Estimation of cost functions in a data poor environment: the case of capacity estimation in fisheries

Abstract

Fisheries economic analysis is often handicapped by the lack of adequate data to undertake robust econometric analyses. In this study, a translog cost function was required to estimate the potential direction of adjustment in a UK fleet segment if a new regulatory regime was introduced. However, the available data were not appropriate for such estimation. Data Envelopment Analysis (DEA) was used to modify the data subsequently used in the estimation of the long run cost function. The resulting model appears robust and is consistent with economic theory and the supporting evidence produced using DEA.