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Time to Build and Shipping Prices

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  • Myrto Kalouptsidi

    (Yale University)

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    Abstract

    This paper quantifies the impact of demand uncertainty and time to build on prices, investment and surplus in the world bulk shipping industry. We explore the impact of both construction lags and the lengthening of delivery lags in periods of high investment activity by constructing a dynamic model of ship entry and exit. A rich dataset of second-hand ship sales provides direct information on key dynamic objects of the model and allows for their nonparametric estimation. We are able to estimate a ship's value function directly and use it to recover entry costs, scrap values and per period payoffs. We find that moving from time-varying, to constant, to no time to build reduces the level and volatility prices, while increasing entry and consumer (i.e. shipper) surplus. As the duration of time to build can be steered by shipbuilding subsidies, the findings of this paper provide also a first step in examining the impact of such subsidization programs -prevalent in China, South Korea and Japan- on the shipping industry.

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    File URL: http://www.economicdynamics.org/meetpapers/2011/paper_661.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 661.

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    Date of creation: 2011
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    Handle: RePEc:red:sed011:661

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    1. Stephen Ryan, 2005. "The Costs of Environmental Regulation in a Concentrated Industry," Working Papers 0510, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    2. Gavazza, Alessandro, 2010. "Asset liquidity and financial contracts: Evidence from aircraft leases," Journal of Financial Economics, Elsevier, vol. 95(1), pages 62-84, January.
    3. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, 09.
    4. Gavazza, Alessandro, 2010. "Leasing and Secondary Markets: Theory and Evidence from Commercial Aircraft," MPRA Paper 28821, University Library of Munich, Germany.
    5. Jonathan Levin (Stanford University) & Pat Bajari & Lanier Benkard, 2004. "Estimating Dynamic Models of Imperfect Competition," Econometric Society 2004 North American Winter Meetings 627, Econometric Society.
    6. Gavazza, Alessandro, 2010. "The role of trading frictions in real asset markets," MPRA Paper 25781, University Library of Munich, Germany.
    7. George Alessandria & Joe Kaboski & Virgiliu Midrigan, 2007. "Lumpy Trade and Large Devaluations," Working Papers CAS_RN_2007_4, Laboratory for Macroeconomic Analysis.
    8. Roar Adland & Steen Koekebakker, 2007. "Ship Valuation Using Cross-Sectional Sales Data: A Multivariate Non-Parametric Approach," Maritime Economics and Logistics, Palgrave Macmillan, vol. 9(2), pages 105-118, June.
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