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
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)?
ITQ
• Permanent right
• Protects the fish
• Incentive to minimize costs
• Seems to work in terms of profits
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
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
ASQ
• Distribution of wealth?
– Ignoring custom rights
– Automatic resource tax
• Barriers to entry?
– Boat
• Risk?
– Volatile ASQ prices
• Need for flexibility?
– Efficient auction
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
ITQ
ASQ
Results:
Tons
Efficiency:
Total capacity, ITQ
6000
5000
4000
3000
2000
Optimal capacity
1000
Capacity>
Benchmark
0
1
4
7
10
Tons
13
16
19
22
25
28
22
25
28 Year
Year
Total capacity, ASQ
6000
5000
No
difference
ITQ-ASQ
4000
3000
2000
Optimal capacity
1000
0
1
4
7
10
13
16
19
Efficiency:
Market shares high cost firms > 0
No difference ITQ-ASQ
Fraction high cost firms
0.6
ITQ
0.5
0.4
0.3
0.2
0.1
ASQ
Benchmark
0
1
4
7
10
13
16
19
22
Confidence intervals for averages
25
28 Year
Price of capacity:
Capacity price>6.0 in years 2-4
No difference ITQ-ASQ
NOK/kg/year
Average price of capacity
8.5
8
7.5
ITQ
7
6.5
ASQ
6
1
4
7
10
13
16
19
22
25
Confidence intervals for averages
28 Year
Price of ITQs
Year 2 : ITQ price < benchmark
Years 18--: ITQ price > benchmark
NOK/kg
Prices of ITQs
100
80
60
40
20
Benchmark
0
1
4
7
10
13
16
19
22
25
Similar results in 3 pilot experiments
28
Year
Prices of
ASQs
NOK/kg
5
Prices of ASQs
4
3
2
1
Volatile raw
material price
0
1
4
7
10
13
16
19
22
25
28
Year
NOK/kg
Quaota price as function of TAC/Tot.Cap.
6.00
Drops with
TAC/tot.cap.
5.00
4.00
3.00
2.00
1.00
0.00
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
TAC/Tot.Cap.
Risk
(players experiencing negative equity)
• ITQ: 17%
• ASQ: 31%
Not significantly different
(1 out of 5 markets creates the difference)
Risk
(variation in equity)
10000
ITQ
5000
0
Average
st.deviations in
equity:
1
3
5
7
9
11 13 15 17 19 21 23 25 27 29
Increase in Equity
-5000
Normal return on equity
10000.0
ASQ
Increase in Equity
Normal return on equity
5000.0
ITQ: 3846
ASQ: 985
0.0
1
3
5
7
9 11 13 15 17 19 21 23 25 27 29
-5000.0
Same seed and same subject
G1S3
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