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An Empirical Test for Costs Subadditivity in the Fishery Sector

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  • Laura Onofri
  • Francesc Maynou

Abstract

The seminal work by Baumol et al. (1982) has highlighted the importance of analyzing firms’ costs structure. This allows to design proper policy measures and to understand the impacts of those policies in markets. The note presents an original method and an application for testing costs subadditivity in the fishery sector, by using a system of supply functions under strict conditions and assumptions. The method is practical, though robust, and can be applied in the absence of detailed data on costs structures. Under stringent hypothesis (that delimit the application) they can be inferred from the supply functions. Subadditivity in costs, in fact, is a more proper economic definition (and methodological approach) than traditional economies of scale in fishery. The latter, in fact, does not depend from the vessel technology, but on the degree of quantity and variety of fish species in the ocean.

Suggested Citation

  • Laura Onofri & Francesc Maynou, 2017. "An Empirical Test for Costs Subadditivity in the Fishery Sector," EERI Research Paper Series EERI RP 2017/10, Economics and Econometrics Research Institute (EERI), Brussels.
    • Handle: RePEc:eei:rpaper:eeri_rp_2017_10
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    File URL: http://www.eeri.eu/documents/wp/EERI_RP_2017_10.pdf
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    References listed on IDEAS

    as
    1. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    2. Evans, David S & Heckman, James J, 1984. "A Test for Subadditivity of the Cost Function with an Application to the Bell System," American Economic Review, American Economic Association, vol. 74(4), pages 615-623, September.
    3. Dale Squires, 1987. "Long-Run Profit Functions for Multiproduct Firms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(3), pages 558-569.
    4. Caves, Douglas W & Christensen, Laurits R & Tretheway, Michael W, 1980. "Flexible Cost Functions for Multiproduct Firms," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 477-481, August.
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    More about this item

    Keywords

    Cost subadditivity; vessel; fishery; simultaneous equations model; 2SLS;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery

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