Conference Agenda

In some situations, traditional contractual practices such as compensation schemes are optimal in specific industrial contexts, but they become detrimental once new regulations are being introduced in these industries. This paper analyzes the case of profit-sharing in commercial fisheries (lay system) in a situation where Individual Transferable Quotas (ITQs) are being introduced. Our analysis considers a fishery subject to some congestive frictions where fishing crew are being paid with lays. In an ITQ fishery the main measure for fishing performance is known in advance and is fixed. However, lays can still depend upon catch levels if new quotas are acquired or leased by the vessel's owner. It follows that if a vessel wants to increase its harvest levels, it must purchase or lease (at a cost) new quotas from other vessels. An important question is then whether the possibility to compensate crew members with lays (as opposed to regular wage) can enhance the efficiency of tradeable quotas?

Our model analysis reveals that lay contracts reduce the efficiency of ITQs as it reduces quota leasing, and increases the equilibrium leasing price. In other words, letting vessels' owners issue profit-sharing partnerships creates a Pareto inferior situation in which the ITQ fishery as a whole is worse off.