RT Journal Article
SR Electronic
T1 Sunk Cost and Entry-Exit Decisions under Individual Transferable Quotas: Why Industry Restructuring Is Delayed
JF Land Economics
JO Land Econ
FD University of Wisconsin Press
SP 363
OP 378
DO 10.3368/le.81.3.363
VO 81
IS 3
A1 Vestergaard, Niels
A1 Jensen, Frank
A1 Jørgensen, Henning P.
YR 2005
UL http://le.uwpress.org/content/81/3/363.abstract
AB The paper shows that explicit modelling of sunk cost and a firm’s entry-exit decision in a traditional deterministic investment model may give an explanation of the slow transition to the optimal fleet structure following the introduction of individual transferable quotas (ITQs). The analysis shows that the annual lease unit price of quota may be in a range where the long-run fleet structure will not be attainable at once. Over time, firms with zero gross investment as optimal behavior may leave the industry as the capital decays and over the transition period the optimal fleet structure prevails. (JEL Q22)