable Quota System.