NOTES 



AN ECONOMETRIC ANALYSIS OF 



IVfET INVESTMENT IN 

 GULF SHRIMP FISHING VESSELS' 



The major capital inputs in the Gulf shrimp fish- 

 ery are vessels and gear. Early vessels, built 

 mostly of wood, employed drag seines, cast nets, 

 and fixed traps to catch shrimp. Today, much 

 larger and more powerful vessels, equipped with 

 sophisticated fishing gear and accessories, trawl 

 the Gulf of Mexico. The last 20 years has seen a 

 remarkable substitution of steel and fiberglass 

 vessels for wooden vessels. The factors underlying 

 this aggregate investment trend in the Gulf of 

 Mexico (hereafter referred as the Gulf) shrimp 

 fishery, however, have yet to be examined. 



Economic analysis of the fishing industry has 

 increased in recent years because of the growing 

 importance of world fish stocks. However, these 

 studies have been focused predominantly at the 

 micro or firm level (Thompson et al. 1970^; 

 Wilson et al. 1970; Juhl 1974; Watson 1977; 

 Griffin et al. 1978; Prochaska and Cato 1981). 

 Moreover, accounting for a comprehensive mean 

 of the cost of capital has been ignored in past 

 research efforts. Yet, the cost of capital is likely a 

 major factor in fishing vessel investment deci- 

 sions in the Gulf shrimp fishery. The long run 

 profitability of the sector and its exposure to fi- 

 nancial risk depends, to a large extent, upon its 

 capital structure and fluctuations in the cost of 

 debt and equity capital. Futhermore, this deter- 

 minent of aggregate investment behavior repre- 

 sents a major channel through which macroeco- 

 nomic policy actions are transmitted to the Gulf 

 shrimp fishery. 



The purpose of this study is to estimate an 

 econometric model of annual real net investment 

 in fishing vessels in the Gulf and to determine the 

 sensitivity of investment decisions in the indus- 

 try to fluctuations in the cost of equity and debt 

 capital. This study begins by examining the indi- 

 vidual factors that affect the expansion of the 



iTechnical Article No. TA-20803 of the Texas Agricultural 

 Experiment Station, Texas A&M University System. This re- 

 search was supported in part by the Texas A&M University Sea 

 Grant College Program under Grant No. NA81AA-D-00092. 



2Thompson, Russel G., R. W. Callen, and L. C. 

 Wolken. 1970. Optimal investment and financial decisions 

 for a model shrimp fishery firm. Unpubl. Rep. Texas A&M 

 Univ., TAMU-SG-70-205. 



stock of steel, wood, and fiberglass vessels in the 

 Gulf fieet. The effects of alternative macroeco- 

 nomic policies on investment expenditure trends 

 in the Gulf shrimp fishery are then studied. The 

 final section of this paper presents some conclud- 

 ing remarks. 



Determinants of Net Investment 



The aggregate investment model used in this 

 study is based upon the neoclassical theory of ag- 

 gregate investment behavior. The determinants 

 of the desired capital stock of fishing vessels as 

 well as the relationship between this desired cap- 

 ital stock and net investment behavior of Gulf 

 shrimp fishermen are specified in this section. 



Desired Stock of Fishing Vessels 



In making investment decisions, competitive 

 firms add to their existing stock of capital as long 

 as the present value of the periodic net cash flows 

 generated by an additional unit of capital exceeds 

 its net purchase price. This condition for any par- 

 ticular type of fishing vessel (e.g., wood, steel, 

 fiberglass) can be stated algebraically as follows^: 



2 pidX/dKj) - (dTi/dKj) - r{dDt/8Kj} 

 t=i 



idPt/dKj) (1 + p)-' > Qjia - ic) 



X U + ^ dRjt/dKj]a + p)-'] (1) 



where variable p represents the real price fisher- 

 men expect to receive per unit of output in the 

 Gulf of Mexico shrimp industry, X represents the 

 quantity of shrimp expected to be harvested, Kj is 

 the real stock of thej'^ category of fishing vessels, 

 Tt and P/ represent the tax payment and principal 

 payment due in period t expressed in constant 



3The variables without any subscripts are expected at the 

 time the investment is made to remain constant over time. 



FISHERY BULLETIN: VOL. 86, NO. 1, 1988 



151 



