Institutional and financial entry barriers in a fishery

Abstract

Fishery policies over the past decades have mainly aimed at capacity reduction to preserve overexploited stocks. For that reason, research has focused on exploring incentives to exit fisheries rather than examining entry barriers. However, in quota-regulated fisheries, potential entrants might face substantial institutional and financial barriers, as opposed to incumbents, whose rights might have been historically secured by grandfathering or by acquiring quota shares at favorable prices. The present study first explores the institutional and financial barriers for a potential entrant in the Norwegian purse seine fleet. The findings show that there exist substantial legal entry barriers to overcome. Furthermore, a capital requirement of about 100 million USD is needed. About two-thirds of this significant amount is related to quota purchases. Second, based on empirical catch and price data, the study examines the prospects of a newcomer to make profit from a vessel and quota investment relative to an incumbent with free catch capacity. The findings show that an incumbent can achieve about 40% higher return on investing in a quota unit over an intruder. This substantial different valuation clearly demonstrates the economic disadvantage of being an outsider. Consequently, intruders are excluded from competing for quota shares and thus entering the industry. Finally, the implications of the study are discussed.