California Sea Grant College Program

This dissertation addresses the impact of environmental regulation on resource-based industries by analyzing firms' responses to current environmental policies and to predicted changes in the regulatory regime. This research presents a theoretical motivation for and empirical estimates of changes in productivity, industrial organization, and strategic behavior due to the transition from firm-level regulation of inputs and outputs ("command and control") to tradable property rights (or "individual transferable quotas") in the commercial fishing sector.

The first chapter reviews the empirical evaluations of markets for fishing rights. The following three chapters focus on the Mid-Atlantic surf clam and ocean quahog fishery, the first U.S. Federal marine fishery to create property rights. This industry implemented property rights in 1990 after fourteen years of command and control. The second chapter is an institutional analysis of the design and implementation of property rights in the clam industry. It discusses the role of pre-existing institutions in generating imperfections in the market for property rights.

The third chapter estimates the impact of tradable property rights on productivity. The period prior to implementation of property rights shows significant reduction in productivity as firms sought to maximize their share of the impending property rights. After the transition to property rights productivity rebounded to the level prior to strategic behavior. This chapter demonstrates the importance of firms' expectations on current industry outcomes and the short run losses associated with strategic behavior.

The fourth chapter develops an economic model of the individual firm's decision to participate in or exit the industry. First, the data demonstrate that while there was significant exit of fishing vessels , considerably fewer firms actually left the industry; and while those that did were primarily independent harvesters, this was equally true under both regulatory regimes. Second, empirical results show that long-term contracts with buyers (processors) and anticipation of future regulatory change had a preponderant impact on the exit decision.

This dissertation has two significant implications for resource management: first, the hypothesis that tradable property rights disproportionately harm small, independent harvesters must be rejected; and second, the manner in which policies are implemented is significant in determining their ultimate impact on industry structure.