Strategic investments in catch capacity and quotas: How costly is a mismatch for a firm?

Bernt Arne Bertheussen,Jinghua Xie,Terje Vassdal

doi:10.1016/j.marpol.2020.103874

Bernt Arne Bertheussen, Jinghua Xie + Show 1 more

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https://doi.org/10.1016/j.marpol.2020.103874

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Journal: Marine policy	Publication Date: Feb 8, 2020
Citations: 10	License type: cc-by

Affiliation: UiT The Arctic University of Norway

Abstract

Despite improved fisheries management, overcapacity is still a major issue in fisheries worldwide. This study investigates the economic effect of a mismatch between catch capacity and quota holdings on the economic performance of fishing boats operating in a system of Individual Fishing Quota (IFQ) system. Based on the data of 71 fishing vessels, which constitute the entire fleet of Norwegian seagoing purse seiners, an ordinal least squares model is applied by including the vessel's catch capacity, quota holding, and return on invested capital (ROIC) along with several control variables. The estimated results suggest that the key factor affecting ROIC is overcapacity. Specifically, when the relative ratio of capacity and quota holding increases by 1%, a vessel's ROIC decreases by 0.692%. This finding indicates that the overcapacity problem in the Norwegian seagoing purse seine fleet still exists even more than a decade after an IFQ regime was introduced. The paper concludes by discussing implications of the findings.

Highlights

Following “the tragedy of the commons” [1], in open-access fish eries, boat owners often overinvest in capacity, which causes fish stocks at risk to be depleted
For the key variables of base quotas (BQs), structural quotas (SQ), and other quotas (OQs), none of the estimated co efficients of these variables are statistically significant at any reasonable level as suggested by their low t values
The results suggest that when the relative ratio of capacity and quota volume of a vessel increases by 1%, the return on invested capital (ROIC) of the vessel decreases by 0.692%

Summary

Introduction

Following “the tragedy of the commons” [1], in open-access fish eries, boat owners often overinvest in capacity, which causes fish stocks at risk to be depleted. Authorities have taken an overall responsibility to regulate fishing to avoid losing significant so cioeconomic values. The regulation often taken by many countries in the world is combining a total allowable catch (TAC) system with an indi vidual fishing quota (IFQ) system. The TAC secures biological sustain ability, and the IFQ avoids the race for fish and reduce overcapacity and ensures economic sustainability for players In limited-entry and quota-managed fisheries, fishing rights give a firm access to valuable natural resources There fore, fishing rights are intangible threshold resources that qualify a firm to participate in the industry. To exploit the fishing rights on hand, a firm must invest in physical assets, such as catch capacity, fishing vessels, and fishing gears. In an investment decision, adjusting investments in the interrelated asset classes to maximize the profit of a firm is critical [47]

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