CBAK’AbstractIntroductionDefining Capacity and Capacity UtilizationThe Conceptual BasisMeasurement Methods for Capacity and UtilizationData Envelopment AnalysisThe Stochastic Production Frontier FrameworkEmpirical Illustration: The U.S. North Atlantic Sea Scallop FisheryThe DataThe MeasuresReferencesCAPACITY AND CAPACITY UTILIZATION IN COMMON-POOLRESOURCE INDUSTRIES:Definition, Measurement, and a Comparison of Approaches James KirkleyVirginia Institute of Marine SciencesCollege of William and MaryGloucester Point, Virginia 23062 USAFax: [email protected] J. Morrison PaulDepartment of Agricultural and Resource Economicsand the Giannini FoundationUniversity of California, DavisDavis, California 95616 USAFax: [email protected] SquiresU.S. National Marine Fisheries ServiceSouthwest Fisheries Science CenterP.O. Box 271La Jolla, California 92038-0271 USAFax: [email protected], 2002Key Words: capacity, capacity utilization, common-pool resources, fisheries, efficiencyThe 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 FishingCapacity, 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 necessarilythose 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.AbstractExcess 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 acapacity 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.IntroductionExcess capacity poses one of the most pressing problems that arise when industries exploitcommon-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 ofeconomic 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 withlittle 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 buyoutprograms in developed countries, rather than transferable property rights that could potentially encourage market forces to match capacity to sustainable exploitation rates. Capacitymanagement 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 notablyin most of the world=s most important fisheries, and recognition of the importance of establishingcapacity 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