IDEAS home Printed from https://ideas.repec.org/a/uwp/landec/v81y2005i3p363-378.html
   My bibliography  Save this article

Sunk Cost and Entry-Exit Decisions under Individual Transferable Quotas: Why Industry Restructuring Is Delayed

Author

Listed:
  • Niels Vestergaard
  • Frank Jensen
  • Henning P. Jørgensen

Abstract

The paper shows that explicit modelling of sunk cost and a firm’s entry-exit decision in a traditional deterministic investment model may give an explanation of the slow transition to the optimal fleet structure following the introduction of individual transferable quotas (ITQs). The analysis shows that the annual lease unit price of quota may be in a range where the long-run fleet structure will not be attainable at once. Over time, firms with zero gross investment as optimal behavior may leave the industry as the capital decays and over the transition period the optimal fleet structure prevails.

Suggested Citation

  • Niels Vestergaard & Frank Jensen & Henning P. Jørgensen, 2005. "Sunk Cost and Entry-Exit Decisions under Individual Transferable Quotas: Why Industry Restructuring Is Delayed," Land Economics, University of Wisconsin Press, vol. 81(3).
    • Handle: RePEc:uwp:landec:v:81:y:2005:i:3:p363-378
    as

    Download full text from publisher

    File URL: http://le.uwpress.org/cgi/reprint/81/3/363
    Download Restriction: A subscripton is required to access pdf files. Pay per article is available.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rögnvaldur Hannesson, 1996. "Long-term industrial equilibrium in an ITQ managed fishery," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 8(1), pages 63-74, July.
    2. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    3. Weninger, Quinn & Just, Richard E., 1997. "An Analysis of Transition From Limited Entry to Transferable Quota: Non-Marshallian Principles for Fisheries Management," Staff General Research Papers Archive 5225, Iowa State University, Department of Economics.
    4. Segerson, Kathleen & Squires, Dale, 1990. "On the measurement of economic capacity utilization for multi-product industries," Journal of Econometrics, Elsevier, vol. 44(3), pages 347-361, June.
    5. Jean-Paul Chavas, 1994. "Production and Investment Decisions Under Sunk Cost and Temporal Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(1), pages 114-127.
    6. Squires Dale & Alauddin Mohammad & Kirkley James, 1994. "Individual Transferable Quota Markets and Investment Decisions in the Fixed Gear Sablefish Industry," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 185-204, September.
    7. Grafton R. Quentin, 1995. "Rent Capture in a Rights-Based Fishery," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 48-67, January.
    8. Squires, Dale, 1994. "Firm behavior under input rationing," Journal of Econometrics, Elsevier, vol. 61(2), pages 235-257, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. HIGASHIDA Keisaku & TAKARADA Yasuhiro, 2009. "Efficiency of Individual Transferable Quotas (ITQ) Systems and Input and Stock Controls," Discussion papers 09046, Research Institute of Economy, Trade and Industry (RIETI).
    2. Quinn Weninger, 2008. "Economic Benefits of Management Reform in the Gulf of Mexico Grouper Fishery: A Semi-parametric Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 41(4), pages 479-497, December.
    3. Okumura, Yasunori, 2016. "Individual transferable quotas in Cournot competition," Economic Modelling, Elsevier, vol. 55(C), pages 315-321.
    4. Solís, Daniel & Agar, Juan J. & del Corral, Julio, 2015. "IFQs and total factor productivity changes: The case of the Gulf of Mexico red snapper fishery," Marine Policy, Elsevier, vol. 62(C), pages 347-357.
    5. Boisvert, Richard N. & Poe, Gregory L. & Sado, Yukako, 2007. "Selected Economic Aspects of Water Quality Trading: A Primer and Interpretive Literature Review," EB Series 121835, Cornell University, Department of Applied Economics and Management.
    6. Kevin J. Fox & R. Quentin Grafton & Tom Kompas & Tuong Nhu Che, 2006. "Capacity reduction, quota trading and productivity: the case of a fishery ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(2), pages 189-206, June.
    7. Holzer, Jorge & McConnell, Kenneth, 2023. "Extraction rights allocation with liquidity constraints," Resource and Energy Economics, Elsevier, vol. 71(C).
    8. Solis, Daniel & Agar, Juan & del Corral, Julio, 2015. "The impact of IFQs on the productivity of the US Gulf of Mexico Red Snapper Fishery," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196639, Southern Agricultural Economics Association.
    9. Keita Abe & Linda Nøstbakken & Mads Fjeld Wold, 2024. "Quota Consolidation in Norwegian Coastal Fisheries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(5), pages 1295-1326, May.
    10. Barbara Hutniczak & Niels Vestergaard & Dale Squires, 2019. "Policy Change Anticipation in the Buyback Context," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(1), pages 111-132, May.
    11. Asche, Frank & Bjørndal, Marianne Tranberg & Bjørndal, Trond, 2014. "Development in fleet fishing capacity in rights based fisheries," Marine Policy, Elsevier, vol. 44(C), pages 166-171.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dale Squires & Kathleen Segerson, 2022. "Capacity and Capacity Utilization in Production Economics," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 24, pages 1001-1037, Springer.
    2. James Kirkley & Catherine Morrison Paul & Dale Squires, 2002. "Capacity and Capacity Utilization in Common-pool Resource Industries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 71-97, June.
    3. Barbara Hutniczak & Niels Vestergaard & Dale Squires, 2019. "Policy Change Anticipation in the Buyback Context," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(1), pages 111-132, May.
    4. Hinrichs, J. & Mußhoff, O. & Odening, M., 2006. "Ökonomische Hysterese in der deutschen Veredlungsproduktion," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 41, March.
    5. Weninger, Quinn & Waters, James R., 2003. "Economic benefits of management reform in the northern Gulf of Mexico reef fish fishery," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 207-230, September.
    6. John Haraden & Samuel Herrick & Dale Squires & Clement Tisdell, 2004. "Economic Benefits of Dolphins in the United States Eastern Tropical Pacific Purse-Seine Tuna Industry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 28(4), pages 451-468, August.
    7. Wheatley, W. Parker & Liu, Donald J. & del Ninno, Carlo, 2001. "Empirical Analysis Of Hysteresis In Rural Labor Markets In A Developing Country: The Case Of Bangladesh," 2001 Annual meeting, August 5-8, Chicago, IL 20594, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Linda Nøstbakken, 2012. "Investment Drivers in a Fishery with Tradable Quotas," Land Economics, University of Wisconsin Press, vol. 88(2), pages 400-424.
    9. Brady, Michael P. & Marsh, Thomas L., 2013. "Do Changes in Orchard Supply Occur at the Intensive or Extensive Margin of the Landowner?," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150452, Agricultural and Applied Economics Association.
    10. Miller, M. & Weller, P., 1988. "Solving Stochastic Saddlepoint Systems: A Qualitative Treatment With Economic Applications," The Warwick Economics Research Paper Series (TWERPS) 309, University of Warwick, Department of Economics.
    11. repec:spo:wpmain:info:hdl:2441/6151 is not listed on IDEAS
    12. Fahrholz Christian & Freytag Andreas, 2014. "Finanzpolitik in Europa zwischen Subsidiarität und Vergemeinschaftung: Eine ordnungsökonomische Analyse / Between subsidiarity and Europeanization: An ordo-liberal perspective on financial policy," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 65(1), pages 99-116, January.
    13. Adugna Lemi & Sisay Asefa, 2009. "Differential Impacts of Economic Volatility and Governance on Manufacturing and Non-Manufacturing Foreign Direct Investments: The Case of US Multinationals in Africa," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 35(3), pages 367-395.
    14. Talat Mahmood, 1997. "Survival of Newly Founded Businesses: A Log-Logistic Model Approach," CIG Working Papers FS IV 97-32, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    15. Olivier Guyader, 2002. "Simulating the Effect of Regulatory Systems in a Fishery, An Application to the French Driftnet Albacore Fleet," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(1), pages 1-28, September.
    16. Yuko Imura, 2023. "Reassessing Trade Barriers with Global Production Networks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 77-116, December.
    17. Weaver, Robert D. & Moon, Yongma, 2010. "Private Labels: A Mechanism For Fulfilling Consumer Demand For Healthy Food?," 115th Joint EAAE/AAEA Seminar, September 15-17, 2010, Freising-Weihenstephan, Germany 116397, European Association of Agricultural Economists.
    18. Jaewon Jung, 2023. "Multinational Firms and Economic Integration: The Role of Global Uncertainty," Sustainability, MDPI, vol. 15(3), pages 1-18, February.
    19. Daniel W. Elfenbein & Anne Marie Knott & Rachel Croson, 2017. "Equity stakes and exit: An experimental approach to decomposing exit delay," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 278-299, February.
    20. Alvarez, Luis H. R., 1998. "Exit strategies and price uncertainty: a Greenian approach," Journal of Mathematical Economics, Elsevier, vol. 29(1), pages 43-56, January.
    21. Lotfaliei, Babak, 2018. "Zero leverage and the value in waiting to have debt," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 335-349.

    More about this item

    JEL classification:

    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uwp:landec:v:81:y:2005:i:3:p363-378. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://le.uwpress.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.