Capacity reduction,quota trading and productivity: the case of a fishery*

We present the first ex post study that quantitatively analyses the effects of a licence buy‐back and enhanced quota trading on the profitability and productivity of individual vessels in a fishery. Using firm‐level data and a profit index decomposition method, we find that small and large vessels and three different trawler fleets all experienced substantial productivity gains in the year immediately following a licence buy‐back and the establishment of a quota brokerage service. The apparent ongoing benefits of the buy‐back and increased quota trading over the sample period are in stark contrast to the generally unfavourable long‐term outcomes commonly associated with vessel buy‐backs in input‐controlled fisheries.