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Participation in Vessel Buyback Programs: An Option Value Model of the Vessel-Scrapping Decision

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  • This paper develops an option value model to examine vessel owners in deciding to participate or not in the vessel buyback program. The model accounts for the uncertainty generally involved in a decision to retire an aged vessel and the underlying value of waiting for new information about the profitability of such a change, which may substantially affect the willingness to participate in the vessel buyback programs. The results indicate that policy makers have many factors to be concerned with uncertainty as this value of waiting may be so great as to invalidate any vessel buyback program that do not take it into account. This also contributes to explain the failure of most of the vessel buyback programs aimed at encouraging the retirement of aged vessels in Taiwan. In addition, the lowest threshold value of the willingness to accept is estimated and its policy implications is also discussed.
  • KEYWORDS: Vessel buyback program, Option Value Model, Net profit uncertainty, Fisheries economics, Willingness to accept, Real options, Future Paths for Rights Based Fisheries Management
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  • Ching-Ta, Chung, Yao-Hsien Lee, Chin-Chen Chen. 2002. Participation in Vessel Buyback Programs: An Option Value Model of the Vessel-Scrapping Decision. Peer Review: No. In: Proceedings of the Eleventh Biennial Conference of the International Institute of Fisheries Economics and Trade, August 19-22, 2002, Wellington, New Zealand: Fisheries in the Global Economy. Compiled by Ann L. Shriver. International Institute of Fisheries Economics & Trade, Corvallis, Oregon, USA, 2002. CD ROM.
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