Abstract
Many real world fisheries have an individual vessel quota system with restrictions on transferability of quota or entrance of new vessels into the fishery. While the standard economic reasoning is that these institutional constraints lead to welfare losses, the size of those losses and optimal second-best policies are usually unknown. We develop a dynamic bioeconomic model, in which a scientific body provides an optimal TAC given restrictions on (i) transferability between vessel segments and (ii) entrance of new vessels. Further, we also quantify welfare losses arising from not maximizing economic welfare, but physical yield—which is actually the case in many fisheries. We apply the model to the Northeast Arctic cod fishery, and estimate not only the cost and harvesting functions of the various vessel types, but also the parameters of the biological model as well as those of the demand function. This allows us to determine optimal second-best policies and quantify corresponding welfare effects for our case study fishery.
Highlights
Determining dynamically optimal harvests in a fishery is a canonical textbook example in resource economics, yet these insights are hardly applied in reality
In this paper we developed a model portraying a fishery in which the total allowable catch (TAC) is set by a scientific body for a set of institutional constraints that are imposed by policy makers
Our application to the Northeast Arctic (NEA) cod fishery shows that tradability constraints lead to welfare losses of 26% in this case, which amounts to about 2.2 billion NOK
Summary
Determining dynamically optimal harvests in a fishery is a canonical textbook example in resource economics, yet these insights are hardly applied in reality. The size of the total allowable catch (TAC) is determined by a scientific body, usually striving for some biological criteria, such as the maximum sustainable yield (MSY) or some other target reference point Policy makers, on their side, address distributional questions on how to divide a certain TAC, for example by issuing individual transferable quotas (ITQs). While ITQs make sure that the TAC is distributed in the most efficient way (Wilen 2000), policy makers tend to impose restrictions on which vessels can participate in a fishery, and how quotas can be traded. These institutional constraints push a fishery further away from the socially optimal outcome
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