A LIMITED INFORMATION APPROACH FOR 

 DETERMINING CAPITAL STOCK AND INVESTMENT IN A FISHERY^ 



James E Kirkley^ and Dale E. Squires^ 



ABSTRACT 



There have been few empirical studies on the level of capitalization and investment in fisheries 

 because the necessary data are often inadequate. Specifically, data on capital stock and investment 

 in a fishery are not routinely collected and compiled or are limited in scope. In this study, a method 

 is provided for estimating the aggregate capital stock and investment in a fishery utilizing the 

 available information. Data on acquisition and list prices and vessel characteristics for a sample of 

 New England vessels are obtained. The data are then used to estimate an hedonic cost function which 

 specifies the acquisition price as a function of vessel characteristics. The resultant equations are 

 subsequently used, with information on vessel characteristics for all New England vessels, to esti- 

 mate aggregate capital stock and investment. The results indicate that substantial investment oc- 

 curred in the otter trawl and scallop dredge fisheries, particularly since the Magnuson Fisheries 

 Conservation and Management Act. Moreover, the results demonstrate that the number and change 

 in the number of vessels are inadequate indicators of the level of capital stock and investment in a 

 fleet comprised of vessels with heterogeneous characteristics. 



The common property nature of fisheries is recog- 

 nized as causing excess capitalization and har- 

 vesting capacity (Gordon 1954). The theoretical 

 argument is that since fishermen do not have to 

 pay for the utilization of common property fish 

 stocks, new vessels enter a fishery until net rev- 

 enue is driven to zero. This common-property fea- 

 ture results in more capital and investment than 

 is economically optimum. Public regulation of 

 fishing industries is usually advocated to redress 

 the excess entry, economic inefficiency, and loss 

 of economic rents in a common property fishery 

 (Scott 1979; Sissenwine and Kirkley 1982). 



In essence, overcapitalization and excess in- 

 vestment are perceived to be the reasons for many 

 of the major fisheries problems (Hilborn 1983). 

 Economists argue that management of overcapi- 

 talization is necessary to realize the benefits of 

 fisheries (Cunningham et al. 1985). Alterna- 

 tively, gains from fisheries management require 

 control of overcapitalization and excess invest- 

 ment (Charles 1983a, b). 



Clark et al. (1979) and Charles (1983a, b) ex- 

 tended the static theory of optimal fisheries in- 

 vestment as developed by Gordon (1954). They 



^Virginia Institute of Marine Science (VIMS) Contribution 

 No. 1467. 



^College of William and Mary, Schools of Marine Science and 

 Business Administration, Gloucester Point, VA 23062. 



3Southwest Fisheries Center La Jolla Laboratory, National 

 Fisheries Service, NOAA, P.O. Box 271, La Jolla, CA 92038. 



also demonstrated the relationships between in- 

 vestment, capital stock, overexploitation, and 

 fisheries management. They concluded that in- 

 vestment should be more conservative to prevent 

 overexploitation. 



The economic literature provides substantial 

 justification for the need to solve the problems of 

 overcapitalization and excess investment. Yet, 

 few empirical studies document the level of capi- 

 talization and investment."* Moreover, there ap- 

 pears to be no attempt by any U.S. agency to 

 routinely collect and compile statistics on either 

 the stock of capital or the level of investment in 

 U.S. fisheries. Overcapitalization and excess in- 

 vestment, though, continue to be suggested as the 

 reasons for many of the economic problems of 

 fisheries. 



Since data are often inadequate, many empiri- 

 cal studies on fisheries consider capital stock and 

 investment in terms of the number of vessels. 

 That is, capital stock and investment in a fishery 

 are tyically measured in terms of number of ves- 

 sels. In the absence of appropriate information, 

 the number of vessels may be the only basis for 

 examining overcapitalization and excess invest- 

 ment. Alternatively, if a fleet has identical-sized 

 vessels, fixed inputs or vessel characteristics, and 



Manuscript accepted February 1988. 

 FISHERY BULLETIN: VOL. 86, NO. 2, 1988. 



'•Tettey et al. ( 1986) provided an exception, but their analysis 

 is restricted to the shrimp fishery and is based on cost data 

 obtained from boat builders. 



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