Institution-based roots to fishing vessels profitability

Abstract

In fisheries, formal institutions are intentionally implemented to protect the stock of fish and to better adjust the fleet’s catch capacity to the resource base. The present study, however, explores how the same institutions also influence competitive forces that shape industry attractiveness and the profitability of fishing boats. The empirical context is a sample of Norwegian seagoing purse seiners during a period that saw the introduction of two different individual transferable quota (ITQ) variants, the so-called unit quota system (UQ) system and the structural quota (SQ) system. The study analyses and compares the profitability of the vessels before ITQs were implemented in Norway (1985–1995), then under the original UQ regime (1996–2004), and finally under the present SQ regime (2005–2018). The findings disclose that the average profit margin was 8.8% in the pre-quota period, 20.6% in the UQ period and 24.3% in the SQ period. The differences between the pre-quota period and the two quota periods were significant (<i>p</i> < 0.000), whereas the difference between the two different quota periods were not (<i>p</i> = 0.068). Thus, the findings of this study draw a picture of an economically thriving industry after the introduction of ITQs. The paper argues that the significant profitability improvements achieved is rooted in the institutions that are established, which provide the players with essentially free and protected access to a common and valuable fish resource. Finally, implications of the findings are discussed.