ITQ Markets with administrative costs: An application to the industrial common sardine and anchovy fishery in Chile

Using numerical simulations of the mixed common sardine and anchovy fishery of central-southern Chile, we study the effects of the distribution of administrative costs between the government and the fishing industry in an individual transferable quota system. Consistent with recent theoretical results, we find that the level and distribution of the administrative costs between the public and private sector affects the period-by-period equilibrium quota price and number of active vessels. In addition, the distribution of administrative costs affects the optimal total allowable catch and the steady state biomass. In general, our results demonstrate two effects on the social value of the fishery when the industry bears all administrative costs.  On one hand, the social value of the fishery increases, because there are fewer vessels operating and because of the deadweight costs of public funds.  On the other hand, when the industry pays all administrative costs, the optimal quota policy changes which affects the fishery value during the transition to the steady state equilibrium. Taken together, our results suggest that having the industry bear all administrative costs might not be efficient.