Individual transferable quotas versus auctioned seasonal quotas: An experimental investigation

Fishery policies have largely developed in response to revealed problems with existing policy instruments. The last major innovation is the introduction of individual transferable quotas, ITQs. Experience thus far is promising. However, if history repeats itself, it is pertinent to start exploring further improvements. Among other things, concerns may be raised about the efficiency of ITQs, financial risks to owners of quotas and fishing vessels, and problems with fairness and collection of resource rent. These issues are studied with a laboratory experiment. Different from previous experiments it allows for trade of both quotas and vessels. In addition, the experiment tests an alternative institutional arrangement, namely auctioned seasonal quotas, ASQs. Neither of the two systems turns out to be as perfect as economic theory predicts. While the two systems are similar in some respects, the ASQ system allows for taxation of resource rent, and surprisingly, it may be the system with the lowest financial risk for fishing firms.

► A laboratory experiment is used to study ITQs and Auctioned Seasonal Quotas (ASQs).
► Different from previous experiments, players make decisions about both quotas and capacity.
► ITQ prices tend to exceed fundamental values and both systems sustain some overcapacity.
► ASQ prices vary more from year to year and are on average lower than leasing prices in ITQ fisheries.
► ASQs allow for taxation of resource rent and produce the lowest financial risk for fishing firms.