A Real Options Application to the Fishing Vessel Scrapping Decision of Vessel Buyback Programs

Authors

Yao-Hsien Lee, Associate Professor, Department of Financial Management, Chung Hua University, No. 707, Sec. 2, WuFu Road, Hsinchu, Taiwan 30012, R.O.C.Follow
Tsung-Tai Yang, Graduate Student, Institute of Management of Technology, Chung Hua University, No. 707, Sec. 2, WuFu Road, Hsinchu, Taiwan 30012, R.O.CFollow
Ching-Ta Chuang, Professor, Institute of Marine Resource Management, National Taiwan Ocean University, 2, Pei-Ning Road, Keelung, Taiwan 202, R.O.CFollow

Abstract

This paper adopts the real options approach to examine vessel owners behavior in deciding whether to participate or not in the vessel buyback programs. The model allows us to investigate profit uncertainty 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 affect the willingness of vessel owners to participate in the vessel buyback programs. Our analysis shows that the government needs to pay more attention to profit uncertainty, which may invalidate the vessel buyback program that does 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. We also evaluate the value of willingness to accept of vessel owners and its policy implications are discussed.

Recommended Citation

Lee, Yao-Hsien; Yang, Tsung-Tai; and Chuang, Ching-Ta (2004) "A Real Options Application to the Fishing Vessel Scrapping Decision of Vessel Buyback Programs," Journal of Marine Science and Technology: Vol. 12: Iss. 3, Article 1.
DOI: 10.51400/2709-6998.2231
Available at: https://jmstt.ntou.edu.tw/journal/vol12/iss3/1