Measuring capital value in a commercial fishery: A distance function approach

The term “overcapitalized” is frequently used to describe the condition of various fisheries, and to explain why a fishery is in poor condition from a stock status perspective. Often, the concept of overcapitalization is associated with the number of active vessels in a fishery. Although vessel counts are important, they do not fully capture investment or disinvestment in a fishery, and only serve as a crude proxy for a richer concept of fishing capital. A better measure to judge whether overcapitalization is occurring would be the change in capital value for vessels operating, or permitted in a fishery, relative to a benchmark value. Unfortunately, data do not always exist to measure vessel value and associated changes through time. This study presents a method for calculating vessel capital value using a distance function, publicly available vessel sale price data, and non-parametric programming methods. Estimates of value for vessel attributes returned by the distance function are then used to estimate a total value for currently permitted vessels in the northeast region of the United States, and to construct a capital value index for vessels active in the squid, mackerel and butterfish (SMB) fishery between 1996 and 2016. Findings show that the total value of commercially permitted vessels in the northeast region is estimated to be between $606.6 and $769.7 million ($2016). Based on the constructed capital value index, the SMB fishery has undergone a period of disinvestment marked by both declining vessel numbers and capital value.