Variable unit costs in an output-regulated industry: The Fishery

Departing from general cost theory of the firm and bioeconomic theory of the fishery, this study contributes with an empirical examination of how variable unit costs in a Norwegian demersal and pelagic fishery depend on output and the fish stock. The identification of the separate effects that the two factors have on costs is not common in the literature. Three Norwegian fleets fishing Norwegian spring spawning herring (Clupea Harengus) and five Norwegian fleets fishing Northeast Arctic cod (Gadus Morhua) are evaluated. The findings indicate that variable unit costs fall in output in both fisheries. The results also show that variable unit costs fall in fish stock in the demersal fishery, but with a stock elasticity of variable unit costs in absolute terms significantly less than 1. These results are of relevance to a manager seeking the optimal harvest rule and to understand fishermen's incentives when individual vessel quotas are reduced.