Profits, prices and productivity in a common pool fishery

Abstract

AbstractProfitability change for any firm depends on both price and productivity change. Because most firms have little influence on prices in either output or input markets, oftentimes productivity change is thought to be the most relevant determinant of profitability change. When firms produce a product by harvesting or extracting government‐regulated natural resource stocks, it is important for regulators to understand how their decisions influence firm profitability and its underlying drivers. In this study, we use a recently developed index number decomposition method to identify the drivers of profitability, price, and productivity change for vessels operating in the U.S. northeast scallop fishery. Our main finding is that increases in profitability over the period 1996 to 2015 were primarily due to increases in prices for scallops, combined with favorable biomass change. Fishing vessels were able to get higher prices for their harvest because of an innovative spatial harvest strategy, which resulted in catches of large, premium‐priced scallops. Remarkably, this system resulted in both an increase in vessels harvesting scallops and large increases in profitability.