As the name suggests, incentive blocking measures to control capacity aim to block the incentives that are inherent in an open access fishery and that lead to increased fishing fleet capacity. In broad terms there are six categories of these measures:
limited entry programmes,
buyback programmes, gear and vessel restrictions,
non-transferable vessel catch limits, and
individual effort quotas (IEQs).
Incentive blocking programmes are only effective in reducing capacity in the short term.
For example, a government funded vessel buyback programme could be used to reduce the fishing effort level resulting in a reduced harvest level in the short term until the stock can grow to its targeted level. The reduction in fish supply as a consequence of the initial reduction in fleet size results in a higher price of fish, since demand has not changed in the fishery. The cost of producing the fish has declined as congestion on the fishing grounds has waned and as landings per firm increase. The consequent higher profit levels create incentives for the individual fishers remaining to increase their effort (i.e. more fully utilize their capacity).
If the initial capacity reduction was successful and stock levels increase, then the resultant higher profits results in further incentives being created for the remaining individuals to increase their capacity through what ever means are possible under the restrictions (e.g. input substitution, capital stuffing).
Restrictions on some inputs to the fishing activity create incentives to increase the use of unrestricted inputs if these can lead to increased individual profits, at least in the short term. This input substitution results in inefficient mix of inputs being used, and can lead to further restrictions being placed on the fishery that locks the fishers into the inefficient combination of inputs (or further exacerbates the problem by encouraging the adoption of even less efficient combinations of inputs).
Restricting entry to a fishery is the first step in addressing the open access problem. However, licence limitation is not - by itself - a sufficient management measure to reduce capacity. It requires other mechanisms to control the rate of increase in capacity because increases in capacity can take the form of:
capital stuffing - where a vessels horsepower, length, breadth, and tonnage are increased;
changes in gear;
changes in fishing periods or areas; and
the adoption of technological innovations in fishing gear.
Modifications to licence limitation programmes to address capital stuffing include transferability and unitization systems. Transferring of licences allows new entry to occur as existing fishermen exit the fishery. While charges can be imposed for the issuance or transfer of licences that capture some of the rents generated by the stock, this does not prevent capacity from increasing over the long term. The rate of increase of capacity is reduced, but it continues to increase over time.
Unitization (or fractional licence) programmes assign each participant in a limited entry fishery a number of capacity units based on the physical characteristics of the vessel (e.g. length, engine power and fishing gear units). The total number of units in the fishery is capped. Under such programmes, larger boats can only be introduced through purchasing the additional units from other owners. Penalties on upgrading through unit forfeiture may also compensate to some extent the increase in capacity though boat replacement. Consequently, the total number of units may be reduced over time, although the actual capacity of the fleet may remain constant or increase if the forfeiture does not offset the increase in efficiency.
A buyback programme buys and removes vessels, licences or vessel capacity units from a fleet to decrease capacity.
Many countries have experience in operating buyback programmes, including Japan, the United States, Canada, Norway, Australia, those in the European Union, and Taiwan. Similar motivations and goals existed in each programme even though the mechanics differed. For example, some programmes purchased licences instead of vessels, and others restricted licence use or participation in commercial fishing.
While the existence of other fishery regulations has made it difficult to determine if buyback programmes have been successful in achieving these goals, Holland, Gudmundsson and Gates (1999) concluded that the buyback programmes potential to achieve their stated goals seemed very limited in actual practice.
In the short term, capacity may be reduced in a fishery. However, as long as open access fishery incentives remain, improvements in stock abundance will attract additional capacity into the fishery. If the market incentives are corrected, individual fishers are more likely to conserve their resource stocks including the stock of fish. In addition, the buyback programmes would be more effective if the regulatory instrument that grants access to the fishery would also capture the resource rents.
Gear and vessel restrictions attempt to control capacity by controlling the use of inputs in the production of fishing effort.
Minimum mesh sizes, restrictions on the number of pots or traps, limits on the length of longlines, or the banning of gear are methods that have been employed in various fisheries. Regulations specifying physical characteristics of vessels (e.g., hull, hold, and engine sizes) to control capacity also have been used.
In general, fishers circumvent the regulations by substituting other factor inputs or new types of gear for the inputs that have been restricted. For example, regulations restricting the length of a vessel have been circumvented by increasing its beam or by increasing engine power.
Aggregate quotas are used to maintain or rebuild fish stocks by establishing a total allowable catch (TAC) for domestic fisheries to allocate a fish stock between different fishing gears or user groups, and to allocate international stocks between nations. Aggregate quotas are fished competitively rather than allocated to individuals.
TACs used in isolation in virtually all situations are more likely to speed up the growth of fishing capacity rather than reduce it (FAO, 1998). As stocks of fish recover because of reduced fishing mortality, rents appear and attract new capacity into the fishery if entry of new fishers or expansion of existing fishing effort is not controlled. As a result, a race for fish or fishing derby develops that results in increased harvest capacity, shorter fishing seasons, and higher harvesting costs needed to land the same amount of fish in a shorter period of time. When approaching the limits of a binding TAC, sufficient real-time data may be difficult to obtain to use as a basis to close the fishery, resulting in frequent overruns of the TAC.
These large landings over short time periods frequently result in excess processing capacity, such as the peak load problem. This results in overcapacity in the fishing sector and in idle capacity in the processing sector.
Individual vessel catch limits are a form of individual quota without transferability between fishers.
As such, they partly address the property rights issue, but do not allow any mechanism for capacity to adjust out of the fishery and, as a consequence, the problem of overcapacity is not addressed - but the growth in overcapacity may be stopped. By restricting the amount of fish each individual fisher may land, the race for fish can be slowed. Staggered or tiered catch limits have been used in fisheries to allow full-time or specialist fishers higher catch limits than part-time or generalist fishers.
As with any form of output control, fishers could circumvent catch limits by landing fish at out-of-the-way docks and ports, or through misreporting actual landings in document based monitoring systems. However, vessel catch limits could have applications in community-based fisheries if widespread adjustment out of the industry was thought to be problematic for these communities.
Individual effort quotas (IEQs) limit the fishing effort that a fishing craft can apply to a fishery. Usually a restriction is placed on trawl time, time away from port, or fishing days that the vessel can employ.
While not addressing the property rights issue directly, effort quotas can have some benefits through creating incentives for self adjustment, and therefore may fall between the categories of incentive blocking and incentive adjusting programmes. Where IEQs are transferable, fishers can purchase them from existing fishers or sell to new entrants. This can allow the consolidation of fishing activity, reducing the level of excess capacity and possibly also the level of overcapacity.
However, as with vessel catch limits, enforcement is difficult since effort is expended away from port and restrictions can be evaded. As with gear and vessel restrictions, capital stuffing is a common occurrence under IEQ programmes.
While days fished or trawl time may remain constant, the fishing power of the vessel can be increased by substituting other factor inputs in the production process for the fixed effort variable, thus causing the effective fishing effort of the vessel to increase. As a result, fleet capacity can increase over the long term, requiring constant re-adjustment of the total allowable effort.
A second management approach designed to reduce overcapacity in a fishery using incentive adjusting techniques is the adoption of a rights-based management regulatory system such as:
individual transferable quotas (ITQs, also known as individual fishing rights or IFQs);
taxes and royalties;
group fishing rights (including community development quotas (CDQs) and other community-based management); and
Territorial Use Rights (TURFs).
Cooperatives, co-management, individual transferable quotas (ITQ), individual fisherman quotas (IFQ), and community quotas are examples of management regulations that internalize the market failure that induces overcapacity in a fishery into the production decisions of the individual firm or fisherman. (In addition, and although the economic implications have not been fully discussed, an industry-funded buyback programme may also internalize the costs of an open access fishery into the fishers production decisions.)
What these regulations have in common is that they create a management instrument that captures the value of the resource (resource rent) and causes the fisher to behave as if it is a cost in deciding how much they should produce at a given stock size. Thus, each of these cause the fisher to behave as if their costs of production have increased.
If the management institution is changed to allow a fisher to internalize the social cost of exploiting the resource - by establishing cooperatives, co-management, or rights-based fisheries - the consequences of overcapacity in the form of overfished stocks of fish should be corrected.
Incentive adjusting measures to control capacity change the regulatory environment and create a market incentive that causes fishers to adjust their fishing capacity. Fishery management regulations eliminate the open access externality by causing fishers to behave as if they own the in situ fishery resource. When fishery resources are no longer free to whomever harvests them first, fishers are willing to invest in the future by conserving the fishery resource as well as other resources used in its harvesting. As a result, overcapacity is eliminated in the fishery.
Individual transferable quotas (ITQs) explicitly limit the fish that a fleet can harvest from a fishery and assign tradable shares of the total catch to the participants in the fishery. ITQs have been found to have been effective at controlling capacity in the fisheries to which they have been applied. A commonly cited example of this is the case of New Zealands fisheries.
While self-adjusting with regard to capacity, ITQs are not believed to be practicable in all cases. Questions have been raised regarding the application of ITQs to highly variable fish stock - such as shrimp fisheries - owing to the technical problem of determining an appropriate total allowable catch each year.
ITQs have other features that have prompted some individuals to raise objections to their use. In the case of multi-cohort stocks, for instance, concerns may exist about high-grading catch - the discarding of less valuable cohorts when price is greatly affected by the size of the fish. Discarding overquota catch is another issue that has been raised with regard to ITQs that has not been adequately addressed in an empirical manner, although several studies have found that overquota catch (and subsequent discarding) has been reduced in some fisheries as a result of ITQs. A capacity cascade, displacement, or spillover of capacity may occur if ITQs are sequentially adopted in a series of fisheries as fishers move from one fishery to the next.
However, and despite these concerns, which are similarly relevant for many other management measures that are regularly applied, for the fisheries in which ITQs have been applied, substantial long-term declines in capacity have been observed. Three examples in the USA include:
the pollock cooperative established under the American Fisheries Act;
the individual transferable quota programme in the southeastern wreckfish fishery; and
the individual fishermans quota in the Alaskan halibut/sablefish fishery.
By addressing the open access problem, these programmes have had a positive effect on reducing capacity by either lengthening the fishing season or reducing the number of vessels in the fleet.
Under these approaches, resource ownership remains with the management authority, yet the transferable harvest rights give fishers a financial incentive to reduce capital investment and labour used in harvesting the fish stock in order to increase individual profitability.
While a tax on landings is theoretically equivalent to ITQs in reducing capacity in a fishery, little empirical evidence of its actual impacts is available.
A serious problem in developing taxes is determining the optimal tax rate to apply to a fishery at a particular point in time. That is, the amount of capacity in a fishery depends upon the abundance of fish, the ex-vessel price, and the unit cost of fishing effort at each point in time. As costs, prices, and abundance fluctuate, capacity levels need to be adjusted by an appropriate tax adjusted on a timely basis.
With taxes, the governing authority has to determine the appropriate level of tax and has to decide when to change taxes to optimally control capacity. In contrast, with ITQs, these adjustments occur in the ITQ market automatically to determine the optimal capacity level.
In Asian countries, a tax on landings caused widespread protests among small-scale fishers and consumers who expected the taxes to result in higher prices (FAO, 1998). Landings taxes have also been proposed in United States fisheries to offset the costs of loans to fund industry financed vessel buyback programmes.
Royalties have a similar effect on reducing capacity, as they are effectively a form of tax. A fee paid per pound of fish landed or on quota holdings to a managing authority would theoretically reduce the ex-vessel price received by fishers, which would slow the rate of growth in harvest capacity in a fishery.
This method is in many countries for recovering rents in natural resource extraction activities (e.g. offshore oil leases or forestry stumpage charges) and could be employed in the management of fisheries.
A related mechanism that is not designed primarily for capacity management is management cost recovery charges. These internalize at least some of the costs imposed by the fishing fleet (e.g. enforcement, monitoring and research) that are otherwise borne by the broader community. Failure to recover these costs amounts to an effective subsidy of the industry, which itself contributes to some of the overcapacity.
Community-based and co-management systems have been introduced in several countries with some success at controlling and reducing capacity.
In Australia and New Zealand, involving the industry in the management process has generally been considered successful in devising appropriate management plans that limit or reduce capacity. However, in the United States, the National Marine Fisheries Service (NMFS) and regional Fisheries Management Councils may be considered a co-management framework between the government and fishers that has unsuccessfully controlled capacity in domestic fisheries.
Community Development Quotas (CDQs) instituted for Alaskan native tribes is an example of a potentially effective group fishing rights programme that could reduce capacity substantially since the community can effectively control effort. For group fishing rights systems to be effective, the group must be able to exclude outsiders; that is, the group right must be enforceable.
Community-based management methods have proven to be effective in some cases (for example, Senegal, Japan, and, in the 1940s and 1950s, the Gulf of Mexico shrimp fishery). However, these methods are not expected to perform well when:
there is no institution building capability;
membership cannot be restricted; or
the ability to enforce rights and rules does not reside with the community.
Furthermore, community-based management may apply any method for governing capacity within a community.
Community-based management is attractive because of the improved proximity of decision-makers to consequences. However, a wide range of potential decisions and outcome exists. If transaction costs are not too great, community-based management may be fully efficient and the outcomes may be desirable.
TURFs represent another means to control capacity by causing fishers to behave as if property rights for a fishing ground exist. Access to, and use of, a particular fishing ground or site is restricted to a small group or an individual. This group can determine how to harvest fish from the site and to whom the fish is allocated.
Oyster leases could be considered a form of TURFs, where private ownership was compared to public access and resulted in both a reduction in capital investment and an increase in labour employed to harvest oysters (Agnello and Donnelley, 1976).
 In this case,
"inefficient" is in the context of economic efficiency, as the combination of
inputs is not the least cost combination, and catch is therefore being taken at
a higher cost than it would otherwise be in the absence of the
 These management instruments can take several forms including an ITQ or IFQ coupon or share that can be transferred between fishers, a landings tax to repay an industry-funded buyback programme loan, or in the case of a cooperative, a share in the organization or a contract to harvest fish among the cooperative members.
 For example, a fisher will produce fish until the cost of producing the last pound of fish is just equal to the revenue it generates. When fish in the sea are free to the fisher, they do not have to pay its value to the owner. This reduces their costs of production. The fisher overproduces fish, because the cost of the next unit of fish produced is less than the revenue it generates.
 However, a number of exceptions to this general result exist, including the wreckfish fishery in the southeastern region, the halibut and sablefish fisheries in the northwest and Alaskan fisheries, and the surf clam fishery in the mid-Atlantic region of the United States.
 Transaction costs are the costs associated with reaching a decision by a group of individuals.