Implications of Entry Restrictions to Address Externalities in Aquaculture: The Case of Salmon Aquaculture
- PDF / 2,440,230 Bytes
- 22 Pages / 439.37 x 666.142 pts Page_size
- 28 Downloads / 184 Views
Implications of Entry Restrictions to Address Externalities in Aquaculture: The Case of Salmon Aquaculture Atle Oglend1 · Vesa‑Heikki Soini1,2 Accepted: 3 October 2020 © The Author(s) 2020
Abstract This paper investigates production license management when regulation constrains the number of production licenses to address production externalities. This is increasingly relevant for aquaculture production where disease issues threaten future seafood supply. The regulatory problem is analyzed in the context of Norwegian salmon aquaculture where a stop in issuance of new production licenses has been implemented to address social costs of parasitic sea lice. Our theoretical model shows that restricting number of licenses raises prices and shifts production efforts excessively towards greater stocking of fish per license. Hence, the policy cannot achieve a first-best welfare-maximizing allocation. Furthermore, restricting entry by limiting number of licenses can create regulatory rents, which effectively subsides rather than tax the source of the externality. Keywords Regulations · Food production · Externalities JEL Classification Q11 · Q22
1 Introduction This paper investigates the difficulty of efficiently limiting production growth by restricting number of licenses without also addressing other available production margins. This relates our paper to other work in regulation theory showing the problem and complexity of regulating single decision variables when multiple margins are available (Smith 2012; Squires 2016). Good resource regulations can improve markets by recovering dissipated rents (Gordon 1954; Smith 1969), or by reducing incentives for socially wasteful investments (Homans and Wilen 1997). With decentralized production decisions, getting specific regulations right is difficult, getting them wrong is easy. Aquaculture has been one of the fastest growing food production sectors, but disease issues threaten future seafood supply growth (Stentiford et al. 2012). In Norwegian salmon aquaculture, the major current issue is the prevalence and spread of parasitic sea lice * Atle Oglend [email protected] 1
Department of Industrial Economics, University of Stavanger, 4036 Stavanger, Norway
2
Hanken School of Economics, Helsinki Graduate School of Economics, Helsinki, Finland
13
Vol.:(0123456789)
A. Oglend, V.-H. Soini
associated with salmon production (Smith et al. 2010; Asche et al. 2009; Abolofia et al. 2017). This has led to a stop in the issuance of new production licenses. Little research exists on aquaculture farmers responses to such a regulation, which is worrying as it is well known that private adaptations to regulations can lead to unintended consequences not consistent with the policy objective. It is the purpose of this paper is to investigate how farmers manage production licenses when regulators limit the number of licenses to address an environmental externality. The regulatory problem will be analyzed in the context of Norwegian salmon farming. We develop a simple economic mod
Data Loading...
