Short-run Johansen frontier-based industry models: methodological refinements and empirical illustration on fisheries

Abstract

This contribution focuses on extending the current state of the art in a central resource allocation planning model known under the name of the short-run Johansen industry model in three ways. First, we correct a long-standing issue of the correct choice of weight variables on the capacity distribution by guaranteeing that these weights determine production combinations that belong to the production technology on which the plant capacity estimates are based in the first place. Second, we exploit the gap between average practice and best practice models by introducing an efficiency improvement imperative that allows for partial technical inefficiency when planning. Third, instead of only considering output-oriented plant capacity, we allow for alternative plant capacity concepts. In particular, we introduce an input-oriented plant capacity concept, and an alternative attainable output-oriented plant capacity concept that corrects a major empirical issue in the traditional output-oriented plant capacity notion. These methodological refinements are illustrated with a data set on U.S. fishing vessels by developing a planning model to curb overfishing.