Capital Utilization and investment Decisions: A Case Study for the Netherlands Public Deposited

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  • In this paper a data envelopment model is presented to evaluate short term investment decisions in the Dutch beam trawl and demersal fleet. We investigated how short run profit drives investment decisions and how a data envelopment analysis can be used to show what the optimal level of capital use is and how investment in variable and fixed inputs can optimize the output of the sector. The degree of capital utilization can be seen as a measure of whether firms should invest or disinvest in their capital assets. Capital utilization also measures to which extent idle and excess capacity is present in a firm. Differences in capital utilization mainly depend on the degree in which a firm can adjust fixed capital in the short run. It therefore should be a key economic parameter to evaluate the performance of a sector. We measured the physical capital utilization for the Dutch beam trawl and demersal fleet for 2005 and decomposed the capacity utilization into technical efficiency, economic capital utilization and optimal capacity idleness. Furthermore we illustrated how the economic capacity measure can be used to predict investment decisions in the fleet. Results show that economic capital utilization inefficiency is on average 13%, which indicates that landings could have been 13% higher then they were if the fleet operated 100% efficiently. About 1% of the capacity utilization inefficiency is caused by idle/excess capacity. This very low percentage indicates that there are few indivisibilities in the input for the Dutch beam trawl and demersal fleet. Based on short term profit maximization it is clear that it is optimal to make as much use of the available capital as possible. The remaining 12% can be attributed to economic capacity inefficiency and technical inefficiency in the fleet. Vessels with a low capital utilization are more likely to disinvest than vessels with a high capital utilization. Vessels with a capital utilization that is higher than unity almost always will choose to invest.
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  • Bartelings, Heleen and Erik Buisman. 2010. Capital Utilization and investment Decisions: A Case Study for the Netherlands. 12 pages. In: Proceedings of the Fifteenth Biennial Conference of the International Institute of Fisheries Economics & Trade, July 13-16, 2010, Montpellier, France: Economics of Fish Resources and Aquatic Ecosystems: Balancing Uses, Balancing Costs. Compiled by Ann L. Shriver. International Institute of Fisheries Economics & Trade, Corvallis, Oregon, USA, 2010.
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