The role of fixed cost and non-discretionary variables in fisheries: The case of South Australian rock lobster

Abstract

Fishing industry sustainability matters for policy-makers and communities as well as the industry itself and understanding profitability is an important component of long-run viability. Our analysis investigates the effects of key fixed and non-discretionary inputs, vessel size and biomass, on profits. We first set up a theoretical model with an input that is fixed in the short-run but that can be used with a variable input at sub-optimal capacity. We use this model to get theoretical insights and predictions for the impact of exogenous changes in biomass, output price and vessel size on profits. We subsequently conduct an empirical investigation to gain an understanding of the effects of these non-discretionary factors on profit efficiency. In particular, we apply a truncated regression with bootstrap methodology to data on individual fisher profit efficiency from the South Australian Rock Lobster Fishery. The non-discretionary variables we consider are biomass, fishing zone, quota management, vessel age, vessel length, engine age, electrical equipment age, and exchange rate. We find evidence that increased biomass and quota management are associated with higher profit efficiency, exchange rate appreciation is associated with lower profit efficiency, and vessel characteristics have limited effects.