KIRKLEY AND SQUIRES: CAPITAL STOCK AND INVESTMENT IN A FISHERY 



ficient for new vessels should be positive since 

 new vessels tend to cost more because they are 

 newer and usually incorporate more recent tech- 

 nological advances; 4) the second-order coeffi- 

 cients for the size characteristics are expected to 

 be negative since cost is believed to increase at a 

 decreasing rate in response to increases in the 

 size of a vessel. 



THE DATA 



Data used to estimate the capital stock equa- 

 tion were obtained from three sources: First, in- 

 formation on vessel acquisition price and associ- 

 ated characteristics were obtained for 164 new 

 vessels from the Northeast Regional Office of the 

 National Marine Fisheries Service.^ Second, data 

 on list prices and vessel characteristics for 946 

 used vessels were obtained from various trade 

 magazines and vessel brokers. Third, detailed 

 vessel and fishery data were obtained from the 

 U.S. Coast Guard master vessel listing and the 

 Northeast Fisheries Center. Data were obtained 

 for the years 1965 through 1981. 



The first two sets of data were used to estimate 

 the capital stock equations. The third data set 

 was used to estimate aggregate capital stock and 

 investment in selected New England fisheries 

 using the estimated capital stock equations; that 

 is, vessel characteristics for all of the vessels in 

 the New England fleet were inserted into the esti- 

 mated capital stock equations to obtain estimates 

 of capital stocks per vessel in a given year. The 

 estimated capital stock per vessel was summed 

 over all vessels in a year to obtain total or aggre- 

 gate capital stock. Net investment was then cal- 

 culated as the annual change in total capital 

 stock. 



The use of both the list and acquisition prices, 

 however, presents a problem. The list price re- 

 flects the supply price or the price at which a 

 vessel is offered for sale. The acquisition price 

 reflects the price determined by the equilibrium 

 between demand and supply. As a consequence, 

 estimates of capital stock and investment may be 

 in error. 



It is not known by how much the acquisition 

 price differs from the list price for used vessels. 

 Thus, the magnitude of the error cannot be calcu- 

 lated. Since the list price is not less than the ac- 

 quisition price, estimates of capital stock based on 



Equation (2) are likely upwards biased. Counter 

 to this problem is the argument that by the time 

 a vessel is ready for fishing, required capital mod- 

 ifications or improvements may result in the cap- 

 ital stock being close in value to the list price. 



There are no completely satisfactory economic 

 justifications for using both the list and acquisi- 

 tion prices. Two possible justifications are that 

 Griliches (1971) and others used both prices, and 

 capital improvements or modifications may be 

 nearly equal to the difference between the list 

 and acquisition prices. Another possible justifica- 

 tion is the accepted use of cost data obtained from 

 boat builders as in Griffin et al. (1978) which may 

 impose similar problems plus the statistical prob- 

 lem of measurement error. In the remainder of 

 this paper, the term "acquisition price" is used 

 although the estimation and calculation of capital 

 stock and investment are based on both price 

 series. 



EMPIRICAL RESULTS 



Equation (2) was estimated by ordinary-least- 

 squares with the dependent variable, the acquisi- 

 tion price, measured in both nominal and real 

 terms; the real price is the nominal price deflated 

 by the producer price index for heavy machinery. 

 As previously stated, deflation is necessary to es- 

 timate the real capital stock. The estimated coef- 

 ficients and statistical results are presented in 

 Tables 1 and 2. 



Equation (2), however, was also estimated 

 using data for several groups of years between 

 1965 and 1981. The reason for considering differ- 

 ent time periods was that prior knowledge of New 

 England fisheries suggested that various changes 

 occurred in the fisheries during the selected time 

 periods.^ Moreover, economic studies of New Eng- 

 land fisheries have often been criticized for as- 

 suming stable relationships over time or over dif- 

 ferent cross sectional units. Failure to incorporate 

 changes in the estimated relationship between 

 cost and vessel characteristics over time may re- 

 sult in biased parameter estimates. 



Changes which have possible ramifications for 

 the estimated relationships include 1) depressed 

 resource conditions and the presence of foreign 

 fishing between 1965 and 1971; 2) management 

 by the International Commission for Northwest 



^Data are confidential and may not be available to other re- 

 searchers or the general public. 



^Additional information on possible structural changes in 

 New England fisheries is available in Kirkley et al. (1982), 

 Dewar (1983), Doeringer et al. (1986), and Kirkley (1986). 



343 



