The economic effects of the production area regulation : an empirical study of the norwegian aquaculture industry

Abstract

The Norwegian aquaculture industry has grown and developed substantially since its mere beginning in the 1970s (Nærings- og fiskeridepartementet, 2015; PwC, 2016b; Statistisk sentralbyrå, 2018c). Governmental regulation of the industry has developed accordingly, with shifting intentions from ensuring local ownership and jobs, to the newfound focus on sustainability (Asche & Bjørndal, 2011; Nærings- og fiskeridepartementet, 2015; Schwach et al., 2015). The aim of this thesis is to estimate the economic effects of the recently implemented Production Area Regulation on commercial fish farming companies. Existing bioeconomic theory does not take into account the capacity constraints faced by the industry participants, and we suggest such an extension to the theoretical models. The inclusion of capacity constraints enables the calculation of changes in rotation length and the corresponding willingness-to-pay for changes in capacity, which in turn can be used to evaluate the effects of the regulation. A growth model and a price model are estimated based on the empirical data obtained, which in turn are utilized in the calculation of the overall economic effects of the regulation. Our findings suggest that the introduction of capacity constraints leads to shorter rotation lengths than what is optimal for Norwegian fish farmers. The average willingness-to-pay for 2 % increased capacity is 99.10 NOK/kg. Overall, the regulation will lead to an increase in profits per production license of NOK 410 485. The variation between the production areas are large, with changes in profits ranging from -6.2 million to almost 2.3 million per production license. Assumptions about interest rate, mortality rate, number of fish, costs, prices and growth largely influences the economic effects of the regulation.