Strategic investments in catch capacity and quotas: How costly is a mismatch for a firm?

Abstract

Despite improved fisheries management, overcapacity is still a major issue in fisheries worldwide. This study investigates the economic effect of a mismatch between catch capacity and quota holdings on the economic performance of fishing boats operating in a system of Individual Fishing Quota (IFQ) system. Based on the data of 71 fishing vessels, which constitute the entire fleet of Norwegian seagoing purse seiners, an ordinal least squares model is applied by including the vessel's catch capacity, quota holding, and return on invested capital (ROIC) along with several control variables. The estimated results suggest that the key factor affecting ROIC is overcapacity. Specifically, when the relative ratio of capacity and quota holding increases by 1%, a vessel's ROIC decreases by 0.692%. This finding indicates that the overcapacity problem in the Norwegian seagoing purse seine fleet still exists even more than a decade after an IFQ regime was introduced. The paper concludes by discussing implications of the findings.