PRODUCTION FUNCTION ANALYSIS OF 



HATCHERY PROPAGATION OF 



SALMON AND STEELHEAD 



The Incentive Framework of 

 Hatchery "Firms" 



As is usually the case, our initial research 

 objectives were more elegant than could be 

 accomplished with existing time and data. 

 Initial plans were to estimate marginal pro- 

 ductivities for each of several factors of pro- 

 duction I'elevant to the 15 major hatcheries of 

 the Oregon Fish Commission, and to estimate 

 the total elasticity of production or returns 

 to size for these hatcheries. If possible, we 

 wanted to incorporate into the function post- 

 hatcheiy phenomena, especially the physical 

 returns to the fishery of hatchery-reared fish. 

 In that the NMFS data on the latter were 

 not yet precise enough to identify differential 

 returns by hatchery, it was necessary to 

 restrict the analysis to the hatcheiy produc- 

 tion function. 



One of the most interesting aspects of the 

 analysis was the influence on model specifica- 

 tion of the incentive framework of the hatch- 

 eries. Federal and State hatcheries receive no 

 price for their product, have no responsibility 

 for realizing profit, and are managed by pro- 

 fessionals trained primarily in terms of bio- 

 logical relationships. Budget constraints are 

 imposed by the political rationing process. 

 Furthermore, the natui-e of the incentive frame- 

 work is such that it is only partially con- 

 ducive to providing data in a form which is 

 useful for economic analysis. 



On the other hand, hatchery managers are 

 not unaffected by economic forces, since they 

 face constraints on operating capital and tech- 

 nology as well as constraints with respect to 

 factor prices, fixed facilities, and natural phe- 

 nomena. Among the latter are yearly and 

 seasonal variations in water quantity, which 

 often result in the non-use of rearing ponds, 

 and seasonal variations in water temperatures 

 which affect metabolic processes of fry and 

 fingerlings. 



The absence of a product price, of course, 

 does not mean that the conventional econo- 

 mizing model is not relevant. The influence of 

 technological, budgetary, and factor price con- 



straints seemed sufficiently strong to postulate 

 that hatcheries attempt to maximize output 

 subject to these constraints. In one major 

 respect, however, it was anticipated that the 

 decision framework of the hatchery managers 

 would give rise to a type of empirical result 

 not usually obtained in analyses of private 

 firms. That is, it was hypothesized that the 

 particular set of hatcheries we observed were 

 (a) combining controlled inputs in fixed pro- 

 portions, and (b) realizing constant returns 

 to size. 



The reasoning behind this hypothesis largely 

 reflects the institutional nature of the hatch- 

 eries, although physical attributes of the pro- 

 ductive factors serve as necessary conditions. 

 The primary institutional factor is the influ- 

 ence of centralized supervision on the Fish 

 Commission hatcheries. Resident managers 

 appear to operate within guidelines set by the 

 central office with respect to input combin- 

 ations, a system which is reinforced by dis- 

 ciplinary training of both groups. The physical 

 attributes of factors which would allow them 

 to be combined in fixed proportion is a rela- 

 tively high degree of divisibility. The latter 

 is elaborated below. 



The Biological Production Function 



The underlymg production function for 

 fingerlings can be viewed as consisting of three 

 controlled factors — food, labor, and rearing 

 space — and one non-controlled factor — water 

 temperature. The food variable is nutritionally 

 complex, but a convenient one for analytical 

 purposes since the Oregon Moist Pellet is a 

 "complete" ration. This food, fed in a variety 

 of pelletized and mash forms, was specially 

 formulated to satisfy the nutritional demands 

 of fingerlings at different ages as well as for 

 prevention and treatment of disease. Further, 

 the food is centrally purchased, thus elimina- 

 ting any price differentials between hatcheries. 



Although mechanical feeders have been tried 

 in some areas, the Fish Commission feeds 

 entirely by hand application of the pellets. 

 In that a pool of temporary labor is usually 

 available to resident managers, both labor 

 and food variables are quite divisible. 



The third major controlled variable, rearing 

 space, might be described, tongue in cheek, 



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