Asset Pricing in Created Markets

Abstract

We investigate the applicability of the present-value asset pricing model to fishing quota markets by applying instrumental variable panel data estimation techniques to 15 years of market transactions from New Zealand's individual transferable quota (ITQ) market. In addition to the influence of current fishing rents, we explore the effect of market interest rates, risk, and expected changes in future rents on quota asset prices. The results indicate that quota asset prices are positively related to declines in interest rates, lower levels of risk, expected increases in future fish prices, and expected cost reductions from rationalization under the quota system.Key words: asset pricing, fishery management, tradable permits. DOI: 10.1111DOI: 10. /j.1467DOI: 10. -8276.2007 Although recent experience with the sulfur dioxide trading program in the United States has changed many perceptions, there are still questions about how well tradable permit systems for environmental pollution, greenhouse gases, agricultural production, and natural resources can work in practice. Such skepticism is in part warranted by the limited number of ex post assessments on the performance of created markets. Because building the necessary institutions can require significant political and economic costs, it is imperative to develop an empirical record of the performance of created markets in practice.One area where market-based systems are subject to a significant degree of skepticism is in the management of ocean fisheries. One such system is individual fishing quotas, in which the total catch is capped and shares of the catch are allocated. An individual transferable quota (ITQ) system results when transfer of the shares is permitted. Over time, the least efficient fishermen should find it more profitable to sell their quota rather than fish it, both reducing excess capacity and increasing the efficiency of vessels operating in the fishery. We are grateful to Suzi Kerr, the research assistants at Motu Economic and Public Policy Research (New Zealand) and Resources for the Future, and the New Zealand Ministry of Fisheries for the provision of confidential trading data. We also thank Resources for the Future and the New Zealand Ministry of Fisheries for providing funding for this research.For ITQs to address the common pool problem in practice, it is important that quota markets are competitive and convey appropriate price signals. Price signals sent through the quota market are an essential source of information on the expected profitability of fishing and an important criterion for decisions to enter, exit, expand, or contract individual fishing activity. Quota prices also send signals to policymakers about the economic and biological health of a fishery. Arnason (1990) showed that under the assumption of competitive markets, monitoring the effect of changing the total allowable catch (TAC) on quota prices could be used to determine the optimal TAC.In a previous study, Newell, Sanchirico, and Kerr (2005) (hereafter NSK) investigate the ...

Evaluation of the Chilean Jack Mackerel ITQ System

“…Arnason (1993), Newell, Sanchirico et al (2005), Wilen (2005), Newell, Papps et al (2007), and Agar et al (2014)). For example, Newell, Sanchirico and Kerr (2005) found that the value of fishing quota in New Zealand increased over time for fisheries with greater degrees of freedom to change their fishing operations post-ITQ implementation (such as inshore and shellfish fisheries relative to specialized deep-water fisheries).…”

“…Most of these performance assessments have been done on developed world fisheries (Jardine and Sanchirico 2012), which is a reflection of where most of the early adopters of rights-based systems are found (e.g., Iceland, New Zealand, Canada), and the locations where the data are rich enough to measure impacts (see, e.g., Grafton, Squires et al 2000, Shotton 2001, Newell, Sanchirico and Kerr (2005, Newell, Papps and Sanchirico (2007), Chu (2009), andMRAG (2009)). …”

Examination of the Peruvian Anchovy Individual Vessel Quota (IVQ) System

“…This bias is a reflection of both where most of the early adopters of rights based systems are found (e.g., Iceland, New Zealand, Canada), as well as the locations where the data are rich enough to measure impacts (see, e.g., Grafton, Squires and Fox (2000), Shotton (2001), Newell, Sanchirico and Kerr (2005), Newell, Papps and Sanchirico (2007), Chu (2009), and MRAG (2009)). With the number of programs and their diversity increasing, a universal set of indicators was developed to permit comparisons across socioeconomic and biological performance of various fisheries management programs (Brinson and Thunberg 2013).…”

Towards individual-owned and owner-operated fleets in the Alaska Halibut and Sablefish IFQ program

“…In these types of management programs initial recipients receive quota shares, a percentage of an overall total allowable catch (TAC) in the fishery, which are translated into annual IFQ allocations (fishable pounds). Although numerous researchers have documented the success of these management regimes at increasing economic efficiency, profitability, and product quality, improving safety, managing the harvest within the TAC, and overall working conditions in the fisheries (Arnason 2005, Brinson and Thunberg 2013, Campbell et al 2000, Costello et al 2008, Dupont 2000, Grafton 1995, Grimm et al 2012, Hilborn et al 2005, Hughes and Woodley 2007, Newell et al 2005a, others have shown that these types of management programs can have adverse impacts on some stakeholders and coastal communities due to consolidation and associated employment losses, changes in processing needs, and shifts in regional distribution of fishing privileges (Carothers 2008, Carothers et al 2010, Copes and Charles 2004, McCay 2004, Olson 2011.…”