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Definition, Measurement, and a Comparison of Approaches



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CAPACITY AND CAPACITY UTILIZATION IN COMMON POOL RESOURCE INDUSTRIES Definition Measurement and a Comparison of Approaches James Kirkley Virginia Institute of Marine Sciences College of William and Mary Gloucester Point Virginia 23062 USA Fax 804 642 7097 jkirkley vims edu Catherine J Morrison Paul Department of Agricultural and Resource Economics and the Giannini Foundation University of California Davis Davis California 95616 USA Fax 530 752 5614 cjmpaul primal ucdavis edu Dale Squires U S National Marine Fisheries Service Southwest Fisheries Science Center P O Box 271 La Jolla California 92038 0271 USA Fax 619 546 7003 dsquires ucsd edu January 2002 Key Words capacity capacity utilization common pool resources fisheries efficiency The authors are grateful for discussions with Rolf F re Shawna Grosskopf Ted McConnell Ivar Strand John Walden and participants at meetings of the FAO Technical Working Group on the Management of Fishing Capacity the FAO Technical Consultation on the Measurement of Fishing Capacity the U S National Marine Fisheries Service National Capacity Management Team and the U S Congressional Task Force on Investment in Fisheries The authors are also grateful to Dominique Greboval Dan Holland Pamela Mace Gordon Munro Kjell Salvanes Kathy Segerson Jon Sutinen Niels Vestergaard John Ward and Jim Wilen for comments on an earlier version of the paper The authors remain responsible for any errors The results are not necessarily those of the U S National Marine Fisheries Service Support for James Kirkley provided by the College of William and Mary School of Marine Science and The Reves Center for International Studies Williamsburg VA Abstract Excess capacity poses one of the most pressing problems that arise when industries exploit common pool natural resources It entails over investment in the capital stock and excessive use of variable inputs and places additional exploitation pressures on the resource stocks Confusion persists over the appropriate definition and measurement of capacity and capacity utilization for these industries But understanding capacity and its measurement is necessary to properly design a capacity management program This paper addresses these issues by overviewing the conceptual and theoretical bases for capacity and capacity utilization measurement identifying specific problems for common pool resources outlining alternative methodologies for their measurement and illustrating the use of these definitions and measurement methods in a fisheries case study Introduction Excess capacity poses one of the most pressing problems that arise when industries exploit common pool natural resources such as the atmosphere climate rangelands underground aquifers petroleum pools fish stocks and the oceans in general With common pool resources where yields are rivalrous and use is only partially excludable because agents are unable to contract to exclude others the absence of access controls or incomplete property rights leads to the Tragedy of the Commons Under the resulting market failure an excessive number of firms enter the industry and excessive inputs are employed to exploit the common pool resource stock leading to excess capacity Excess capacity involves over investment in stock resources such as capital plant and equipment and variable inputs 1 This over investment implies inefficient allocation and a waste of economic resources Excess capacity also exacerbates the open access and unregulated common property problems that plague common pool resources It generates pressure to continue harvesting past the point of sustainability With revenues spread among many firms operating with little or no profits reductions in industry size become increasingly crucial and yet politically and socially more difficult 2 With too many firms and excess resources allocated to exploitation firms may be only marginally viable and thus more vulnerable to changes in the resource base regulations the environment conditions and markets This web of market failures makes it difficult to develop and implement regulations or resource management schemes to effectively deal with the resulting problems Management of capacity in industries exploiting common pool resources is still largely accomplished through moratoria on new entrants limited access systems and firm or plant buyout programs in developed countries rather than transferable property rights that could potentially encourage market forces to match capacity to sustainable exploitation rates Capacity management in less developed countries especially those in the tropics with wide species diversity also relies primarily upon limited access given the infrastructure required to operate more market based systems Excess capacity almost invariably develops under such regulatory schemes that impose direct output or input restrictions Determination of capacity levels in industries exploiting common pool resources and the resulting excess capacity that exacerbates regulatory economic and biological problems in these industries is thus a crucial issue with global proportions These problems have generated widespread and deep concern over excess capacity in many common pool resources most notably in most of the world s most important fisheries and recognition of the importance of establishing capacity levels and bounds But confusion still persists over the appropriate definition and measurement of capacity and capacity utilization for industries exploiting common pool resource stocks Kirkley and Squires 2000 3 Capacity and capacity utilization CU or excess capacity are complex to define much less to measure and interpret in a consistent manner This complexity is compounded by issues specific to common pool industries most notably their dependence on a natural resource stock This resource stock introduces a second type of stock constraint to the capital stock quasi fixities usually recognized as the basis for the existence of capacity rigidities Ill structured incomplete or severely attenuated property rights regulatory structure and regional specificity and externalities all serve to further exacerbate the complexity of capacity issues in these industries However clear definitions and measures of capacity and CU are fundamental to facilitate understanding of capacity issues and ultimately to guide policy to monitor and reduce excess capacity for industries exploiting common pool resources Understanding capacity and its measurement


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