Technical Change, price arbitrage and price flexibility; the case of Lobster holding in Québec compared to Eastern Canada Public Deposited

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  • Lobster (Homarus americanus) ranks first in Canada’s fisheries, but Quebec lobster represents only 6% of eastern Canada landings. During the peak of the fishing season in Quebec as elsewhere, supply is at its maximum and price is the lowest. For this reason, there has been considerable interest in Quebec in developing holding technologies that allow for price arbitrage over time. Such techniques already exist in other parts of Eastern Canada, but are less developed in Québec. This paper looks at the likely impacts of fishermen’s associations in Québec adopting lobster holding technologies that enable price arbitrage. We performed a technical and financial analysis that compared several alternative configurations of lobster holding technologies for Grande Rivière Québec. Of the configurations presented, a technique was proposed which seemed to maximize discounted profits. However, these results are nuanced by the fact that the overall effects of price arbitrage on the price signal over time may result in intertemporal resource rents being competed away. When we compared our results to other areas of Eastern Canada, this raised new questions about long term profitability, especially in a fishery such as Quebec, where management is based largely on input controls. We estimated a price flexibility equation as a function of lagged landings, seasonal dummy variables, the exchange rate between the United Stated and Canada, using SIMETAR-2008. A comparison of the two models, one from Quebec and one from Nova Scotia, suggests that investing in lobster holding technologies causes a smoothing of price variability. The results suggest that fishermen would try to maximize their profits by adopting an inter-temporal arbitrage strategy, but that profits in the absence of output controls, according to fisheries economic theory, could provoke an upward pressure on effective effort which would then accelerate the open access solution. This could negate the price arbitrage effect.
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  • Belhabib, Dyhia and James R. Wilson. 2010. Technical Change, price arbitrage and price flexibility; the case of Lobster holding in Québec compared to Eastern Canada. 12 pages. In: Proceedings of the Fifteenth Biennial Conference of the International Institute of Fisheries Economics & Trade, July 13-16, 2010, Montpellier, France: Economics of Fish Resources and Aquatic Ecosystems: Balancing Uses, Balancing Costs. Compiled by Ann L. Shriver. International Institute of Fisheries Economics & Trade, Corvallis, Oregon, USA, 2010.
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