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Input substitution and rent dissipation in a limited entry fishery : a case study of the British Columbia commercial salmon fishery

University of British Columbia

Entry-limiting regulations imposed on common property fisheries have been suspected of encouraging fishermen to substitute unregulated for regulated inputs. This imposes a cost upon society in the form of a reduced amount of resource rent generated by the fishery. Almost no research has been done to provide quantitative estimates of substitution possibilities and the associated degree of rent dissipation. The thesis provides the first estimates of the harvest technology for the British Columbia commercial salmon fishery, one of the first fisheries in North America to experiment with limited entry controls. Estimates of cross-price elasticities of input demand and of elasticities of intensity are given. These elasticities exhibit a greater degree of input substitutability than has heretofore been assumed in the theoretical literature. Two of the four vessel types used in the fishery are observed to be responsible for most of the resource rent dissipation. Potential rent for 1982 is shown to be $73.1 million. This represents 44% of the total value of the landed catch. Actual rent for the 1982 season is estimated to be -$42.8 million. A model of a fishing firm subject to input restrictions is developed in the thesis. The empirical model uses a flexible functional form proposed by Diewert and Ostensoe (1987). The major advantage of the normalized, quadratic, restricted profit function over the translog is its ability to distinguish differing degrees of input substitution between pairs of inputs, while imposing convexity in prices upon the functional estimates. The function is estimated for one output, three variable inputs, and three restricted inputs. Four samples are used which correspond to the vessel types that fish salmon. This allows rent to be calculated for the entire fleet, as well as for each of the components. The study of the salmon fishery is completed by addressing the important issue of rent dissipation. The actual amount of rent is established by using the predicted input demands of each vessel to calculate total fleet costs for the number of vessels that fished in 1982. This is compared to the potential rent that would be generated by an efficient fleet. To determine the characteristics of the efficient fleet, the optimal amount of (the restricted) net tonnage for each vessel is determined. Predicted output levels for each vessel are then used to calculate the minimum number of vessels required to take the 1982 harvest. This is done for each of the four vessel types. This exercise is repeated for two alternative scenarios, including the assumption of a greater degree of substitutability per vessel than actually found and a change in the distribution of catch among the vessel types. A comparison of rents generated in each scenario with an estimate of the actual rent from the 1982 fishery suggests that input-substituting activities of the fishermen may cause a substantial amount of rent dissipation. In addition, fleet redundancy and an inefficient catch distribution are found to contribute to the problem. The thesis concludes with a discussion of the implications for effective fisheries management. In particular, the findings of the research endorse the (Pearse) Royal Commission on Pacific Fisheries Policy (1982) recommendation of a fleet reduction scheme to be used in conjunction with a royalty tax on catch. On the other hand, evidence of input substitutability suggests that a vessel quota restriction might be successful in preventing some rent from being dissipated.

Text

2010-09-24

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http://hdl.handle.net/2429/28665

Economics

University of British Columbia

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