Access Fees and Efficiency Frontiers with Selectivity and Latent Classes: Falkland Islands Fisheries

A relevant question in fishery management is to what extent individual transferable quotas and effort quotas (ITQs/ITEQs) can contribute to higher efficiency and net returns as well as foster resource sustainability. To better account for factors that systematically affect efficiency of fishing companies within a complex institutional environment, two stochastic frontier semiparametric models treat unobserved heterogeneity as a finite mixture or discrete approximation to continuous parameter variation by adjusting for sample selection and latent classes, respectively. Assuming profitability-constrained, revenue-maximising strategies and based on a panel of Falkland Islands fisheries over the period 2003-14, both models suggest separate frontiers relative to revenues and limited to selection-corrected model costs. The hypothesis of frontier-enhancing effects of the new ITQ/ITEQ regime is supported for most--albeit not all--fishing companies. Based on model results, revenue efficiency gains are achievable by encouraging, when feasible, vessel ownership and larger arrangements between quota holders and joint-venture companies. Regression results of latent class production frontier models for southern hake catches similarly suggest heterogeneity across finfish vessels and widespread--though not uniform--frontier-enhancing effects of the new fishery regime.