Most coastal fisheries in the U.S. and other developed economies are going through a major transition. On the one hand, new technologies such as electronic enhancement to assist trawling have led to a decline in the unit cost of fishing, making it more economically efficient. On the other hand, this improved efficiency has possibly led to increased environmental damage. This has led to conflicts between fishermen and conservation groups. In the past, the main policy issue confronting fishery managers was the task of ensuring that stocks were managed at levels that sustained employment and profits in the fishing industry. However, in recent years, the dynamics of the coastal fishery has changed dramatically. More and more affluent people have settled into coastal areas. Recreational demand has increased faster than demand for commercial fish. Environmental concerns have often become more important than the matter of providing fish at reasonable prices to the urban consumer. This trend has been exacerbated by the globalization of the world fish industry, so that cheaper imports from overseas can now compete with higher cost domestic fish. The paper addresses this problem by developing a simple spatial model of the coastal fishery with two fleets, a traditional higher cost fleet which is environmentally less damaging (e.g., castnetting), and a modern lower cost fleet (trawling) which may have negative environmental effects. As fish move away from inshore breeding grounds to areas offshore, they grow bigger in size, attracting a price premium. The model tries to answer the question: which fleet should fish in what location? This depends on various cost and demand parameters. The optimal spatial allocation of fishing effort is derived when fleets have harvest and capacity constraints. The effect of regulation, for example to preserve inshore fishing grounds for the traditional fleet or imposing environmental taxes on the modern fleet are examined. The effect of imports on effort allocation is discussed. The paper concludes with a case study discussion of the southeastern U.S. shrimp fishery.