Fishing Quota Markets

Fisheries worldwide continue to suffer greatly from the negative consequences of open access, despite numerous regulatory “solutions”. In 1986, New Zealand responded by establishing the most comprehensive market-based Individual Transferable Quota (ITQ) system for fisheries management, resulting in the creation of over 150 fishing quota markets differentiated by geographic region and species. We assess the functioning of these quota markets from 1986-1999 in terms of the trends in market activity for selling and leasing quota; market entry and exit; the determinants of quota prices; and the interrelationship of quota lease prices, sale prices, and market interest rates. We find that there has typically been a sufficiently high level of market activity to support a competitive market. We also find evidence of economically rational behavior in these markets through the relationship between quota lease and sale prices and measures of fishing value, quota scarcity, ecological variability, and market rates of return. Moreover, after controlling for relevant factors, our results show a substantial increase in the value of quota prices over the history of the ITQ program, consistent with a significant increase in the profitability of the included fisheries. Overall, the evidence suggests a reasonably high level of economic sophistication in these markets, implying that market-based quota systems are potentially effective instruments for efficient fisheries management.