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Over-capitalization in fisheries with irreversible investment and factor substitution

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  • Lancker, Kira

Abstract

A major problem for common pool resource regulation, such as fisheries management, is over-capitalization following investment irreversibility. Understanding theoretical implications of capital as an irreversible investment input better could help to avoid over-capitalization. This article analyzes the case where irreversibly invested capital can be substituted by flexibly adaptable inputs such as labor and fuel in a CES production function. Using Hamiltonian derivation and numerical simulation, I compare investment under open access and under a social planner case across different levels of factor substitutability. For reasonably large ranges of parameter values, initial over-capitalization is stronger for weaker substitution possibilities. This is caused by differential open access investment incentives, in particular due to faster initial reduction in biomass. Despite lower initial over-capitalization, better substitution possibilities may lead to a lower minimum biomass during transition, threatening biological sustainability. Policy-makers therefore should be aware of these twofold impacts.

Suggested Citation

  • Lancker, Kira, 2025. "Over-capitalization in fisheries with irreversible investment and factor substitution," Ecological Economics, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolec:v:233:y:2025:i:c:s0921800925000679
    DOI: 10.1016/j.ecolecon.2025.108584
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    More about this item

    Keywords

    Non-malleable capital; Fisheries; Overcapacity; Factor substitution; Stock elasticity; Bio-economic model; Optimal control;
    All these keywords.

    JEL classification:

    • 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
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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