3.1 Available fishing effort
3.2 Capacity output and capacity utilization: technologically-derived primal approach
3.3 Economic measures of capacity
Nearly all previous studies on “fishing capacity” or decommissioning schemes have emphasized developing standardized measures of capital or effort and capital or effort utilization, which are then equated to maximum potential output levels, rather than focusing on capacity and capacity utilization as these terms have been defined in the neo-classical economics literature and reviewed above in Sections 2.3 and 2.4 and In Appendixes II and III. Specifically, “fishing capacity” in the fisheries literature is generally the maximum available capital stock in a fishery that is fully utilized at the maximum technical efficiency in a given time period given resource and market conditions. In some instances, a primal measure of maximum or capacity output is intended.
The capital stock and capital utilization are often used in place of capacity and capacity utilization, presumably under the implicit assumption that, given a constant optimal capital-output ratio K/Y*, capacity output Y* can be expected to vary directly with the observed capital stock. (Appendix I provides further discussion. Appendices II and III further discuss capacity and capital utilization, respectively. The Glossary also contains brief summaries of various terms.)
Effort and effort utilization are often used in place of capital and capital utilization and related to maximum potential output. Presumably the implicit assumption made is that capital provides a suitable proxy measure of effort or that all variable inputs are in fixed proportions to the stock of capital over time.
A number of terms for capital or effort utilization are encountered in the fisheries literature, including capacity, available fishing effort, catch capacity, harvest capacity, maximum effort utilization, maximum potential effort, fishing power, and potential fishing capacity. (These terms are also covered in the Glossary.) Moreover, in fisheries, effort is sometimes specified as a stock and sometimes as a flow when a time dimension and a service flow from a stock or utilization rate are considered. The terms are typically used in their physical sense rather than in an economic sense, so that available fishing effort may specified be in terms of the number of fishing vessels available to the fishery in a time period or the amount of capital, such as the number of vessels. The actual level of effort employed at any time cannot then exceed the available fishing effort.
The following literature review will be organized around the neo-classical economics principles and terms of capacity and capacity utilization and capital or effort and capital or effort utilization (i.e. available fishing effort). When the term capacity is in quotation marks, such as “capacity”, by this we mean usage of the term as in the fisheries literature rather than in the strict economics sense. We will use the term available fishing effort for the upper limit on the available capital or effort that is fully utilized (given institutional practices, social norms, and regulatory constraints) and which is technical efficient, in a given time period. (The term is applied whether capital or effort are specified as a stock or flow of services from this stock).
The review that follows first reviews those contributions to the literature that employ a variant of capital/effort and capital/effort utilization - available or maximum potential effort. The major distinction in this branch of the literature is whether to treat effort as a stock or flow, or technically, to implicitly assume full utilization of the capital stock or to allow for some variation in capital/effort utilization. Second, the review considers those contributions to the fisheries literature that employ a technologically-derived physical or primal approach to capacity output and capacity utilization. This second group of contributions is generally consistent with the technologically-derived primal definition and concepts of capacity and capacity utilization. Third, the review considers those contributions to the fisheries literature that adopt some variant of an economic approach to capacity and capacity utilization. In sum, the literature review assesses the literature by whether outputs or capital/effort are the focal point, whether these outputs or capital/effort are the maximum technologically possible or are economic optimums, and whether capital/effort is specified as a stock or flow, and whether there are additional concerns with investment in subsequent time periods.
Appendix IV comprehensively reviews the fisheries literature. Appendix V reviews “capacity reduction” programs in some detail. Appendix VI considers the peak-to-peak method. Appendix VII reviews the fisheries literature employing hold capacity.
Available fishing effort, as named by Hannesson (1987), is perhaps the most widely used notion of “fishing capacity”. Available fishing effort is the capital invested in fishing equipment (page 15), represented by the number of vessels employed per unit of time, adjusted for differences in efficiency (page 4). Earlier, Clark, Clarke, and Munro (1979, page 27) presented the same concept, termed maximum effort capacity. Maximum effort capacity equals the number of “standardized” fishing vessels available to the fishery in a time period (i.e., the amount of capital invested). The widely applied definition, “the ability of a vessel or fleet to catch fish” fits in here. In this approach, the actual level of effort employed at any time cannot exceed maximum effort capacity. In the literature, “capacity” is seen as establishing an upper limit on effort (Sub-Regional Fisheries Commission, 1996), i.e. the potential of a vessel to catch fish (Holden, 1994). In sum, “capacity”, available fishing effort, maximum potential effort, and maximum effort capacity in the this branch of the fisheries literature are the maximum available capital stock in a fishery fully utilized at maximum technical efficiency in a given time period.
There is a corresponding rate of capital or effort utilization, which is the ratio of observed capital or effort to the maximum technologically possible.
The notion of available fishing effort is widely applied in the policy arena. In 1995 the notion of available fishing effort provided the conceptual basis for discussions of excess fishing capacity in the world, viz. the FAO Ministerial Meeting on Fisheries, Rome, March, 1995; the international meeting - and Declaration - on fisheries and food security, Kyoto, December, 1995; and reference was made to international concerns on fisheries matters at the UN General assembly, New York, in a resolution approved in December, 1995 (FAO, 1995; Sub-Regional Fisheries Commission, 1996; UNCSD, 1996). This concept also underlay the recent FAO publications, The State of World Fisheries and Aquaculture, 1990 (FAO, 1997a) and FAO Technical Guidelines for Responsible Fisheries No. 4: Fisheries Management (FAO, 1997b). The concept of available fishing effort appears to underlie most limited entry and “capacity reduction” programs.
There are two broad approaches to specifying available fishing effort. These approaches principally differ by the treatment of fishing time (i.e., utilization of the capital stock). In the first approach, capital is treated as a stock, and a flow of productive services emanating from this stock, called effort, is derived when the capital stock is multiplied by fishing time. In the second approach, capital or effort are treated as a composite flow of services without distinguishing between a separate stock of capital/effort and a flow of services emanating from that stock (i.e. utilization or fishing time). In addition, the literature frequently uses the term activity for fishing time or services. Technical efficiency is presumably either implicitly assumed as maximum or is accounted for by the standardization of fishing power.
The most widely applied approach treats available fishing effort as a stock. The approach equates “fishing capacity” with fishing power. When “fishing capacity” is equated with fleet fishing power, fishing power is conceptually not that of Garstand (Smith, 1994; page 107), which was further developed by Gulland (1956) and Beverton and Holt (1957). That is, fishing power is not conceived in terms of relative catch rates per unit of time. Instead, fishing power is considered to measure the potential ability of a vessel to catch fish; this potential is defined in terms of average vessel characteristics (see Taylor and Prochaska, 1985, pages 90-91; Hilborn and Waters, 1985, pages 127-132, and Appendix IV). Hence “capacity” is equated with the heterogeneous capital stock available to the fishery. Under this first approach, fishing effort is then used to denote the product of the fishing power (read capital stock) used and the amount of time spent fishing. Fishing time play several possible roles: it converts the capital stock into a flow of capital services, allowing for utilization, and/or represent variables inputs such as fuel. Alternatively, in many instances, variable inputs are presumably in fixed proportions to the stock of capital. The heterogeneous capital stock is frequently aggregated into a single composite measure.
The second, and less widely adopted, specification of available fishing effort directly accounts for fishing time in the definition of effort, so that available fishing effort is a flow measure (i.e., capital utilization, giving a flow concept). In practice, actual or observed fishing effort is a frequently used notion of “fishing capacity” conceived of in this manner, so that the utilization rate would implicitly be one or full.
“Capacity utilization” has been measured as the amount of time a vessel or fleet spends fishing (Arnold, 1970; Squires and Huppert, 1988; Valatin, 1992; Gates et al., 1996; Smit, 1996). Thus, “capacity utilization” is represented by the ratio of actual effort to available fishing effort (Hannesson, 1987). This approach is essentially a measure of capital utilization.
When “capacity” is equated to the capital stock (fishing power), “capacity utilization” generally refers to the flow of fishing effort defined as fishing power multiplied by fishing time. This concept of “capacity utilization” is then related to the neo-classical economics concept of capital utilization, discussed by Hulten (1990, page 134), as the ratio of capital services to the stock of capital (see Appendix III on capital utilization).
3.2.1 fleet hold capacity
3.2.2 peak-to-peak method
3.2.3 maximum sustainable yield
3.2.4 A fishing mortality (F) based approach to capacity
The approaches reviewed in this section define capacity as some variant of the technologically-derived maximum possible output as discussed in Section 2.2.
In the fisheries literature, technologically-derived physical capacity (output) is typically termed maximum potential catch. This basic approach corresponds to the “engineering” or technological or primal approach to measuring capacity and capacity utilization in economics (Morrison, 1985). Maximum potential catch is the maximal or expected harvest that fishing effort is capable of producing given the observed capital stock, other vessel characteristics, and the resource stock (Statistics Canada; Smith and Hanna, 1990; Squires and Huppert, 1988; Herrick, 1979; Northeast Region, 1997). The concept generally conforms to that of a full-input point on a production function, with the qualification that capacity represents a realistically sustainable maximum level of output rather than some higher unsustainable short-term maximum (Klein and Long, 1973; Corrado and Mattey, 1997).
Capacity utilization is then the ratio of current catch to the maximum potential output given current resource stock levels, primary inputs, state of technology, and public regulations (Smith and Hanna, 1990; Squires and Huppert, 1988; Corrado and Mattey, 1997).
Gréboval and Munro (1999) and Herrick (1979) note that this notion is complicated by the presence of two stock inputs, capital and fish, and the determination of that which is binding in the short run. Thus, if the capital stock but not the resource stock binds, capacity output is the production flow associated with the full utilization of the capital stock, but if the fish stock is limiting in the short-run production process, capacity output is expressed with respect to the full utilization of the fish stock in conjunction with the flow of services from the capital stock and non-capital inputs.
There are several approaches to measuring maximum potential catch: (1) fleet hold capacity; (2) the peak-to-peak method; (3), maximum sustainable yield; and (4) fishing mortality. In some instances, the impact of various regulations or fishery management measures are considered, and in other instances they are not.
The most widely adopted approach to measuring capacity output or maximum potential catch, is fleet hold capacity. Fleet hold capacity is perceived as giving a technological limit to maximum output. Appendix VIII provides additional discussion. Vestergaard and Frost (1994) and Smith and Hanna (1990) observed that dividing the actual catch (or total allowable catch) for a time period by the maximum potential catch provides a measure of (technical or physical) capacity utilization.
The peak-to-peak method is the second approach using the concept of capacity output defined in physical or technological terms. Appendix VII discusses this approach in more detail. Several variants of the peak-to-peak method have been adopted. This approach defines capacity by measuring the observed relationship between catch and fleet size (Ballard and Roberts, 1977). An index is constructed so that when a full utilization is observed, the index is set to 100 percent. Intervening periods are calculated as percentages of the full utilization rate, with an adjustment for productivity change. The approach is called 'peak-to-peak' because the periods of full utilization, called peaks, are used as the primary reference point for the capacity index.
This approach first identifies the years that a fishery operated at full capacity (Ballard and Roberts, 1977). Full capacity is defined as the maximum value of the ratio of output to the capital stock. This definitions offers a primal measure of capacity output (i.e., the maximum potential output given the harvesting technology, capital stock, and resource stock). Thus peaks are defined as years that the industry was recognized as achieving the maximum sustainable output in the short run (Ballard and Roberts, 1977). In practice, a peak year is often identified on the basis of having a yield per producing unit that is significantly higher than both the preceding and following years. From this, the trend of 'potential' capacity is interpreted. By adjusting the catch trend to reflect the changes in fleet size (usually tonnage or operating units, but may be any relevant short-term constraint to expanding the catch), the adjusted trend of historical catch rates is derived.
The third approach to capacity output specified in technologically-derived physical terms is maximum sustainable yield. Rosenberg et al. (1993) defined capacity in terms of maximum sustainable yield. Overcapacity is a capacity level that would, when translated into fishing effort, bring about a level of yield beyond what can be maintained over a prolonged period, because it reduces the biomass of the fish stock.
In a fourth approach to a technologically-derived primal measure of capacity output, Kenchington and Charles (1989) define capacity in terms of the level of fishing mortality that a boat or fleet could exert under specified conditions; this definition explicitly relates catch or output, fishing effort, fishing power, and capital investment in a fishery.
Economic measures of capacity have received substantially less attention than physical measures. As discussed above, economic notions of capacity define output as the economic optimum when outputs are freely varied or target level (such as total allowable catches). Economic notions of capacity can be expressed in either primal (physical) or cost/revenue/profit terms. Gross proceeds, measuring total output, have been suggested (Smit, 1996). Hannesson (1993a, page 107-111) considered optimum fleet capacity and capacity utilization, as a function of probabilities of different values of the resource stock occurring, costs, and the present value of revenue less operating costs. The optimum capacity utilization, or catch, is then a function of the stock size for a given fleet. The optimum catch varies with the size of the resource stock, depending on the different levels of fleet size.
When total allowable catch (TAC) levels are taken as given and the target level(s) of output(s), the focus has shifted to examining the “optimal” fleet size and “overcapacity” rather than the maximum potential catch level (DFO n.d., OECD 1997, Gréboval and Munro, 1999). Linear programming has been used in this regard (Huppert and Squires, 1987; Siegel et al., 1979; Garrod and Shepherd, 1981; Flam and Story, 1982). Break-even analysis has also be used to measure excess capacity (DFO n.d.). Excess capacity can be defined as the reduction in fleet size required to provide a break-even catch level to the remaining vessels.
Duality-based econometric approaches have been used on a limited basis. As discussed above in Section 2 and Appendix II, the economic measure of capacity specifies economically optimal capacity output Y* either in terms of a primal measure, defined in terms of the firm's output level (corresponding to the tangency point between the short-run and long-run average cost curves), or a dual measure defined in terms of the firm's costs or profits. The economic measure of capacity utilization was extended to allow for profit maximization, rather than cost minimization, and applied to fisheries examples by Squires (1987) and Segerson and Squires (1993), and to revenue maximization by Segerson and Squires (1993; 1995).This approach allowed for one or more endogenous outputs, that is, at least one output is allowed to be a choice variable.
This economic approach, based on cost, profit, or revenue functions, with a single quasi-fixed input, readily accommodates multiproduct production, which is otherwise possible only under fairly stringent conditions with the primal econometric approach, as discussed by Segerson and Squires (1990). This economic approach readily extends from the single-product to the multiple-product case, with a single quasi-fixed input, because the capacity utilization measure uses a scalar measure of the shadow price and rental (services) price of the quasi-fixed input, so that scalar measures are still involved.
The increasing use of total allowable catches for fisheries management has sparked interest in finding the corresponding optimal capital stock. This corresponds to an economic approach to capacity and capacity utilization where costs are minimized for producing the exogenously determined total allowable catches, and the optimal (cost-minimizing) stock of capital may correspondingly determined.
