We investigate the relationship between quota enforcement, compliance, and capital accumulation in ITQ regulated fisheries. Overextraction and overcapacity represent two of the main fisheries management challenges, and we aim to model and analyze the two jointly. In a stylized resource model, quota violating and complying firms invest in capital, buy quotas, and choose their harvest. We show that in the short run, more capacity increases illegal extraction, while a well-functioning quota market partially alleviates this effect. We also show how tougher enforcement yields a double benefit by directly improving compliance and indirectly reducing incentives to invest in capacity, which improves future compliance. Our analysis thus contributes to the literature on market-based management of renewable resources.

JEL Codes: Q0, Q2, Q22, Q28.