A laboratory assessment of the choice of vessel size under individual transferable quota regimes

Abstract

This paper examines the effect of individual transferable quota regimes on technology choice, such as choice of vessel size, by using the laboratory experiment method. We find that even if vessel sizes change over time, the quota price can converge to the fundamental value conditioned on the vessels chosen. We also find that subjects choose their vessel type to maximise their profits based on the quota trading prices in the previous period. This result implies that the efficiency of quota markets in the beginning period is important because any inefficiency in quota markets may affect vessel sizes in ensuing periods. Moreover, we find that the initial allocations may significantly influence vessel sizes through two channels: first, a higher initial allocation to a subject increases the likelihood that the subject invests in a largesized vessel; second, the quota price may be higher and more unstable under unequal allocation than under equal allocation; thus, whether the allocation is equal influences subjects' choice of vessel type.