License fees. The case of Norwegian salmon farming

Abstract

The Norwegian salmon farming industry is one of the most important Norwegian export industries. The industry is also regulated to secure balanced and sustainable development. Current regulatory practice consists of licensing access to sea water. The government recently set an upper bound on the license fees; the purpose of our paper is to estimate the shadow price of the property right to determine whether the current license fee limit is 'too low' as claimed by critics. We model the production process with a directional input distance function; output includes sold salmon as well as the increased biomass of salmon inventory. Inputs include labor, feed, pen capacity, fingerlings, capital, and other variable costs. We estimate a quadratic frontier directional distance function; our mean estimate of the shadow value of the licenses is below the current price ceiling, but has a range such that the upper bound on license fees is binding for some salmon farmers.