Title: Foreshortening
1Foreshortening
- Thorolfur Matthiasson, University of Iceland
- Claire Armstrong, University of Tromsö
2Introduction
- 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
3Motivation 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
4Motivation 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?
5A 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
6Model
- Adjustment of a model proposed by
- Weninger and Just
7The 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
8The model
- Startup costs are
- Development of cost per unit of output in
relation to age of capital
9The model
- Value of a new firm, F(c)
10The middle term
11Equilibrium 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
12Fundamental condition
- Now just some simple algebra
13Main resulteffect of increasing foreshortening
parameter
- May be negative or positive!
14dR/dk positiv or negative?
- If costs increase faster than the discount rate,
then abnormal result
15dR/dk positiv or negative?
- This is the most likely case
16Two 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
17Effect on length of operation
- If negative and if dR/dk
negative then length of operation will increase
with increase in k
18Concluding 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
19Concluding 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?