marily on one major capital input — vessels. 

 Therefore, the high partial production elasticities 

 recorded for steel vessels and fiberglass vessels 

 (0.314) are no surprise. Even though wooden ves- 

 sels appear to incur more repair and maintenance 

 costs, attract a lower quality crew, and, for that 

 matter, are less efficient than the other vessel 

 types, the low partial production elasticity of 

 0.033 is surprising. This low partial production 

 elasticity may have been caused by the fact that 

 the instrument for A'^^ - i in the wooden vessels 

 equation used to address the issue of the relation- 

 ship between the lagged dependent variable and 

 the error term did a poor job of explaining Nf - i. 

 An examination of the elasticities associated 

 with the (pX/c )/ term, computed at the mean, re- 

 veals that real net investment in steel vessels is 

 the most sensitive to changes in prices, interest 

 rates, taxes, and the other factors captured in this 

 variable. An elasticity of 7.28 associated with this 

 economic variable was computed for steel vessels. 

 This means that a 1% change in the (pX/c)t vari- 

 able causes real net investment in steel vessels to 

 change by 1.289c. This high investment response 

 to changes in these economic relationships could 

 be attributed to the fact that steel vessels, by far 

 the most productive (as evidenced by the high 

 partial production elasticity reported earlier), are 

 the most durable and the most capital intensive. 

 The elasticity associated with the (pX/c)t term in 

 the fiberglass and wooden vessel equations were 

 5.35 and 3.11, respectively. This would suggest 

 that macroeconomic policy actions would have a 

 substantially greater effect on real net invest- 

 ment in steel vessels than, say, wooden vessels. 



Impact of Changes in 

 Cost of Capital 



The impact of high real interest rates on the 

 growth of selected sectors in the economy has 

 been of great concern in the 1980s. The sensitiv- 

 ity of annual real net investment in fishing ves- 

 sels to changes in the real rate of interest is exam- 

 ined in this section by simulating the estimated 

 equations under annual real rates of 5 and 109?^. 

 In the short run (3 years), an increase in the real 

 rate of interest on debt capital from 5 to 10% 

 would cause real net investment in fishing ves- 

 sels to decrease by 3.04%. Annual real net invest- 

 ment in these fishing vessels would decrease by 

 15.88% in the long run. As the real rate of interest 

 on debt capital increases, it becomes more diffi- 

 cult to justify the purchase of additional vessels 



owing to their rising marginal factor cost. Given 

 the fact that 67% of the cost of new fishing vessels 

 is normally financed with debt capital, it is not 

 surprising that rising real interest rates on debt 

 captial have a significant negative effect on the 

 long run expansion of the Gulf fleet. 



The real cost of equity capital, which reflects 

 the opportunity cost of the fisherman's own funds, 

 has a less dramatic effect on annual real net in- 

 vestment in fishing vessels. This can be at- 

 tributed to the fact that only 33% of the cost of 

 new fishing vessels are financed with equity cap- 

 ital. The short run impact of an increase in the 

 real cost of equity capital from 5 to 10% translates 

 into only a 1.76% decrease in annual real net 

 investment in fishing vessels in the short run. 

 This same change in the cost of equity capital 

 would result in a 12.32% decrease in annual real 

 net investment in the long run. 



Summary and Conclusions 



This study evaluated aggregate investment be- 

 havior by fishermen for steel, wooden, and fiber- 

 glass fishing vessels in the Gulf of Mexico shrimp 

 fishery and examined the implications of changes 

 in the cost of acquiring debt and equity capital on 

 the industry's investment response. This study 

 showed statistical justification for the theoretical 

 model of aggregate investment behavior for all 

 three vessel types. 



It is quite evident that the cost of capital plays 

 an important role in influencing the investment 

 decisions in the Gulf shrimp fishing industry. 

 Macroeconomic policies that lead to high real in- 

 terest rates depress real net investment in this 

 fishery. Capital expenditures for steel vessels are 

 the most sensitive to changes in real interest 

 rates while wooden vessels are the least sensitive. 

 While low real interest rates are desirable for 

 stimulating investment activities in the general 

 economy, they would add to the overcapitaliza- 

 tion problem which currently exists in the Gulf 

 shrimp fishing industry. Finally, this study un- 

 derscores the need to reinitiate efforts to collect 

 data on gross investment expenditures for differ- 

 ent categories of fishing vessels in the Gulf fleet. 



Literature Cited 



COEN, R M 



1968. Effects of tax policy on investment in manufactur- 

 ing. Am. Econ. Rev. 58:200-211. 



1975. Investment behavior, the measurement of deprecia- 

 ble and tax policy. Am. Econ. Rev. 65:59-74. 



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