A cost function is used to quantify potential sources of gains from deregulation of the Norwegian salmon farming industry, an industry that has been heavily regulated in order to achieve a regional dispersion of production and profits along the entire coastline. It now seems to be widely recognised that the regulations have led to cost inefficiencies. A region‐augmented cost function with data from 282 fish farms for 1988 is used to estimate regional productivity differences, i.e. differences in the total cost of producing salmon in one region compared to another. It is found that the potential gains from deregulation may be substantia