AgriFood Working Paper 2019:8

The way the wind blows: Tracing out the demand for Norwegian lobster using instrumental variables

Understanding market demand for common pool resources, such as fish, is important for predicting consequences of sustainable resource management. This article studies how demand functions can be traced out using appropriate supply shifters. We show that wind speed on a fishing trip is strongly correlated with the quantities of Norwegian lobster (Nephrops) available on the Swedish market.

Using wind variables as instrumental variables and data on daily average prices and quantities over a 20 year period we estimate the daily aggregate demand for two types of Nephrops. We find that the demand for both types of Nephrops is highly responsive to price changes and that own-price elasticities are two to three times higher than OLS- estimates suggest. In addition, cross-price elasticities show, in contrast to OLS results, that the two types of Nephrops are close substitutes.

För en kort version på svenska se AgriFood Policy Brief 2019:13