4.1 Relationship between capital stock and capacity output
4.2 Multiproduct and multistock fisheries
4.3 Multiple fisheries
4.4 Heterogeneous capital stock
4.5 Fishing effort
4.6 Standardization of fishing power
4.7 Fishing time (activity)
4.8 Measures of the capital stock
4.9 Fishing skill
4.10 Productivity growth and technical progress
There are a number of methodological and measurement issues that arise in treatments of both capacity and capacity utilization and capital/effort and capital/effort utilization. The first methodological issue, as discussed above, is that the vast majority of the fishing capacity literature in fact concentrates on the capital stock (fishing power) and capital utilization rather than the neo-classical economics notion of capacity and capacity utilization. (This concentration on the capital stock includes the optimum fleet configuration.) Hence, this relationship requires a brief re-examination. Second, one of the most serious methodological issues for capacity is the treatment of multiproduct-multistock fisheries. A related issue, as was discussed above and in Gréboval and Munro (1999), the resource stock(s) must be explicitly accounted for in measures of capacity and capacity utilization. Third, a related issue is multiple fisheries and the notion of a fishing industry. Fourth, the capital goods employed in fishing industries are not homogeneous but rather of many different types. Hence, a fourth methodological issue is the proper treatment of heterogeneous capital stocks. A fifth methodological issue is the treatment of stocks and flows and the specification of fishing effort. A sixth methodological issue is standardization of fishing power, allowing comparative efficiency analyses between vessels and a standardized input.
A number of measurement issues also arise. Given that most capacity reduction programs are de facto programs to reduce the heterogeneous capital stock (reviewed in Appendix V), one of the most important measurement issues is the measurement of the capital stock. Second, in most capacity reduction programs, the capital stock is multiplied by fishing time to give a flow of services, typically called fishing effort, and a capital utilization rate. Hence, a second measurement issue pertains to fishing time. Third, to the extent that the production capabilities are related to fishing skill and not only the controllable factors of production, a buy-back of active vessels will not necessarily reduce harvesting pressures on the resource stock2. Also, managerial abilities are not directly observable and are beyond the control of fishery managers. Hence, a third measurement issue is the treatment of unobserved fishing or skipper skill. Along similar lines, continued productivity growth increases effective effort even when nominal effort is capped, thereby placing pressures on capacity reduction programs and complicating the measurement of capital and effort. Hence, a fourth measurement issue is treatment of another unobserved influence on catch and input usage, productivity growth and technological change.
Capital stock measures are frequently employed to measure capacity output, and capacity utilization is accordingly equated with capital utilization. This approach presumably implicitly assumes a directly proportional, linear relationship between the capital stock and capacity output. Appendix I provides a technical discussion of this relationship.
Serious methodological problems arise when measuring capacity and capacity utilization in the multiproduct industries (Berndt and Fuss, 1989; Segerson and Squires, 1990; 1993), such as multispecies or multistock fisheries. When there is a single input held fixed for some time period (e.g. the vessel or capital stock in general) and other inputs are allowed to vary (e.g. crew, fuel or fishing time), then the primal or output-based measures of capacity and capacity utilization do not easily extend to the multiproduct case because output and capacity output are no longer scalar (single-valued) measures (Segerson and Squires, 1990). In this instance, fairly restrictive conditions are required to form a scalar measure of output. Appendix II provides a brief additional discussion.
Consider the simplest case of a multispecies fishery, where each species is regulated by a TAC, and there is a single, homogeneous measure of the capital stock. In the single-output case, CU = Y/Y* (where Y is the fleet harvest desired by resource managers and Y* is the potential output given the existing resource stock size). In the multiple-output case, the first output could have Y1 = Y1*, the second output could be Y2 > Y2*, and for the third output, Y3 < Y3*. In this case, what is the measure of capacity utilization? Moreover, using an economic-based notion of capacity, average cost is no longer well-defined, so that it becomes difficult to conceive of the cost-minimizing level of capital stock required to harvest the TACs3.
The concept of capacity also becomes problematic when there is more than a single input held fixed or quasi-fixed in a time period (Berndt and Fuss, 1989). This problem parallels that when there are multiple outputs. This problem arises in fisheries even when there is even just one homogenous stock of capital held fixed because there is also the resource stock. When heterogeneous quasi-fixed capital and/or multiple species and resource stocks are allowed, the problem quickly multiplies in complexity: multiple outputs, multiple stocks of capital, and multiple resource stocks.
As an example, consider the simplest case, a single species fishery regulated by a TAC harvested by a heterogeneous stock of capital and variable inputs. Let the heterogeneous stock of capital be represented by the vessel and main engine. Then, given the TAC and resource stock held constant, the output-based measure of capacity utilization essentially determines excess or insufficient levels of the quasi-fixed stocks of capital (i.e., incentives to invest or disinvest). Should measures of capacity and capacity utilization be in terms of the vessel size or the engine? Under a capacity reduction program, what would be the appropriate concern-vessel size or engine horsepower?
Under what conditions can a measure of capacity be constructed? One general condition for a rigorous economic measure is that the number of outputs must be less than or equal to the number of quasi-fixed inputs (Berndt and Fuss, 1989).
In multispecies-multistock fisheries, measures of capacity and capacity utilization can be found when capacity is approached as a short-run stock concept. Then, each species output has a corresponding resource stock, and in addition, there is the stock of capital (homogeneous or heterogeneous). A primal measure of capacity and capacity utilization can be constructed when there is a scalar measure of output and a scalar measure of the capital stock and the results are interpreted as conditional upon the existing resource stocks. An economic measure of capacity and capacity utilization can be constructed when there is a scalar measure of the capital stock and the results are interpreted as conditional upon the existing resource stocks.
The issue of defining a fishing industry arises when there are multiple fisheries. Gulland (1974, page 152) noted that capacity, defined as available fishing effort (effort capacity), is not easily definable with reference to a single resource stock. Thus, for example, the English distant water fleet has no unique capacity for say cod stocks of West Greenland, so that it is more meaningful to consider the English distant water capacity for all the North Atlantic cod stocks considered as a whole.
On a very broad level, when the same set of vessels harvest in several fisheries, effort must ostensibly be allocated to these fisheries. However, this problem vanishes when these fisheries are approached as components of an industry, whose overall capacity is to be evaluated. An example is the offshore harvesting and processing of Pacific whiting and Alaskan pollock in the USA.
The stock of capital in fisheries is typically very heterogeneous (i.e., there are a multitude of different capital goods employed in the harvesting process, and even the same capital good may be quite different between vessels). The stock of capital includes the vessel hull, main and perhaps auxiliary engines, winches, booms, holds, chilling or cooling or freezing equipment, many types of vessel electronics, fishing gear and related supplies, and still other types of fishing capital. The variety of capital assets in many cases leads to treating some types of capital as homogeneous even though they are not. For example, the different types of gear or electronics are typically lumped together, and for that matter, the entire capital stock is frequently lumped together and then measured by one or two proxy variables, such as length and main engine power.
Meaningful measures of capacity and capacity utilization and capital/effort and capital/effort utilization may require a single or composite measure of heterogeneous capital. The issue of heterogeneous capital stock (multiple quasi-fixed inputs) and measures of capacity and capacity utilization, initially raised by Berndt and Fuss, was raised and discussed above. The same concern arises for capital/effort utilization. Without a single measure of capital, which capital stock is being utilized?
The problem of aggregating heterogeneous capital into a consistent composite measure of capital is the same as creating a consistent composite measure of all inputs into fishing effort. Appendix IX, Section 2, including Section 2.1., discusses conditions required for aggregating heterogeneous capital in a consistent composite capital good. The issue is also discussed below in measures of the capital stock. Suffice it to note that, although physical measures of capital stock, such as vessel numbers or sizes, are more useful for capacity reduction programs than monetary measures, such as insured value of vessels, the latter automatically aggregates the heterogeneous capital stock.
The specification and actual measurement of fishing effort have long posed problems for fishery researchers and managers. Even the definition and conceptual foundation of fishing effort have not yet been satisfactorily resolved, much less matters such as the standardization of fishing effort. In much of the literature on fishing capacity and capacity reduction programs, a measure of fishing time is applied to the heterogeneous capital stock giving a flow of services, generally termed fishing effort. This thereby accounts for varying rates of capital utilization; researchers and managers appear to implicitly assume that the variable inputs are used in proportion to the capital stock or are represented by fishing time. This approach is consistent with the short-run notions of capacity utilization and capital utilization.
When fishing capacity is viewed in terms of fishing effort as a flow of services or activity, an inconsistency arises with capacity as a short-run concept which requires a stock of capital or fishing effort. That is, fishing effort, in its usual interpretation as a flow of an aggregate or composite input (to be applied to the resource stock), is inconsistent with the short-run stock approach of capacity and capacity utilization. Fishing effort, as a composite input, also cannot be specified as a stock variable, even though this short-run specification is consistent with the short-run nature of capacity output and capital stock and their utilization. This incompatibility follows because a stock of effort cannot be applied to a stock of fish to yield a flow of the resource as output B the catch.
This implies that the traditional notion of fishing effort, as a composite intermediate product from a two-stage production process (Anderson, 1976), requiring input separability (Hannesson, 1983) and some notion of static equilibrium of effort, may not be appropriate, and that the input bundle should be disaggregated to some degree to distinguish between the stock of short-run fixed inputs and their flow of services.
One approach is to consider effort as a nonseparable two-stage technology as in Pollak and Wales (1987) (Kirkley et al., 1995),4 which allows for capital as a stock in the short-run (a temporary notion of static equilibrium). The approach of capacity as fishing power (and de facto physical capital stock), measured by vessel attributes, multiplied by fishing time (activity) is consistent in this regard. The bundle of variable inputs can also simply be specified, where capital is specified as quasi-fixed, giving a short-run stock and a short-run production function. Squires (1987) estimates a fishing effort index conceived as a homothetically separable aggregate input. Appendix XII discusses converting estimates of stocks of capital into service flows.
Many capacity reduction programs are concerned with deriving a standardized measure of fishing power. Appendix IV, Section 3, discusses this issue in some detail. This Appendix offers two approaches that have yet to be applied: (1) economic index numbers, especially multilateral, and (2) frontier production functions and fixed effects panel data production (fishing power) functions.
Measures of fishing time (activity), giving service flows from the stock of heterogeneous capital, and accounting for varying rates of stock utilization, can be complex. This issue is conceptually similar to the measurement of capital services. The stock of capital is in some sense a repository for the services that are available for production (Hulten, 1986). Some of the heterogeneous capital stock may be used for only a limited portion of the time, while others pieces of capital may be used more. Which of these measures of activity should be used or even combined, and if combined, how?
Fishing time is often measured by days absent from port, days fished, number of fishing trips, or number of weeks fished. Hilborn and Walters (1992, page 122) distinguish among travel, search, setting/shooting, and handling time. The question is Which measure of fishing time should be used to adequately indicate effort? Even the commonly-used measures do not capture the varying use of different pieces of capital equipment. Instead, these measures are more based on the different aspects of the harvesting process. The widespread collection of landings records, and sometimes logbooks, by governments provides some measure(s) of fishing time.
Available measures of fishing time (activity) can be limited. An inaccurate measure, giving measurement errors, may arise when the number of trips is used. Small vessels may make frequent but short trips whereas large vessels tend to make more infrequent but longer trips. Simply counting the number of fishing trips gives the appearance that small vessels fish more. Different vessels fish for different amounts of time in the complex mix of fishing modes and strategies encountered in many multispecies fisheries. Vessels may also make split trips, landing more than once on a fishing trip, adding complexity to accurate measures of fishing time. Allowance can be made for repairs, breakdowns, and bad weather (Sandberg, 1997). Transhipment time or unloading time can be important in some fisheries, such as the western Pacific United States purse seine tuna fishery.
When fisheries are regulated, at least in part, by fishing time or seasons, this provides an upper bound on fishing time (Northeast Region, United States National Marine Fisheries Service). Examples of fishing time limits include the Mid-Atlantic surf clam fishery, the New England groundfish trawl fishery, and formerly, the Pacific halibut fisheries (which led to derbies of short and intense fishing over just a few days). Maximum potential time can be calculated selecting time intervals for which utilization is fully realized; this is essentially the peak-to-peak method.
There are several ways to measure the heterogeneous capital stock. The principal practical options for directly measuring capital stocks are to find a direct estimate of the capital stock, usually by a proxy variable, but sometimes by hedonic methods; to adjust book values for inflation, mergers, and accounting procedures, or to use the perpetual inventory method (Hulten, 1990). The capital stock can also be measured in efficiency units to account for embodied technical progress and capital vintage (Mairesse, 1978). Appendix IX provides additional discussion.
In practice in fisheries, one or more vessel attributes are almost always used as proxy variables to directly measure the physical capital stock. These attributes are proxy variables since the entire collection of inputs cannot be observed but it is believed that important vessel attributes, such as vessel size and engine power, provide observable and measurable surrogates for the variables of actual interest. The most widely used proxy variable is vessel size. Vessel size, measured in length or gross or net tonnage, and engine power is a limited measure of fishing power. There is no fixed relationship between vessel size and fishing mortality rates. Length and tonnage are closely related but nonetheless differ. Each measure has its own particular limitations.
The theory of hedonic prices provides another approach to directly measuring the capital stock. It offers one solution to the problem of accounting for a wide variety and number of capital goods, such as the vessel hull, engine, gear, equipment, and even varying characteristics such as hold capacity (Hulten, 1990). In this framework, the individual capital goods are viewed as bundles of characteristics rather than as discrete physical entities. The inputs to the production or fishing power function are the amount of each characteristic rather than the amount of each physical good. The hedonic approach is especially useful when there are many varieties of capital embodying a few characteristics. Kirkley and Squires (1988) used hedonic analysis to estimate the fleet capital stock and investment in New England.
In some instances, an aggregate or composite measure of the capital stock is desired. The issue then arises of how to best weight the individual components to derive an overall aggregate, such as Vessel Capacity Units (VCUs). (Appendix IX, Section 2.1 provides additional discussion on weighting the components of capital.) Sometimes simply the number of vessels in the fleet is used.
The capital stock and variable inputs such as fuel or fishing may not fully account for catch. Instead unobserved managerial ability - skipper skill - may be an important component explaining catch rates. Appendix VII, Section 4, discusses several ways to account for skipper skill in a fishery production function or fishing power function.
Continued growth in productivity of fishing vessels also contributes to catch. This increase in effective rather than nominal effort arises from improvements in design, use of more efficient gear, adoption of vessel electronics, improvements in fishing practices, and other factors. Exclusion of productivity growth can bias estimates of capacity and capacity utilization. For this reason, Garcia and Newton (1997), for example, accounted for productivity growth when they applied the peak-to-peak method of capacity measurement. Appendix IX, Sections 3 and 4 discuss technical change and measuring productivity growth.