Individual transferable quotas (ITQ) versus auctioned seasonal quotas (ASQ), an experimental investigation

1

• Individual transferable quotas (ITQ) versus
  auctioned seasonal quotas (ASQ), an experimental
  investigation
• Erling Moxnes
• System Dynamics Group
• University of Bergen, Norway

Economic Science Association, ESA, conference
Rome, June 2007
2
The fishery problem

• Overfishing, overcapacity, uneven distributions
  of resource rents, .
• Trial-and-error development in regulations and
  management systems
• Current state of art
• Individual Transferable Quotas (ITQ)
• Further improvements?
• Auctioned Seasonal Quotas? (ASQ)?

3
ITQ

• Permanent right
• Protects the fish
• Incentive to minimize costs
• Seems to work in terms of profits

4
ITQ

• Distribution of wealth?
• grandfathering
• discount rates
• value increase
• Barriers to entry?
• Boat and ITQ
• Risk?
• ITQ value
• Need for flexibility?
• 40 of ITQs in Iceland and New Zealand leased out

5
ASQ

• Seasonal right - auctioned
• Protects the fish
• Incentive to minimize costs
• Not in use for fishery management, but
• for radio frequencies, airport slots, water,,
• for fish sales,
• potential ITQ leasing, multispecies, information
  for TAC

6
ASQ

• Distribution of wealth?
• Ignoring custom rights
• Automatic resource tax
• Barriers to entry?
• Boat
• Risk?
• Volatile ASQ prices
• Need for flexibility?
• Efficient auction

7
Laboratory experiment

• 2 treatments ITQ and ASQ
• 5 markets in each
• Nearly symmetric games (4 low op. cost, 3 high)
• Dynamic Capacity, ITQs, financial assets
• Random TAC, operating costs, and fish prices
• Yearly decisions
• 30 year time horizon

8
ITQ
9
ASQ
10
Results
11
Effici-encyCapacitygtBenchmarkNo
differenceITQ-ASQ
12
EfficiencyMarket shares high cost firms gt 0No
difference ITQ-ASQ
Confidence intervals for averages
13
Price of capacityCapacity pricegt6.0 in years
2-4 No difference ITQ-ASQ
Confidence intervals for averages
14
Price of ITQsYear 2 ITQ price lt
benchmarkYears 18-- ITQ price gt benchmark
Similar results in 3 pilot experiments
15
Prices of ASQsVolatile raw material
priceDrops with TAC/tot.cap.
16
Risk (players experiencing negative equity)

• ITQ 17
• ASQ 31
• Not significantly different
• (1 out of 5 markets creates the difference)

17
Risk (variation in equity)Average
st.deviations in equityITQ 3846ASQ 985
Same seed and same subject G1S3
18
Conclusions

• ITQ and ASQ
• overcapacity (field data)
• high cost boats
• variation in equity
• ITQ
• barriers to entry (ITQ price)
• variation in equity (ITQ price)
• complicated resource taxation
• difficult transfer to ASQ
• Further research
• professionals, designs