Asset Pricing in Created Markets for Fishing Quotas

This Report was commissioned as Resources for the Future Discussion paper 05-46.

We investigate the applicability of the present-value asset pricing model to fishing quota markets by applying instrumental variable panel data estimation techniques to 15 years of market transactions from New Zealand"s individual fishing quota market. In addition to the influence of current fishing rents (as measured by lease prices), we explore the effect of market interest rates, risk, and expected changes in future rents on quota asset prices. Controlling for these other factors, the results support a fairly simple relationship between quota asset and contemporaneous lease prices. Consistent with theoretical expectations, the results indicate that quota asset prices are positively related to declines in interest rates, lower levels of risk, expected increases in future fish prices, and expected cost reductions from rationalization under the quota system. However, the magnitude of some interrelationships is muted relative to what theory suggests, possibly due to measurement error.