1
Introduction

Implementation of the nation's most important fisheries law, the Magnuson-Stevens Fishery Conservation and Management Act, has reached a critical stage. Most U.S. fish stocks are in a state of full exploitation or overutilization (NMFS, 1996). The relative proportions of fish species have been drastically altered in some regions (e.g., Georges Bank: Solow, 1994; NMFS, 1996; Fogarty and Murawski, 1998), with populations of previously dominant species collapsing and less abundant groups becoming dominant. The harvesting and processing capacity in many U.S. fisheries far exceeds levels that are consistent with sustainable fisheries.

Although there have been several successes in U.S. fisheries management in terms of maintaining or restoring stocks—examples include Atlantic striped bass, Pacific halibut, Atlantic surf clam, and North Pacific pollock—there have been many serious failures (Parsons, 1996; Botsford et al., 1997; Roberts, 1997a). Reasons include noncompliance with management regulations, the lack of sufficient data and appropriate models for stock assessments (NRC, 1998a,b), a complex interplay between fluctuating marine populations and a political economy that tends to subsidize or overinvest in fishing capacity (Caddy and Gulland, 1983; Ludwig et al., 1993), and an inclination to make risk-prone rather than risk-averse decisions in the presence of uncertainty (Rosenberg et al., 1993; Sissenwine and Rosenberg, 1993). Some analyses of fishery systems suggest that overinvestment and the inclination toward risk-prone decisionmaking result from the “common-pool" nature of most fishery resources and the "open-access" nature of the rules regarding how these resources can be used (e.g., Gordon, 1954). Many of the investment incentives and decisions that created overinvestment



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--> 1 Introduction Implementation of the nation's most important fisheries law, the Magnuson-Stevens Fishery Conservation and Management Act, has reached a critical stage. Most U.S. fish stocks are in a state of full exploitation or overutilization (NMFS, 1996). The relative proportions of fish species have been drastically altered in some regions (e.g., Georges Bank: Solow, 1994; NMFS, 1996; Fogarty and Murawski, 1998), with populations of previously dominant species collapsing and less abundant groups becoming dominant. The harvesting and processing capacity in many U.S. fisheries far exceeds levels that are consistent with sustainable fisheries. Although there have been several successes in U.S. fisheries management in terms of maintaining or restoring stocks—examples include Atlantic striped bass, Pacific halibut, Atlantic surf clam, and North Pacific pollock—there have been many serious failures (Parsons, 1996; Botsford et al., 1997; Roberts, 1997a). Reasons include noncompliance with management regulations, the lack of sufficient data and appropriate models for stock assessments (NRC, 1998a,b), a complex interplay between fluctuating marine populations and a political economy that tends to subsidize or overinvest in fishing capacity (Caddy and Gulland, 1983; Ludwig et al., 1993), and an inclination to make risk-prone rather than risk-averse decisions in the presence of uncertainty (Rosenberg et al., 1993; Sissenwine and Rosenberg, 1993). Some analyses of fishery systems suggest that overinvestment and the inclination toward risk-prone decisionmaking result from the “common-pool" nature of most fishery resources and the "open-access" nature of the rules regarding how these resources can be used (e.g., Gordon, 1954). Many of the investment incentives and decisions that created overinvestment

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--> were due to processes associated with the maturing of fisheries and misunderstanding of opportunities that would be available to U.S. fishermen as foreign fleets were pushed out. And, in many cases, overinvestment can be linked to declining natural resources, with some of the resource decline possibly caused by environmental degradation and natural climatic shifts. A vivid example is the overinvestment in Pacific salmon fisheries, where the overwhelming source of overinvestment must be attributed to the problems with the resource (NRC, 1996). The stressed nature of many fisheries is apparent from scientific reports of decreasing numbers of spawning fish, reduced overall biomass and population levels, and lower catch per unit effort (CPUE) in commercial fisheries. Because some management measures have not been very effective in reducing these stresses, fishermen,1 communities, and policymakers have been seeking ways to manage fisheries that will maintain biologic resources in the long term, avoid misusing capital, preserve employment, and maintain fishing communities. A relatively new policy instrument, the individual fishing quota (IFQ), is among the alternatives being considered as a possible solution to excess harvesting and processing capacity, stock depletion, and possible ecological disruptions that characterize many managed U.S. fisheries, including those that operate under some form of restricted access. Broadly speaking, IFQs are exclusive individual privileges to harvest portions of an overall quota of marine fish or shellfish. The Magnuson-Stevens Act authorizes the use of a variety of approaches for controlling fishing effort and protecting fish stocks and their environments, including systems for limiting access. In fact, most U.S. fisheries now operate under some form of limited access or limited harvests. The IFQ as a tool for limiting access has evoked considerable controversy, however, because of its potential for creating windfall benefits to the initial recipients, the privileges that IFQs create, and the potential for decreasing employment and changing social and economic relationships among individuals and communities. Through the Sustainable Fisheries Act of 1996,2 Congress placed a moratorium on the ability of the regional fishery management councils to develop or submit any fishery management plan using IFQs until October 1, 2000. Furthermore, it directed the Secretary of Commerce, acting through the National Marine Fisheries Service (NMFS), not to approve any new fishery management plan that includes an IFQ program. In the meantime, the National Academy of Sciences, acting through the National Research Council (NRC), was requested to prepare a comprehensive report on IFQs. This report is intended to fulfill the congressional mandate. 1   The committee uses the term "fisherman" throughout the report because this is how the practitioners of fishing (both male and female) tend to refer to themselves in the United States. 2   The Sustainable Fisheries Act of 1996 amended the Magnuson Fishery Conservation and Management Act.

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--> Magnuson-Stevens Fishery Conservation and Management Act To understand the potential role of IFQs in the management of U.S. fisheries under the Magnuson-Stevens Act, it is useful to review briefly the major policy objectives of the act that IFQ-based management might address. Background on the Magnuson-Stevens Act When the Fishery Conservation and Management Act (FCMA)3 became law in 1976, its principal policy goal was to assert U.S. federal authority over non-U.S.-flagged vessels operating within a zone extending 200 nautical miles from the U.S. coastline, coincident with ongoing negotiations of the UN Convention on the Law of the Sea for the same extension of jurisdiction for all coastal nations. This assertion of jurisdiction was a stark break with the past and a rejection of international organizations as the forum for managing fish stocks in U.S. coastal waters. The act also established a comprehensive system for regulating the domestic fishing industry in federal waters. This system was based on a promising, but untested, approach to fishery management, the development of regional conservation and management plans by joint federal-state consultative bodies with significant participation of the resource users, the fishing industry. Eight regional fishery management councils were formed and given responsibility for the development of fishery management plans for fish stocks of significance to commercial and recreational fisheries in each region. The benchmark for federal approval and implementation of these plans was a set of seven national standards (expanded to ten in 1996, including the requirement that the plans prevent overfishing and achieve "optimum yield"; see Appendix D). Since 1976, the Magnuson-Stevens Act has been amended more than a dozen times, and several sets of amendments have marked significant changes in its course and emphasis (Greenberg, 1993; see Appendix E). The early amendments focused on the process of "Americanizing" U.S. fisheries. The Processor Preference Act in 1978 was designed to foster growth of the American processing sector by requiring the denial of permits to foreign processing vessels for fisheries in which U.S. fish processors have adequate capacity. This act was followed in 1980 by the American Fisheries Promotion Act and its "fish-and-chips" policy requiring allocation of foreign fishing privileges on the basis of a nation's reduction of trade barriers against U.S. fish products. In the second phase of amendments, the focus was on domestic management institutions, particularly the regional councils, and the process for implementing 3   The FCMA was renamed the Magnuson Fishery Conservation and Management Act in 1980 and the Magnuson-Stevens Fishery Conservation and Management Act in 1996.

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--> regulations promulgated in fishery management plans. Amendments enacted in the 1980s were aimed at accelerating the Americanization process, for both the harvesting and the processing sectors, and strengthening the input of the fishing industry to management policymaking. The 1990 amendments returned to international issues, addressing U.S. jurisdiction over tuna species, driftnet fishing on the high seas, and the high-seas fishery for Bering Sea pollock (Greenberg, 1993). The 1996 amendments (the Sustainable Fisheries Act [SFA]), by contrast, can be viewed as a response to the overwhelming success (and perhaps excess) of the Americanization and industry empowerment policies. The 1996 amendments were a reaction to the substantial depletion of U.S. fishery resources that resulted (at least in part) from the expansion of U.S. fishing power. The rapid growth in domestic fisheries had led to most of the problems often associated with open-access fisheries, including overcapacity, reduced profits, short and dangerous fishing seasons (Figure 1.1), and continuous pressure on the management system to relax conservation and management measures (Huppert, 1991). The amendments emphasized the goal of biological conservation of fish stocks and protection of habitats and emphasized other significant resource management objectives. The 1996 amendments reflect the increased influence of conservation and environmental groups in federal fisheries legislation. From an economic perspective, these renewed objectives include greater consideration of economic efficiency in light of the overcapacity in many of the newly Americanized fisheries. The amended act, with its definition of "fishing community" and other provisions, also mandates greater attention to the distribution of economic benefits from U.S. fisheries and the effects of management on fishing communities. Because the issues of overcapitalization and distributional effects were largely subsumed in the congressional debate over IFQs, the relative importance of efficiency versus distributional considerations in U.S. fisheries policy remains undefined under the act. For the first time, the amendments make the duty to prevent overfishing an enforceable obligation; they also require attention to marine resources used for noncommercial purposes and the broader ecological context of fisheries. These conservation objectives include the need to avoid or minimize the biological waste associated with fisheries, including reducing bycatch, minimizing the discarding of fish, and reducing adverse impacts of fishing on critical fish habitats. The 1994 amendments to the Marine Mammal Protection Act had already significantly changed the federal fisheries regime by requiring an explicit system to control marine mammal mortality in commercial fisheries. The 1996 amendments to the Magnuson-Stevens Act may thus be characterized as signaling a reemphasis on those biological and resource conservation objectives of the original act that had been overshadowed by the policy of Americanizing the industry and a response to the lack of clear conservation objectives in some of the council regions.

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--> Figure 1.1a Changes in catch and season length in the Area 3A (central Gulf of Alaska) halibut fishery from 1970 to 1994, before the introduction of IFQs. Figure 1.1b Participation and season length in the sablefish fishery in the West Yakutat sablefish fishery from 1984 to 1994, before the introduction of IFQs. Provisions Related to Individual Fishing Quotas (see Appendix A) The 1996 amendments did not resolve the debate over IFQs, but they did add a statutory definition of IFQs and a statement of policies concerning any IFQ programs designed or implemented after the end of the moratorium. The act now defines an IFQ as "a Federal permit under a limited access system to harvest a quantity of fish, expressed by a unit or units representing a percentage of the total allowable catch of a fishery that may be received or held for exclusive use by a person" (Sec. 2[21]). The IFQ is defined as a permit for

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--> purposes of the act's provisions on prohibited actions, civil penalties, permit sanctions, and criminal offenses. This permit may be revoked or limited at any time in accordance with these provisions, and if it is revoked or limited, the holder is not entitled to any compensation from the government. The act also states that the IFQ shall not create, or be construed to create, any right, title, or interest in or to any fish before the fish is harvested (Sec. 303[d][3]). After the expiration of the moratorium, Congress requires any council submitting an IFQ program, and the Secretary of Commerce in reviewing that program for approval, to consider this NRC report and to ensure that the program includes a process for review and evaluation; provides for effective enforcement and management; and utilizes a fair and equitable initial allocation, with provisions to prevent excess concentrations of IFQs and to facilitate new entry, especially of those not favored by the initial allocation (Sec. 303[d][5]). The Magnuson-Stevens Act also mandates the development of a central registry system for limited access system permits, including IFQs. The Secretary may collect 0.5% of the value of the permit upon registration or transfer of the permit to fund the operation of the registry (Sec. 305[h]). The act also mandates the collection of a fee of up to 3% of the exvessel value of landed fish to "recover the actual costs directly related to the management and enforcement of IFQ and CDQ programs" (Sec. 304[d][2][A-B]). In IFQ fisheries, up to 25% of the funds collected through such fees can be allocated at a council's discretion to help finance purchase of IFQs by small-vessel fishermen and new entrants to the fishery (Sec. 303 [d][4]). The North Pacific Fishery Management Council was required to recommend to the Secretary of Commerce by October 1, 1997, that the full amount of these fees be used to guarantee loans for small-vessel fishermen and new entrants to the Alaskan halibut and sablefish IFQ fisheries (Sec. 108[g]). Definitions The evaluations presented in this report rely on definitions of a fishery, fishing community, and individual fishing quota that are based on those given in the Magnuson-Stevens Act but differ from the act's definitions in some aspects. The concepts of resource rent and externalities are also discussed in this section. Fishery The Magnuson-Stevens Act defines a fishery as one or more stocks of fish that can be treated as a unit for the purposes of conservation and management and that are identified on the basis of geographic, scientific, technical, recreational, and economic characteristics; as well as any fishing for such stocks (Sec. 3[13]). A fishery consists of a suite of biological phenomena and economic, social, and political actors and institutions. A more comprehensive definition, to which the

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--> committee subscribes, includes the people engaged in the harvest and use of the fish, whether for commercial, subsistence, recreational, or ceremonial purposes. A fishery includes those who harvest, process, market, and even manage the activity. The dynamics of each fishery can differ based on the uses of harvested fish, ranging from subsistence to harvest for world markets. Fishing Community The Magnuson-Stevens Act defines "fishing community" as a community that is substantially dependent on or substantially engaged in the harvest and processing of fishery resources to meet its social and economic needs; vessel owners, operators, crew members, and processors based in such a community are included (Sec. 3[16]). There are two broad aspects to this definition. The first is that of specific, contiguous geographic locations where fishermen or those associated with the fishing industry live and work. In this sense, Gloucester, Massachusetts; Atlantic, North Carolina; Golden Meadow, Louisiana; Fort Bragg, California; Ballard, Washington; and Kodiak, Alaska, might be considered fishing communities, even though some are embedded in larger metropolitan areas. The second aspect is that of a "community of interest" or "virtual community" (NRC, 1999b), a group of people who share common interests and activities that may or may not be associated with specific, contiguous geographic locations. In this sense, recreational king mackerel fishermen, East Coast longliners, the Gulf of Mexico shrimp fleet, California salmon trollers, and members of organizations such as the Coastal Conservation Association and the Pacific Coast Federation of Fishermen's Associations might be considered fishing communities. The implementation of IFQs creates a new community of interest: those who hold IFQs. The existence of such a community of interest is important in the discussion of co-management and involvement of stakeholders in the management process. Both definitions of fishing community are relevant to the potential achievement of objectives or assessment of impacts for specific fishery management programs. A related subject is the issue of "community dependence" as it applies to these two different aspects of the definition of community. For small, isolated geographic communities such as many of those in Alaska, Hawaii, U.S. island territories, and rural areas of the contiguous United States, the notion of dependence may include geographic isolation; lack of employment alternatives; social, economic, and cultural systems that have developed in these locations; and their dependence on fishing as a source of nutrition, livelihood, and life-style. For the more general communities of interest, however, such as a migratory fishing fleet with bases in several different locations or a constituency such as recreational fishermen, the notion of dependence may include the ability to move flexibly among different locations or to use fishing as part of a diverse set of life-styles.

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--> These communities of interest may also have social, cultural, and economic systems that have developed specific to the interests and activities of their members. The fact that these types of communities differ does not mean that either type of community is more or less "dependent" on fishing; rather, they are dependent on fishing in different ways that should be taken into account in the development of all fishery management programs, including those using IFQs. Individual Fishing Quota For most fisheries, the most effective mechanisms to ensure that a fish stock can continue to be productive are limits on the amount of fish that is harvested and removed from the breeding population and protection of critical habitat. Two general types of techniques can be used to control the level of harvest: input and output controls. Input controls attempt to limit catch indirectly through limits on the amount of labor or capital that can be applied to a fishery, for example, by limiting the amount of time fish can be harvested or the amount or design characteristics of gear that can be used. Output controls attempt to directly limit the number or weight of fish that can be harvested. Output controls usually establish a total allowable catch (TAC) for a given fish species and close the fishery once this level is reached. IFQs are a form of output control. Frequently, combinations of input and output controls are used to manage the amount of fishery harvests, the timing of the harvest, and the distribution of harvest activities. IFQs are allocations of fish harvesting quotas to individuals or firms, specifying that a certain amount of fish or shellfish of a certain species may be caught in a specific area within a given time frame (usually a year, although not necessarily a calendar year). IFQs are not necessarily a replacement for other management tools and are actually complementary to other management measures. IFQs are best suited to fisheries managed by setting a TAC. Indeed, IFQs are usually expressed as shares of the TAC, so that the amount of fish that can be harvested for a given share of quota fluctuates with changes in the level of the TAC.4 The magnitude of a TAC is usually derived on an annual basis by applying a target exploitation rate to an estimate of the current stock size. Determining the target exploitation rate and measuring the stock size are both subject to considerable uncertainty, because of large variability in the relationship between stock size and the generation of subsequent offspring and to general difficulty of accurately counting and measuring fish in the wild (NRC, 1998a). IFQs are defined in the Magnuson-Stevens Act as limited access permits to harvest quantities of fish. They represent quasiprivatization of the fisheries, in 4   Although the TAC in IFQ fisheries is usually expressed in weight (biomass), the Wisconsin lake trout IFQ is expressed in number of fish.

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--> that permittees hold exclusive privileges with some of the attributes of private property—such as the privilege to decide when and how to use the quota shares—but not others, including ownership of the resource itself and the ability to decide how much of the resource can be harvested. The latter remains the domain of state and federal governments, which have public trust responsibilities to manage fishery resources for the public. The term "IFQ" is peculiar to recent U.S. history. Other terms are more widely used. If the quota shares are tied to specific fishing vessels, rather than persons, they are usually known as individual vessel quotas (IVQs). If the quota is more or less freely transferable, it may be known as an individual transferable quota (ITQ). Sometimes the term individual quota (IQ) is used to denote an IFQ program that does not allow transferability. A quota that is allocated for the retention of bycatch rather than for a target species is known as an individual bycatch quota (IBQ) or an individual vessel bycatch quota (IVBQ). Throughout this report, the committee uses the term IFQs to define the general concept of allocating individual privileges to harvest fish. This term includes the concepts of ITQs, IVQs, IQs, and IBQs or IVBQs. When the committee refers to specific types of individual quota systems the appropriate term is used. Resource Rent 5 An important economic concept that forms the basis of the economic efficiency arguments in favor of IFQs is the concept of resource rent:  Rents are economic profits that can be earned and can persist in certain natural resource cases due to the fixed supply of the resource. In most industries, expanding supply in the presence of constant demand reduces prices. Rent can arise in a natural resource situation because supply cannot be expanded indefinitely, which can create a scarcity and keep prices higher than necessary to keep the inputs to production in their use in fisheries, instead of some other use.  In situations in which fixed supply creates scarcity, rent is the difference between total revenue and all necessary costs of production, including a normal return on invested capital (see Panel C in Box 1.1). In normal industries, extranormal profits (those due to a scarcity of supply of the industry's products) are dissipated by an expansion in manufacturing, but this is not always possible with natural resources such as fisheries. In regular production, advantage is gained by producers who adopt cost-minimizing technological changes because total production can be increased. In natural systems, total production is exogenously fixed and technological changes simply serve to redistribute catch shares 5   Anderson (1980) discusses different sources of economic rent from fisheries, including resource rent.

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--> BOX 1.1 A Simple Bioeconomic Model of a Fishery The Gordon-Schaefer model for a fishery (Gordon, 1954; Schaefer, 1957; Clark, 1985a), illustrates many of the features and problems observed in fisheries. The model deals only with a single fish species in isolation and ignores the substantial and unpredictable environmental fluctuations that give rise to variations in the abundance of fish stocks. Underlying the model is the simplifying assumption that the natural growth is "logistic," with the maximum per capita growth rate (the intrinsic growth rate r) occurring at small stock biomass (Panel A). The model also assumes that all fishing operations are identical and it ignores temporal variability in the price for fish and the costs of fishing. Throughout the report, these shortcomings are identified and addressed at pertinent points. Despite these shortcomings, the model highlights how open access can lead to overexploitation, a feature observed repeatedly in real-world fisheries. In the absence of fishing, the stock will have a growth rate of zero and be at equilibrium when its biomass is equal to the carrying capacity (K). The overall growth rate (as opposed to the per capita rate) is a parabolic function of the stock biomass (Panel B). If the harvest rate is proportional to both the amount of fishing and the stock biomass, it can be represented as a straight line through the origin, with slope equal to the catch rate per fishing operation (q) times the number of operations (f). The intersection of the harvest line and the growth curve represents the equilibrium biomass and the equilibrium harvest rate. If the biomass is less than the equilibrium level, natural growth exceeds the harvest and the stock grows toward the equilibrium; if the biomass is greater than the equilibrium level, harvest exceeds natural growth and the stock shrinks. The peak of the growth curve represents the so-called maximum sustainable yield (MSY), which occurs at biomass equal to BMSY (Panel C). Stocks that have been reduced by fishing to below the BMSY level are usually considered over-fished. If the price for fish is constant, the total revenue flow from this fishery can be represented as a parabolic function of either the equilibrium stock biomass or the equilibrium number of fishing operations (Panel C). If the flows of fixed and operating costs per fishing operation are constant, the total cost flow can be represented as a straight line through the origin, with slope proportional to the cost flow per operation. (Note: This assumes a long-term analysis in which all costs are variable. The total cost line includes

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--> a normal profit equal to the amount necessary to keep the factors of production in their existing use.) The difference between the revenue curve and the cost line represents the rent that potentially could be derived from the stock. The intersection of the cost line and the revenue curve represents the open-access equilibrium (OAE) associated with fOAE fishing operations and a stock biomass of BOAE . If the number of fishing operations is less than fOAE. the participating operations will make abnormally large profits that will entice additional operations into the fishery. provided entry is not limited. If the number of fishing operations is greater than fOAE, net losses will cause some operations to exit the fishery. Rent from the fishery is zero at the open-access point. The location of BOAE relative to BMSY depends on the magnitude of the fishing costs (the slope of the cost line) relative to the price for fish. Fish that are expensive to harvest will not be biologically overfished unless they are high priced. The diagonal total cost line in Panel C includes the fixed costs associated with fishing vessel ownership, to cover debt servicing if the vessel was purchased with borrowed money or to provide a reasonable return on investment otherwise. If the government subsidizes vessel purchases, the vessel owner will experience lower costs and the total cost line will be less steep, which will produce an open access equilibrium point with a smaller stock of fish but more fishing vessels making low or negative returns on the investment. Because investments in vessels and permits are fixed in the long run, the decision to fish during any given season will depend on the short-run variable costs, which are less than the total costs. As a consequence, the vessels may make unsustainably large harvests in the short run that lead to long-run losses. If the fish stock was privately owned, the “static maximum economic yield" (MEY) that produces the maximum stream of profit flows (the maximum rent) given a zero discount rate, would be achieved by limiting the number of fishing operations to fMEY, resulting in a stock biomass of BMEY. Unless fishing costs are zero, the biomass that produces MSY will always be less than the biomass that produces the static MEY (BMSY < BMEY). With a nonzero discount rate the stock biomass that produces the maximum stream of discounted profit flows, the so-called dynamic MEY, will depend on the ratio of the discount rate over the stock's intrinsic growth rate (Clark, 1985a). With an infinite discount rate, future harvests have no value and the stock biomass that produces the dynamic MEY is BOAE. coinciding with the open access equilibrium.

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--> posed: Why did it take so long? How, exactly, did it come about? One reason exclusive harvest privileges were not implemented until recently in fisheries is the practical difficulty of erecting boundaries around fish. In common law, such "fugitive" creatures as fish and wild birds or game are not "owned" until they are captured. This rule of law poses an obstacle to privatization. Yet privatization of aquatic animals is not impossible, nor is it absent from history. Sedentary shellfish can be fenced and points of access to marine resources can be treated as private property. Farmers, fishermen, lords of the manor, monasteries, enterprising fish traders, Native Americans in the Pacific Northwest and elsewhere, and others have often sought to secure their interests by claiming exclusive rights to shellfish beds, places to use fishing weirs and seines, and particular fishing grounds. During the Tokugawa period in Japan (from 1603 to 1868), fishing territories were owned by feudal rulers who extracted labor and taxes in exchange for giving rights to fish to communities and individuals (Kalland, 1988). There is also a historical record of exclusive rights of access to highly valued sports and recreational species for both inland and anadromous stocks, many of which continue (Netboy, 1968; Brubaker, 1996). An even more significant obstacle to exclusive access to marine resources has been social resistance to it, based on very different conceptions of property rights, configurations of interest, and in some cases, world views, which to some extent continue today and influence the debate about IFQs. Fish weirs were outlawed on the rivers of England by the Magna Carta of 1215, which became the political and legal source of the liberties of British subjects. Over time, in many Western nations, legal principles were established that supported the inalienability of public as opposed to private rights of commerce, navigation, and fisheries. The public trust doctrine, as it came to be known in the United States, has persisted despite society's embrace of the market economy imperatives of privatization (Sax, 1970; Rose, 1986; McCay, 1998). This legal doctrine protected the interests and rights of the public to free access to marine and riparian places for fish and navigation by asserting state ownership of the beds of tidal and navigable waters, the waters themselves, and fish and shellfish, on behalf of the public. The public trust doctrine, discussed in Chapter 2, protects public rights in tide-washed lands, navigable rivers, lakes, and their resources. In some areas, it also has been interpreted as justifying the right of the state, or the Crown, to ignore or replace local customary and formal systems of allocating rights. Accordingly, the development of this argument can make it difficult for local communities to integrate the interests of all users of the resource, as opposed to the public at large. In the Pacific islands, traditional cultures often treated fishing grounds, rights to take certain species, and even rights to use specific gear types as the exclusive property of individuals or family corporations. Thus, in the codification of customary law relating to land and sea resources in the Gilbert Islands in the early 1940s, British colonial officials encountered a conflict between British law, in

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--> which tidal and submerged lands belonged to the Crown, with attendant public rights of navigation and fishing, and Gilbertese law, in which every stretch of reef and every coral head and shoal that was a feeding ground for fish was privately owned (Goodenough, 1963). A similar system characterized customary law in Chuuk (Truk) (Goodenough, 1951), as well as islands of Papua New Guinea (Carrier, 1987a,b), where even the right to use certain types of fishing technology for certain species of fish might be privately owned by individuals or family corporations such as lineages. However, colonial and postcolonial impositions of Western law, as well as profound political, economic, and cultural change, have weakened and destroyed many of these systems of sea tenure (Johannes, 1978; Cordell, 1989). Accordingly, the issues of open-access fisheries are widespread, although not universal. In the United States, competition between those who claimed the freedom to fish and those who wanted the benefits of exclusive property rights in order to develop fisheries was particularly evident in the estuarine shellfisheries for oysters and clams. Similarly, exclusive use rights to fishing sites and species were held by clans, tribes, and family groups in the Pacific Northwest and Canada (e.g., McEvoy, 1986; Bay-Hansen, 1991; Newell, 1993). Higgs (1982) provides a thoughtful discussion of how the collapse of traditional (Native American) fishing rights on the Columbia River precipitated an economically wasteful race for fish in the mid-nineteenth century. By the end of the nineteenth century, the arguments had come closer to those of economists today: the dangers of open access or "public rights" and the need for some sort of privatization to provide incentives to people to take care of and invest in the future of shellfish resources (Brooks, 1891; McCay, 1998). Leaseholds or private property were created in many states for shellfish enhancement and aquaculture. Otherwise, government-based fisheries management proceeded in the directions of hatchery-based enhancement and regulation of fish harvesting through total allowable catches, closed seasons, gear limits, and other tools, while maintaining more or less open access (Nielsen, 1976). Admonitions to recognize the role of economics in fisheries management reappeared in the early twentieth century (e.g., Warming, 1911; Graham, 1943) but were largely ignored until the 1960s and 1970s. Scheiber and Carr (1997) found the germ of the IFQ concept in a plan proposed for the State of Maryland to limit licenses in a fishery on the Chesapeake Bay during World War II. This region featured a long-standing concern about the problems of managing fisheries through gear restrictions, which meant managing for inefficiency, especially in the shellfisheries (Brooks, 1891; McHugh, 1972). The new proposal included ideas about "economic rent," basing rights on historical performance, and finding ways to retire excess vessels (Scheiber and Carr, 1997). At the federal level, fisheries management was being based on the goals of maximum sustainable yield (MSY) and taking an ecosystem approach to achieve

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--> MSY (Scheiber and Carr, 1997). The International Pacific Halibut Commission (IPHC) was an important focus of these debates. The success of the IPHC in restoring the depleted Pacific halibut stock by using annual quotas was invoked as evidence for the importance of focusing on conservation, rather than allocation and economic issues (Scheiber and Carr, 1997). The Maryland license limitation proposal influenced a Canadian economist, H. Scott Gordon, who in 1953 published "the first major paper setting forth a theory of property rights in fisheries" (Scheiber and Carr, 1997; p. 238). Gordon (1953, 1954) argued that as long as fisheries were considered a "common property" (i.e., open-access) resource, economic rent from nature could not be captured by society. It would be dissipated in a process of escalating harvest costs that results from the race for fish. Gordon demonstrated that a "sole owner" would harvest the stock in such a way that he or she would capture the available rent. In the work of economists who followed Gordon, the otherwise esteemed work of organizations such as the IPHC was accused of creating economic inefficiency (Crutchfield and Zellner, 1962), and MSY itself was construed as a "socially meaningless objective” (Christy and Scott, 1965). Soon after Gordon's paper was published, the Food and Agriculture Organization (FAO) held a conference on the economics of fisheries management (FAO, 1956; see Scott, 1993), and university conferences and working groups followed (e.g., Crutchfield, 1959). An international community of fishery economists developed around the topic of achieving economic objectives and using economic incentives as tools in fisheries management. By the mid-1970s, the concerns of economists had become part of broader assessments of fisheries management, which criticized the dominant goal of achieving MSY (Nielsen, 1976; Larkin, 1977). Economists and their concerns also played important roles in changes in the international law of the sea, as Iceland, the United States, Canada, and eventually all other coastal nations claimed 200-nautical-mile exclusive economic zones (EEZs) and revised their domestic policies and management structures to handle the new responsibilities of extended jurisdiction. The economists' argument for "limited entry" to counter the problems of open access had been well developed in works such as Christy and Scott's (1965) general treatise on the problems of open access and the need for limited entry and Crutchfield and Pontecorvo's (1969) book about the economic losses that resulted from open-access management of salmon fishing. However, the concept of limited entry became an easily understood and more politically acceptable reality as applied to foreign fleets than to domestic fishermen. In Canada and some other countries, domestic management moved in the direction of limited entry as well, guided by economists and others trying to bring the goal of economic efficiency into fisheries management. Limited entry was established in 1968 for salmon and halibut in the province of British Columbia, Canada (Fraser, 1979). Soon after establishing its EEZ in 1977, Canada's Minis-

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--> try of Fisheries and Oceans began an eventually successful campaign to limit entry to all commercial fisheries (Parsons, 1993). In sharp contrast, the U.S. fishing industry showed major resistance to limited entry in fisheries, although limited entry programs were adopted for salmon and roe herring fisheries in Alaska as well as several fisheries in the Great Lakes (Cicin-Sain et al., 1978), and the State of Washington had a ballot initiative to limit entry as early as 1934 (Benson and Longman, 1978). Limited entry often appeared as an attempt to protect local fishermen from competition from outsiders moving into local waters; in the United States, it was therefore subject to court review in relation to constitutional protections of interstate commerce. In the course of discussions by fisheries economists from the 1950s through the 1970s, several important ideas arose that contributed eventually to the idea of IFQs. At an FAO conference held in Ottawa, Canada, in 1961, the economist James Crutchfield suggested the idea of creating a property right in licenses, not fish stocks; he called these "limited property rights" (FAO, 1962). This might be considered a predecessor to the idea of creating property rights in shares of a quota. At the same meeting, Anthony Scott, who had argued for some time for sole ownership as opposed to limited entry (e.g., Scott, 1955),7 suggested that if a sole-owning authority of some kind assigned each vessel a right to fish, it would work toward greater efficiency and reduce overcapitalization (FAO, 1962). This idea is a precursor to that of allocating to individual vessels shares of a quota, which may become transferable. In 1963, a group of scholars from the University of Washington brought these and other ideas together in the first major report on limited entry in U.S. fisheries (Royce et al., 1963). At numerous meetings and in book chapters and journal articles, economists continued their work on an economic theory of fisheries management, focusing on the neoclassical principle of the "nexus between efficiency and the vesting of property rights in marine resources" (Scheiber and Carr, 1997; p. 251). In 1969, Francis Christy wrote an article in which he argued that the right to exclude others was "fundamental to the achievement of economic efficiency" (Christy, 1969, cited by Scheiber and Carr, 1997; p. 251). By 1973, this idea was formulated as a tradable quota assigned to a fisherman, vessel, or firm (Christy, 1973; Elliot, 1973). Christy (1973) argued for allocating to each fisherman-whether owner or captain—a share of a quota or percentage of catch. These might be leased, although there would be limits to prevent excess accumulation, and they could be sold only to an administering agency. However, fishermen would have as much freedom as possible in determining how to fish and hence achieving some efficiencies. The premise was that the set of co-owners of the fishery might 7   Scott (1955) formalized the arguments developed by Gordon; in a later paper (Scott, 1979), he extended the comparative static approach of Gordon (1953, 1954) and Scott (1955) to a dynamic optimization context.

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--> achieve some of the rent-conserving behaviors available to the hypothetical sole owner.8 In footnotes and asides, Christy acknowledged the difficulty of initial allocations as well as several possible drawbacks of limited entry licensing schemes such as this in contrast to open access, including their attraction for "big business" and hence the possibility of the loss of valued attributes of fisheries, including the independent, individualist, risk-taking way of life made possible by open access (Christy, 1973, 1977). As noted earlier in this chapter and discussed in later chapters, these problems are indeed real ones in existing IFQ programs. However, the momentum was in the direction of testing individual quotas in actual fisheries. Beginning in 1976, the herring fishery of the Bay of Fundy region of Atlantic Canada was managed by allocating shares of the annual herring quota to vessels in the industry, the owners of which set up a co-management scheme with the support of the government fisheries agency (Kearney, 1984; Stephenson et al., 1993). The key papers from a conference on economics and fisheries at Powell River, British Columbia, were published in a special issue of the 1979 volume of the influential Journal of the Fisheries Research Board of Canada (now the Canadian Journal of Fisheries and Aquatic Sciences), the culmination of a year of meetings in Seattle, Denver (Rettig and Ginter, 1978), and Lake Wilderness, Washington. They included reviews of existing limited entry systems that highlighted the problems created by simply limiting entry without having other means of preventing overcapitalization and inefficiencies (Fraser, 1979). Several articles focused on the need to go further than limiting entry, adding limits on the amounts each licensee could catch and perhaps making these transferable (Copes, 1979; Moloney and Pearse, 1979; Scott, 1979), that is, ITQs. Fundamental to these discussions was increased concern about technological advances and increased effort in many fisheries of the world, rising disenchantment with the idea of managing for MSY, and by the mid-1970s, enclosure of EEZs around coastal nations. With the Fishery Conservation and Management Act of 1976, U.S. fishermen and fishery managers viewed limited entry largely as a matter of excluding foreign vessels from newly claimed waters. Otherwise, the principle of open access was defended as it long had been in U.S. political and legal history, often with reference to the Commerce Clause of the U.S. Constitution (e.g., McCready v. Virginia;9 Libecap, 1989, pp. 79-80; McCay, 1998). 8   The linkage from Gordon through Scott to IFQs followed the logic that multiple users would compete away the rents in a race for fish, whereas a sole owner would, acting as a monopolist, capture the rents. Scott extended the work of Gordon to show the same result in a dynamic context. The next leap was that perhaps individuals with secure access to predetermined quantities would behave in a manner analogous to the sole owner (Keen [1988] argues against this, asserting that sole ownership is required to resolve property issues in fisheries). The assumptions that drive this conclusion are that the harvest right is secure, that cheating does not occur, that there are no unique spatial or temporal concentrations that could lead to a race for fish, and that any returns to scale are captured. 9   94 U.S. 391 (1887).

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--> Consequently, in the United States, any interest in individual quotas was probably stymied by widespread resistance to limited entry, as noted above. The surf clam fishery of the Mid-Atlantic region was the first federal fishery to have limited entry, beginning in 1978; it remained an exception for most of the next decade.10 The principle of open access remained dominant. Management bodies such as the regional councils concentrated on Americanizing fisheries that had been dominated by foreign vessels prior to the establishment of the EEZ. In some regions, particularly the northeastern United States, there was also strong resistance to the use of TACs in fisheries management after their brief and contentious use in New England groundfish management (Miller and van Maanen, 1979). TACs are still not being used in this region, although a moratorium on entry to the groundfish fishery was established in 1992 and effort is controlled through allocation of days-at-sea limits to individual vessels. From the late 1970s and particularly the 1980s, leading scientists and officials in NMFS favored limited entry and IFQs. However, the only case of limited entry in federal waters into the early 1980s was the surf clam fishery, which was managed with a moratorium on entry as well as TACs and time limitations. The surf clam fishery quickly became a model of how a limited entry program could create an exclusive group engaged in rampant overcapitalization (see Chapter 3). In Canada, the limited entry salmon and halibut fisheries had shown similar problems (Fraser, 1979; Pinkerton, 1987), and the transferable vessel allocation program for the herring fishery created in 1976 in Atlantic Canada seemed doomed because of inadequate enforcement (Stephenson et al., 1993). In the early 1980s—like many other nations in the context of expanding fishing jurisdictions—the fishing industries and ministries of Australia and New Zealand held exchanges of fishery managers and economists who were developing the idea of IFQs. Similar exchanges among managers, industry people, and economists helped shape the early IFQ programs of Iceland, Norway, and Canada. Chapter 3 and Appendix G provide additional details about the development and characteristics of IFQ programs in the United States and abroad. Certainly, the design of IFQ programs has been an experimental process. For example, lessons about the costly risks of allocating pounds of fish rather than a percentage of a quota share came from the New Zealand IFQ program. The Canadian experiments, starting with Bay of Fundy herring, showed the critical importance of investing in monitoring and enforcement, as well as the potential for industry involvement in "co-management" and cost sharing. The U.S. surf clam/ocean quahog (SCOQ) IFQ program, as well as the wreckfish system, the first two in U.S. federal waters, both benefited from these experiences. The 10   Limited entry within state waters was much more common, used not only by Alaska and the Pacific states but also by the Great Lakes states and New Jersey. During the early period of the Magnuson-Stevens Act, there was concern about states rights being swamped by federal authority, which may have played a role in the lack of federal limited licensing programs.

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--> SCOQ experience, in turn, has led to greater attention to problems of excessive accumulation and concentration in industries under IFQs, a question that was taken up in earnest in the Alaska halibut and sablefish IFQ planning process. In addition, failures to take into account the claims of hired captains and crew to initial allocation in the Alaskan programs probably influenced the decision in the Gulf of Mexico red snapper IFQ plan (approved but not implemented) to provide for allocation to captains under specific forms of contract. The red snapper planning experience (like that of New Zealand), in turn, has highlighted the challenges of using IFQ tools in fisheries with large and growing recreational participation. General Rationales and Issues for Implementing Individual Fishing Quotas The reasons for using IFQs can vary widely. The most general reason is to counteract negative consequences of open or limited access management systems, particularly where TACs are used. A TAC without any limitation on fishing by the individual fisherman provides incentives for all participants in the fishery to harvest the TAC as quickly as possible before the fishery is closed. This typically leads to excessive fleet capacity and fishing effort and increasingly shorter fishing seasons (see Figure 1.1). A central objective of many fisheries managed by IFQs is to avoid the undesirable consequences of this race for fish. Three more specific rationales that have been offered for implementing IFQs are (1) improving economic efficiency by providing incentives to reduce any excess harvesting and processing capacity; (2) improving conservation by creating incentives to reduce bycatch and lost gear and engaging in other activities that conserve the resource; and (3) improving safety by reducing incentives to fish in dangerous conditions. Although many of the benefits and costs derived from IFQ management might be based on economic principles, the potential social effects are also likely to be central concerns in the design of any IFQ program. A wide variety of motives may influence the development of any specific IFQ program. The following discussion of the three principal rationales for implementing IFQ management provides an overview of the potential benefits and costs of using this form of management. Economic Efficiency In terms of the national standards contained in the Magnuson-Stevens Act, IFQs could be used as part of a strategy to satisfy the requirement that "conservation and management measures shall, where practicable, consider efficiency in the utilization of fishery resources; except that no such measure shall have economic allocation as its sole purpose" (National Standard 5, Sec. 301 [a][5]). By dividing the TAC into shares that are allocated to individuals who can then

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--> determine when and how to use them, economic efficiency can be increased, particularly if the quotas are allowed to be transferred, as discussed in later chapters. The race for fish described above has serious economic consequences. It can lead to more intensive fishing, more gear being deployed, and increased capital expenditures to catch the same TAC. This amounts to wasting productive resources, because the fish could otherwise be taken at a lower cost, and perhaps transformed into a more valuable product, if the landings were spread over a longer period of time and fishermen had more time to handle fish more carefully. In a number of IFQ fisheries that the committee reviewed, improved product yield and/or value of the product has occurred. The race for fish also leads to costly (and otherwise unnecessary) modifications of fishing vessels to make them more effective in catching fish as quickly as possible (e.g., more powerful engines, expensive fish-finding equipment, larger size). Growth in fish-processing capacity both stimulates and is stimulated by the race for fish as processors expand their facilities and develop distribution chains to handle large pulses of fish and compete with each other to attract landings. These pulses also directly affect the price and quality (fresh versus frozen) of fish available to consumers. TAC-based management alone will not promote efficiency if more boats and people enter the fishery without controls. All of these developments make the race for fish more acute over time. IFQ management promotes efficiency by eliminating incentives for fishermen to apply excessive capital and labor inputs to a fishery. Nevertheless, improving economic efficiency can dramatically alter the characteristics of a fishery and can have significant social implications. If harvesting and processing capacity are removed from the fishery, communities that were once dependent on the race for fish can lose employment and revenues that were generated formerly. (However, such communities will eventually lose employment and revenues anyway if the race for fish is not controlled.) Testimony received by the committee indicated that these changes have reduced employment in regions with limited opportunities. In particular, two features of IFQ program management are controversial and can result in profound socioeconomic changes in a fishery: (1) the initial allocation of quota and (2) the transferability of quota (see Chapter 5). The IFQ programs evaluated by the committee vary with respect to these features. A confounding factor complicates the economic efficiency arguments: not all components of commercial fishing industries operate according to a common economic logic of firms. Abundant empirical evidence exists to demonstrate that these assumptions are not always true. In their study of fisheries in the U.S. Northeast, Doeringer et al. (1986) differentiate between what they call a kinship sector and a capitalist sector and indicate that the kinship sector thrives and expands under conditions that are detrimental to the capitalist sector. Apostle and Barrett (1992) make a similar distinction not only between fishing operations but

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--> processors as well in Atlantic Canada, and Durrenberger (1996) found the same to be true in the U.S. Gulf Coast. The existence of the kinship sector means that features of fisheries management that assume that individuals will make decisions on strictly economic grounds may be invalid and that management measures such as IFQs and other limited entry systems may have economic effects different from those that might be predicted on purely theoretical grounds. Thus, fishery managers should take into account the kinship sector in designing new management schemes, particularly in fisheries and areas characterized by small-boat fisheries with a long history. Conservation Another rationale given for implementing an IFQ program is the promotion of conservation. IFQs may promote conservation, if properly monitored and enforced, by keeping the catch within the TAC by making fishing more orderly, limiting the race for fish, and creating a penalty for individuals who exceed their individual portion of the TAC. In fact, most IFQ-managed fisheries are successful in maintaining the cumulative catch for the fishery (at least the recorded part) below the TAC, (see Figure G.4) whereas the same fishery managed without IFQs often exceed their TACs. Under IFQs, fishing time and area can be chosen more carefully by fishermen and less gear may be set (and lost), reducing both ghost fishing and reducing the potential damage that lost gear may cause to the marine environment. The added time available to the IFQ fisherman may also reduce the bycatch of non-target species since operations can be moved to target more favorable harvesting conditions, or it might allow the opportunity to develop practices that could reduce bycatch. Because IFQs allow more time to harvest and process fish, the amount of product recovered from the individual fish can be higher, reducing discarded product. Additionally, the holder of the quota has an incentive to ensure that the fishery continues to be productive and that the quota continues to be valuable. It is argued by some that this incentive will encourage behavior to conserve the resource, conduct needed research, and assist the enforcement and monitoring of the fishery so that the health of the stock and the future value of the quota are preserved (Neher et al., 1989). Similar assumptions are implicit in much discussion of fisheries management and were explicit in testimony to the committee. Much of the political support for IFQs is similarly driven by faith in the assumption that privatization will foster ecological sensibility. This argument is based on the premise that the community of IFQ holders will behave in a manner analogous to the sole owner, as described in, for example, Gordon (1954) and Scott (1955). Another aspect of this argument is that an IFQ program that limits access to the resource will accumulate value that becomes capitalized in the value of the individual quota. The better the fishery is managed, the higher will be the value of the individual quota share.

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--> However, quota shares are not rights to particular fish. Consequently, quota holders have no assurance that other quota holders will refrain from practices that prevent the sustainable use of fish stocks. Some argue that precisely because IFQ management provides an opportunity to conduct fisheries more slowly, selective harvesting of higher-value fish (highgrading) may occur. Highgrading is most likely to occur when catch rates are high and there is a significant price advantage to fish of a particular size, gender, or spawning condition. The incentive to highgrade is also increased when the TAC is expressed in the total number of fish rather than their total weight. Some also believe that because monitoring and enforcing harvests is difficult, the incentive to misreport catches, also known as quota busting, is sufficiently high to outweigh the potential risk of being caught. Individuals practicing stewardship may incur the full marginal cost of forgone catches and receive only the average of the increased future benefits. This illustrates the phenomenon of externalities, situations in which the costs or benefits are not fully borne by the individual user. Therefore, IFQ holders may have an incentive to conserve at less than the socially optimal level, especially when there are large numbers of them (and hence a smaller average benefit). This rationale demonstrates that IFQ fisheries require effective monitoring, enforcement, and penalties to achieve their benefits. The net effect of IFQs on conservation will depend on the relative strength of the stewardship effect balanced with enforcement and the incentives for each individual quota holder to cheat. Sorting and discarding fish to high-grade costs money and will occur only if the expected benefits exceed the cost of sorting and the cost of catching replacement fish (including the opportunity cost of time and the expected cost of penalties and sanctions). The general conclusion of a 1990 workshop on the effects of different fishery management schemes on bycatch, "joint catch," and discards was that IFQ programs are no better or worse than other fishery management schemes in relation to these factors (Dewees and Ueber, 1990). Beyond the theories, few data exist regarding the positive or negative stewardship effects of IFQs, although there are some indications in the Pacific halibut fishery (Gilroy et al., 1996) that IFQs decrease regulatory discards and ghost fishing. Safety The third rationale for implementing an IFQ program is to improve safety in a fishery, a goal of the new National Standard 10 (Sec. 301[a][10]). It is argued that because an IFQ program allows greater freedom for the individual to choose when to fish, weather conditions, the condition of the vessel, or other safety factors can be considered and hazardous conditions can be avoided. Although empirical evidence suggests that safety has improved in some IFQ-managed fisheries, it is not clear that safety has improved in all fisheries managed using IFQs.

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--> Other Rationales A variety of other rationales have been used to justify the development and implementation of IFQs. For example, the surf clam/ocean quahog IFQ program was developed (in part) to reduce administrative and enforcement burdens. The wreckfish IFQ program was developed to try to prevent overcapacity from developing when the fishery was new and seemed to be in the midst of unchecked expansion. Outline of the Report The overall goal of this report is to provide Congress with a comprehensive review and analysis of the use of individual fishing quotas and to recommend national policies on the implementation and use of IFQs, addressing the issues that Congress identified in the Magnuson-Stevens Act (see Appendix A). In Chapter 2, the committee reviews some of the theories and practices of common-pool resource management and the use of the public trust doctrine in managing natural resources. In Chapter 3, the committee evaluates the experiences of IFQ management in federal waters of the United States and abroad. In Chapter 4, the committee examines the alternatives and complements to IFQs used in fisheries management. In Chapter 5, based on the analyses undertaken the committee discusses issues to be considered in developing a national policy on IFQs. Finally, in Chapter 6, the committee presents its findings and recommendations.