Real Option Game for Fishery Exit under Individual Transferable Quota System with Fish Price Uncertainty

The individual transferable quota (ITQ) is one of fishery management system to reduce over-capitalization problem prevalent in open-access or limited-access fishery. ITQ program induces the least cost efficient vessels to make earlier exits from fishery by cashing out their quotas. However, the empirical evidences are less clear. This paper examines the source of reverse ordering of exit among cost inefficient and efficient vessels by focusing on asset fixity of vessels and rivalry game in the presence of fish price uncertainty. Real option models are provided to show the conditions under which the least cost inefficient vessels may make exit later than the less cost inefficient vessels.