ESTIMATING TIME-VARYING BARGAINING POWER: A FISHERY APPLICATION

Abstract

I. INTRODUCTION Many economists and ecologists alike have supported rights-based management systems as a form of fishery management that addresses the causes of inefficient resource use (e.g., Costello et al. [2008]). Despite these convincing studies, most fisheries have yet to impose any form of rights-based management. In fact, in the United States, from 1996 through 2002, a moratorium was in effect on the creation of management systems that assigned fishing quota to individual vessels, often referred to as individual fishing quota (IFQ) management. (1) There has been some political resistance to the move from regulated open-access management, which imposes total catch limits for the fishery but no individual limits, to rights-based management, which generally imposes some form of individual fishing rights. At the core of this resistance is not the question of efficiency, but the possibility of potentially severe changes or distortions in rent distribution. In the market between fishers and processors (the ex-vessel market), processors and some researchers have been concerned that fishers will achieve near-total rent extraction when IFQs are given only to fishers, as is typically the case (e.g., Matulich et al. [1996]). Models that assume complete rent extraction by fishers also assume that the ex-vessel market is perfectly competitive. For many fisheries, this assumption of perfect competition is not appropriate. The geographic remoteness of many fishing areas often creates markets in which multiple fishing vessels must deliver their catch to a small number of processing facilities, When one considers this remoteness together with the possibility of limited entry restrictions on the harvesting and processing sectors, processing firm consolidation, fishers' bargaining associations, and instances of fisher-processor vertical integration, it is evident that there are a host of reasons why ex-vessel markets are normally not completely competitive. Thus, the creation of property rights through IFQs occurs not in an idealized purely competitive environment, but in an imperfectly competitive market with a myriad of factors that affect both processors' and fishers' abilities to extract rents. A bilateral bargaining framework has been suggested by several researchers as an alternative to the competitive market specification for some ex-vessel markets [e.g., Halvorsen et al. (2000); Matulich et al. (1995); Munro (1982)]. In this framework, fishers act as upstream monopolist (oligopolists), selling whole fish to downstream monopsonistic (oligopsonistic) fish processors. We follow this specification to analyze the rent distribution effect that switching to IFQ management has had on a specific fishery, the Alaskan sablefish fishery. In doing so, we develop an unobserved-components (UCs)-inspired econometric technique to estimate a fixed-quantity (i.e., the quantity transacted is exogenously determined) bilateral bargaining model in the presence of unobserved reservation prices and potentially time-varying bargaining power. This technique is general in its formulation and could thus have applicability in other contexts given the wide range of industries for which the bilateral bargaining framework is appropriate. The organization of the paper is as follows. In the next section, we explain how imposing property rights in a fishery through an IFQ system may affect the bargaining position of fishers and processors in the ex-vessel market. In Section III, we introduce the general purpose model of bilateral bargaining used in this study and the econometric technique we use to estimate this model. We provide some brief background information for the Alaskan sablefish fishery in Section IV. In Section V, we present and discuss our estimation results and we conclude in the final section. II. IMPACTS OF IFQ MANAGEMENT Matulich et al. (1996) present a theoretical model (which is restated in Matulich and Sever [1999]) with both competitive fishing and processing sectors to analyze the effect of IFQ management implementation on rent distribution between the two sectors. …