The Transitional Gains Trap in Grandfathered Individual Transferable Quota Fisheries

Trade in freely granted individual rights has been speculated to gradually reduce the political feasibility of reallocation, as the initial recipients who enjoy windfall profits are replaced by rights holders who purchased their rights and would unfairly become loss-making if the rights were subsequently reallocated. This hypothesis, sometimes referred to as a Transitional Gains Trap, may be relevant when evaluating alternative methods of allocating rights. This paper presents a potential indicator for investigating the Transitional Gains Trap in grandfathered individual transferable quota fisheries, based on the cumulative amount invested in quota after allowing for offsetting windfall profits, relative to the total value of all quota. The indicator ranges between 0% and 100%, with higher values indicating more net investment and a greater threat of a Transitional Gains Trap. Illustrative calculations for Iceland's ITQ system, introduced in 1991, yield a value of 29% by 2016, suggesting that the Transitional Gains Trap is not a major constraint, although the results vary by species and are sensitive to assumptions. Finally, the indicator is shown to decrease over time under certain conditions, implying that the potential relevance of the Transitional Gains Trap is context-specific.