Implications of Entry Restrictions to Address Externalities in Aquaculture: The Case of Salmon Aquaculture

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.

Perish or prosper: Trade patterns for highly perishable seafood products

“…| 877 growth at the farms (Anderson, 2002;Asche et al, 2009;Oglend & Soini, 2020;Rocha-Aponte, 2020;Roll, 2013), in the supply chain Kvaløy & Tveterås, 2008;Olson & Criddle, 2008), as well as rapid product development (Asche et al, 2015;Braekkan et al, 2018). Control with the production process has allowed the producers to harvest salmon all year, to target the most valuable markets and improve logistics, to a larger extent than what is possible in most fisheries (Anderson, 2002;Asche, 2008).…”

Innovation in the Norwegian aquaculture industry

“…h The land-based trout industry still largely produces portion sized fish at around 0.5 kg, 75 while a farmed salmon has an average harvest weight around 5 kg. 85 i There are also studies that suggest that imperfect regulations can exacerbate environmental problems. 85 j Although there are competing users of areas in the coastal zone, access to unexploited suitable natural environments is not necessarily a major limiting factor for Norwegian aquaculture.…”

“…85 i There are also studies that suggest that imperfect regulations can exacerbate environmental problems. 85 j Although there are competing users of areas in the coastal zone, access to unexploited suitable natural environments is not necessarily a major limiting factor for Norwegian aquaculture. 105,106 k RAS is a rapidly developing technology adapted for a number of species around the world including salmon.…”

“…This system gives incentives to flatten the seasonal cycle and increase production by harvesting smaller fish. 85 The increasing environmental challenge cause by salmon lice has led to an increasing regulatory focus on this parasite. 24,86 So-called green licences were introduced in 2013 followed by development licences in 2015 to promote the development of new technologies and/or innovative solutions that could solve the environmental problems of the industry particularly pertinent to problems associated with lice.…”

“…In 2005, a system of maximum allowable biomass (MAB) regime, restricting the amount of biomass companies could have in the farms to a maximum of 780 tons for most regions and 945 tons for the northernmost production regions (due to less favourable water temperatures). This system gives incentives to flatten the seasonal cycle and increase production by harvesting smaller fish 85 …”