The economics of deemed values

In 2001, New Zealand substantially modified its approach to implementation of the Quota Management System to make deemed values a central administrative tool. Catches in excess of a fisher’s annual catch entitlements (ACE) incur payments, called deemed values. Deemed values are an example of a price cap tool within a cap-and-trade regulatory system. The purpose of this paper is to develop four economic explanations for why deemed values may improve administration of individual transferable quota systems. First, deemed values can reduce transactions costs for catch balancing for both industry and government. Second, deemed values can provide liquidity in thin markets and improve the functioning of markets for ACE. Third, deemed values can reduce the incentives for discarding. These three administrative advantages are achieved because deemed values provide simpler administrative processes and because deemed values provide the industry greater flexibility in catch balancing. But the flexibility to land against deemed values carries the risk that deemed values could intentionally be set so low that intentional over-quota catches are incentivized. Fourth, differential deemed values can create an increasing marginal cost of overfishing incentive structure for harvesters.