Foreshortening

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Foreshortening

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Title: Foreshortening


1
Foreshortening
  • Thorolfur Matthiasson, University of Iceland
  • Claire Armstrong, University of Tromsö

2
Introduction
  • Buyer of quota in Norwegian fisheries does not
    receive but a part of the quota a seller sells
  • The difference goes to the common pool for
    distribution among all participants in a fishery

3
Motivation for foreshortening
  • Non-transferable quotas had been overallocated
    to vessels
  • Quotas made partially transferable
  • Assumed that the first to sell would be those
    with non-active quotas
  • Could result in severe overfishing
  • Foreshortening a way to deal with the heritage of
    overallocation

4
Motivation for paper
  • What is the consequence of foreshortening in an
    ITQ fishery?
  • How will the foreshortening rule affect the
    market price of quotas?
  • How will the foreshortening rule affect turnover
    of physical capital in the fishery?

5
A final introductionary observation
  • We have not come across examples of forshortening
    in countries other than Norway
  • We know for sure that forshortening does not
    appear in Iceland, Australia or New Zealand

6
Model
  • Adjustment of a model proposed by
  • Weninger and Just

7
The model
  • Single unit of capital used to produce a single
    unit of output
  • Firm must have a permit to sell catch
  • Permits can be bought and sold
  • Unit operation costs depend on age of capital
  • At exit a firm sells permit (R) and scraps
    capital (s)
  • Think of a small scale fisher

8
The model
  • Startup costs are
  • Development of cost per unit of output in
    relation to age of capital

9
The model
  • Value of a new firm, F(c)

10
The middle term
11
Equilibrium of exit and entry
  • An entering firm can buy a permit from and
    exiting firm, but must compensate for
    forshortening multiplicator effect a-la
    Keynesian consumption function

12
Fundamental condition
  • Now just some simple algebra

13
Main resulteffect of increasing foreshortening
parameter
  • May be negative or positive!

14
dR/dk positiv or negative?
  • If costs increase faster than the discount rate,
    then abnormal result

15
dR/dk positiv or negative?
  • This is the most likely case

16
Two effects of foreshortening on value of quota
  • Positive effect Permitholders gain when others
    quit
  • If costs increase fast then many are quitting
  • Negative effect Permit is forshortened when a
    permitholder quits

17
Effect on length of operation
  • If negative and if dR/dk
    negative then length of operation will increase
    with increase in k

18
Concluding remarks
  • Foreshortening can reduce the value of permanent
    quotas in an ITQ fishery
  • Forshortening may increase the value in extreme
    cases
  • Foreshortening increases the time each fishing
    unit is operated, thereby reducing capital
    renewal, and exits in the industry.
  • Forehortening is not an optimal policy for
    managers, unless there is some externality tied
    to capital renewal or exit of firms from the
    industry

19
Concluding remarks
  • Foreshortening intended to solve a problem caused
    by overallocation of fishing rights
  • The effect of the simple policy is hard to
    trace
  • The consequences are counterproductive by some
    measures
  • Longer lifetime of capital
  • The consequences can be paradoxal
  • Possible increase of value of ITQs in face of
    higher foreshortening rate
  • Do we have other pieces of fisheries policy that
    works like that?
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