Cost function estimation in the Norwegian pelagic fisheries : a study of coastal vessels, purse seiners and pelagic trawlers through a cost minimisation approach

Abstract

This thesis contains a study of cost structures through a cost minimisation approach. Estimations reveal predicted u-shaped unit cost functions for three types of vessels participating in the Norwegian pelagic fisheries: coastal vessels, purse seiners and pelagic trawlers. Interaction terms on defined vessel groups identify relative advantages in the unit cost of the most important species. Through a cost minimisation problem, we assess the potential for reductions in variable costs. The data origins from the profitability surveys conducted by the Norwegian Directorate of Fisheries in the period 2000-2014. The estimated cost functions take a polynomial form. Such a functional form is sufficiently flexible to estimate/fit a u-shaped unit cost function. OLS analyses reveal the predicted longrun cost curve for several of the species included in the estimation. For the coastal vessels, these are herring, capelin and cod and pollock. In the combined fleet of purse seiners and pelagic trawlers, we find the predicted non-linear specification of costs for blue whiting and capelin. For both fleets, a linear relationship describes the underlying structure between variable costs and output of mackerel in the final specification. This specification applies also to the output of herring in the case of purse seiners and pelagic trawlers. These differences in the predicted relationships seem consistent with the structure of the data. We find a potential reduction of variable costs of NOK 10.5 billion in the optimal solution to the cost minimisation problem. This amount serves as an indication of the costs of certain regulations within the management system in the period. Our optimal solution disregards policy constraints such as redistribution of catches between vessel groups.