Efficiency Gains and Cost Reductions from Individual Transferable Quotas: A Stochastic Cost Frontier for the Australian South East Fishery

Abstract

In this paper efficiency gains and associated cost reductions from increases in traded quota are estimated with a stochastic cost frontier for the Australian South East Trawl Fishery (SETF). Estimation of this frontier also provides key information on the relative importance of input costs in the SETF, returns to scale, variations in costs as a result of trade in quota and the economic performance of each fishing vessel, year to year. Final estimations indicate that increases in the volume of quota traded have resulted in considerable efficiency gains and cost reductions in the SETF, ranging from 1.8 to 3.5 cents per kilogram for surveyed vessels for every 1% increase in the volume of quota traded, or 1–2.4% of total variable costs, with considerable gains also accruing to crew and skipper in the form of larger share payments. Mean vessel efficiency is relatively high in the SETF, estimated at over 90%, and increases further to 92% over the sample period with increased trades in quota.