Shipping economics: Where we are and looking ahead from an institutional economics perspective [1]

Maritime Policy and Management

Volumn 32, Issue 1, 2005, Pages 39-58

  Button, Kenneth ^a  

^a GEORGE MASON UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

LOGISTICS; MARKET CONDITIONS; SHIPPING; TRANSPORTATION ECONOMICS;

EID: 15044350344     PISSN: 03088839     EISSN: None     Source Type: Journal    
DOI: 10.1080/0308883042000326111     Document Type: Review

References (112)

1. This paper forms part of the work on economic regulation within the Critical Infrastructure Protection Project (CIPP) at George Mason University. An earlier version of this paper was presented to the seminar on The Industrial Organization of Shipping and Ports, National University of Singapore, 5-6 March 2004. The author is extremely grateful for the comments received at that conference, especially those of the discussant of the paper, Henry Ergas. The responsibility for the paper remains that of the author.
2. Robbins, L., 1932, An Essay on the Nature and Significance of Economic Science (London: Macmillan).
3. Leibenstein, H., 1979, A branch of economics is missing: micro-micro theory. Journal of Economic Literature, 17, 477-502.
4. This is covered thoroughly in McConville, J., 1999, Economics of Maritime Transport: Theory and Practice (London: Witherby).
5. Institutions here do not (except in specific circumstances) mean 'organizations' but rather refer to such things as property rights, conventions, types of contract, authority, etc. Institutional economics is concerned with the way these sets of rights and obligations affect the economic lives of individuals. When markets are talked about in this context this refers of all voluntary transactions. When discussing institutional environments, new institutional economists are thinking about formal rules-international agreements, laws, regulations, property rights, etc. It is much more to do with political economy and concerns issues of levels of decision-making and the role and structures of bureaucracies.
6. Coase, R. H., 1998, The new institutional economics. American Economic Review Papers and Proceedings, 88, 72-79.
7. Nee V., 1998, Norms and networks in economic and organizational performance. American Economic Review, 88, 85-89.
8. To inject a personal note, I have even written on the 'Economics of oceans' (Button K. J., 2000, Is there an 'Economics of oceans'? In: Ocean Yearbook Vol. 14, edited by M. Borgese, A. Chircop, M. McConnell and J. R. Margaon (Chicago, IL: Chicago University Press)), although I still remain a little vague on exactly what this encompasses.
9. This in part has involved the greater use of mathematics (Friedman, M., 1991, Old wine in new bottles. Economic Journal, 101, 33-40). This is not in itself a bad thing, it can enhance rigour in thought, but there is a danger of concerns with technique overriding the utility of the analysis. How may economics professors now get confronted by PhD students in search of a thesis topic who have found novel techniques and want problems to apply it to?
10. An account of this early work is to be found in Ekelund, R. B. and Hébert, R. F., 1999, Secret Origins of Modern Microeconomics (Chicago, IL: University of Chicago Press).
11. Locklin, D. P., 1935, Economics of Transportation (New York: Business Publications Inc.).
12. Meyer, J. R., Kain, J. F. and Wohl, M., 1965, The Urban Transportation Problem (Cambridge, MA: Harvard University Press).
13. Baumol, W. J., Panzar, J. C. and Willig, R. D., 1982, Contestable Markets and the Theory of Industry Structure (New York: Harcourt Brace Jovanovich).
14. It does not get a mention in Schumpeter's classic on the history of economic thought. Schumpeter, J. A., 1954, History of Economic Analysis (Oxford: Oxford University Press).
15. Goss (Goss, R. O., 2002, An early history of maritime economics. International Journal of Maritime Economics, 4, 390-404) provides a history of the early development of shipping economics.
16. Thorburn (Thorburn, T., 1960, Supply and Demand for Water Transport: Studies in Cost and Revenue Structures of Ships, Ports and Trans-water Transport of Goods (Stockholm: Business Research Institute, Stockholm School of Economics) offers a good guide to economic thinking on maritime transport as it stood 45 years ago.
17. Coase, R. H., 1964, The lighthouse in economics. In: The Firm, the Market, and the Law, edited by R. H. Coase (Chicago, IL: Chicago University Press).
18. Button, K. J., 1999, The usefulness of current international air transport statistics. Journal of Transportation and Statistic, 2, 71-92.
19. Coase, R. H., 1992, The institutional structure of production. American Economic Review, 82, 713-719.
20. The new institutional economics is interdisciplinary in its approach and has the objective of explaining what institutions are, how they arise, what purposes they serve, how they change and how they should reform. The inception of the new institutional economics is usually traced to Williamson (Williamson, O. E., 1975, Markets and Hierarchies: Analysis and Antitrust Implication (New York: Free Press).
21. For recent surveys see Samuels (Samuels, W. J., 1987, Institutional economics. In: The New Palgrave Dictionary of Economics, edited by J. Eatwell, M. Milgate and P. Neuman (London: Macmillan)),
22. Coase (Coase, R. H., 1998, The new institutional economics. American Economic Review Papers and Proceedings, 88, 72-79),
23. Klein (Klein, P. G., 2000, New institutional economics. In: Encyclopedia of Law and Economics, edited by B. Bouekeart and G. De Geest (Cheltenham: Edward Elgar))
24. Williamson (Williamson, O. E., 2000, The new institutional economics: taking stock, looking ahead. Journal of Economics Literature, 38, 595-613).
25. Williamson, O. E., 2000, The new institutional economics: taking stock, looking ahead. Journal of Economics Literature, 38, 595-613.
26. Lancaster, K. J., 1966, A new approach to consumer theory. Journal of Political Economy, 84, 132-157.
27. D'Este, G., 2000, Urban freight movement modeling. In: Handbook of Transport Modelling, edited by D. A. Hensher and K. J. Button (Oxford: Pergamon).
28. Economides, N., 1996, The economics of networks. International Journal of Industrial Organisation, 14, 673-699.
29. Button, K. J., 2001, Economics of transport networks. In: Handbook of Transport Systems and Traffic Control, edited by K. J. Button and D. A. Hensher (Oxford: Pergamon).
30. A more complete discussion of this is found in Varian (Varian, H. R., 1999, Market structures in the network age. In: Understanding the Digital Economy Conference, Washington, DC). For a consideration in the shipping context, Bergantino, A. S. and Veenstra, A. W., 2002, Interconnection and co-ordination: an application of network theory to linear shipping. International Journal of Maritime Economics, 4, 231-248.
31. Bergantino, A. S. and Veenstra, A. W., 2002, Interconnection and co-ordination: an application of network theory to linear shipping. International Journal of Maritime Economics, 4, 231-248.
32. Lindsey, R. and Verhoef, E. T., 2000, Congestion modeling. In: Handbook of Transport Systems and Traffic Control, edited by K. J. Button and D. A. Hensher (Oxford: Pergamon).
33. Vanags (Vanags, A. H., 1977, Maritime congestion: an economic analysis. In: Advances in Maritime Economics, edited by R. O. Goss (Cambridge: Cambridge University Press) gives a specific maritime account of the problem.
34. Fukiyama, F., 1991, The End of History and the Last Man (New York: Free Press).
35. Roe (Roe, M. S., 2002, Shipping policy in the globalization era: the inter-relationship between international, supra-national and national shipping policies. In: The Handbook of Maritime Economics and Business, edited by C. Grammenos (London: Lloyds of London Press) offers an overview of the ways in which international maritime policies are developing. The paper also provides a useful bibliography of material on individual country's maritime policies.
36. Zerby, J. A., 1979, On the practicality of the UNCTAD 40-40-20 code for liner conferences. Maritime Policy and Management, 6, 241-251.
37. Shah, M. J., 1981, The 'UN Liner Code of Conduct': some key issues regarding its implementation. European Transport Law, 16, 491-554.
38. Brooks, M. R. and Button, K. J., 1992, Shipping within the framework of a single European market. Transport Reviews, 12, 237-252.
39. Paixao, A. and Marlow, P., 2001, A review of European Union shipping policy. Maritime Policy and Management, 28, 187-198.
40. There has arisen quite an extensive literature concerning legal-economic matters within the context of the European Union's transport policy (Bellis, J.-F., Vermulst, E. and Musquar, P., 1988, The new EEC regulation on unfair pricing practices in maritime transport: a forerunner of the extension of unfair trade concepts to services? World Trade Law, 22, 47-65;
41. Ruttley, P., 1991, International shipping and the EEC competition law. European Competition Law Review, 12, 5-18;
42. Kreis, H. W. R., 1992, EC competition law and maritime transport. Antitrust Bulletin, 37, 481-505.
43. For examples of work looking at safety see Talley (Talley, W. K., 1995, Safety investments and operating conditions: determinants of accident passenger damage costs. Southern Economic Journal, 61, 819-829;
44. Talley, W. K., 1996, Determinants of cargo risk and severity: the case of containership accidents. Logistics and Transportation Review, 32, 377-388)
45. Goss (Goss, R., 1994, Safety in sea transport. Journal of Transport Economics and Policy, 28, 99-110).
46. Brooks, M. R., 1996, The privatization of ship safety. In: Transport Policy: World Transport Research, Vol. 3, edited by D. A. Hensher, J. King and T. Oum (Oxford: Pergamon).
47. Stasinopoulos, D., 2003, Maritime security-the need for a global agreement. Maritime Economics and Logistics, 5, 311-320.
48. As a practical example of this in the air transportation context, there is the US IASA programme that effectively allows bureaucrats to exclude foreign airlines from the US market if safety oversight standards do not meet UN standards.
49. Sarin, R. K. and Scherer, C. R., 1976, Optimal oil tanker size with regard to environmental impact of oil spills. Journal of Environmental Economics and Management, 3, 226-235.
50. Hopkins, T., 1992, Oil spill reduction and costs of ship design regulation. Contemporary Policy Issues, 10, 59-70.
51. Cohan, M., 1987, Optimal enforcement strategy to prevent oil spills: an application of a principal-agent model with moral hazard. Journal of Law and Economics, 30, 23-51.
52. This raises such questions as the optimal size of a cartel (Zerby, J. A. and Conlon, R. M., 1983, Joint costs and intra-tariff cross-subsidies: the case of liner shipping. Journal of Industrial Economics, 31, 383-396;
53. Clyde, P. S. and Reitzes, J. D., 1995, Market power and collusion in the Ocean Shipping Industry: is a bigger cartel a better cartel. Economic Inquiry, 36, 292-304).
54. Deakin, B. M. and Seward, T., 1973, Shipping Conferences: A Study of their Origins, Development and Economic Practices (Cambridge: Cambridge University Press).
55. Zerby, J. A. and Conlon, R. M., 1978, An analysis of capacity utilization in liner shipping. Journal of Transport Economics and Policy, 12, 27-46.
56. Jankowski, W. B., 1989, The development of liner conference: a game theoretical explanation. International Journal of Transport Economics, 16, 313-328.
57. Davies, J. E., 1986, Competition, contestability and the liner shipping industry. Journal of Transport Economics and Policy, 20, 299-312.
58. Franck, B. and Bunel, J.-C., 1992, Contestability, competition and egulation. The case of liner shipping. International Journal of Industrial Organisation, 9, 141-159.
59. Shashikumar, N., 1995, Competition and model of market structure in liner shipping. Transport Reviews, 15, 3-26.
60. Button, K. J., 1980, The application of Andrews' theory to shipping conferences- a comment. Maritime Policy and Management, 7, 17-20.
61. Davies, J. E., 1990, Destructive competition and market sustainability in the liner shipping industry. International Journal of Transport Economics, 27, 227-245.
62. Sjostrom, W., 1989, Collusion in ocean shipping: a test of monopoly and empty core models. Journal of Political Economy, 97, 1160-1179.
63. Sjostrom, W., 1993, Antitrust immunity for shipping conferences: an empty core approach. Antitrust Bulletin, 38, 419-423.
64. Pirrong, S. C., 1992, An application of core theory to the analysis of ocean shipping markets. Journal and Law and Economics, 35, 89-131.
65. Button, K. J., 2002, The Importance of the 'core' in explaining shipping alliances. In: Ocean Yearbook Vol. 16, edited by W. Mann Borgese, A. Chircop and M. McConnell (Chicago, IL: Chicago University Press), pp. 328-353.
66. Heaver, T. D., 1973, A theory of shipping conference pricing and policies. Maritime Studies and Management, 1, 17-30.
67. Sturmey, S. G., 1967, Economics and international liners services. Journal of Transport Economics and Policy, 1, 190-203.
68. Wright, G., 1991, Freight rates in the tramp shipping market. International Journal of Transport Economics, 18, 47-54.
69. Telser, L. G., 1994, The usefulness of core theory in economics. Journal of Economic Perspectives, 8, 151-164.
70. A good summary of this literature is to be found in Haralambides and Veenstra (Haralambides, H. E. and Veenstra, A. W., 2000, Modeling performance in liner shipping. In: Handbook of Transport Modelling, edited by D. A. Hensher and K. J. Button (Oxford: Pergamon)).
71. Jannson, J. O. and Shneerson, D., 1982, The optimal ship size. Journal of Transport Economics and Policy, 16, 217-238.
72. Cullinane, K. P. B. and Khanna, M., 1999, Economies of scale in large container ships. Journal of Transport Economics and Policy, 33, 185-207.
73. Lim, S. M., 1998, Economies of scale in container shipping. Maritime Policy and Management, 25, 361-373.
74. Veldman, S., 1993, The optimal size of ship and the impact of user economies- an application to container shipping. In: Current Issues in Maritime Economics, edited by K. Gwilliam (Dordrecht: Kluwer).
75. Evans, J. J., 1988, The elasticity of supply of sea transport. Maritime Policy and Management, 15, 309-313.
76. Dikos, G. and Marcus, H. S., 2003, The term structure of second-hand prices: a structural partial equilibrium model. Maritime Economics and Logistics, 5, 251-267.
77. Tolofari, S., Button, K. J. and Pitfield, D., 1986, Shipping costs and the controversy over open registry. Journal of Industrial Economics 34, 409-427.
78. Button, K. J., Tolofari, S. and Pitfield, D., 1987, An econometric analysis of the cost structure of the tanker sector of the shipping industry. International Journal of Transport Economics, 14, 71-84.
79. Talley, W. K., Agarwal, V. B. and Breakfield J. W., 1988, Economies of density if ocean taker ships. Journal of Transport Economics and Policy, 20, 91-99.
80. Gilman, S., 1999, The size economies and network efficiency of large containerships. International Journal of Maritime Economics, 1, 39-59.
81. Mangan, J., Lalwani, C. and Gardner, B., 2001, Identifying relevant variables and modeling the choice process in freight transportation. International Journal of Maritime Economics, 3, 278-297.
82. Brooks, M. R. and Fraser, G., 2001, Maritime logistics. In: Handbook of Logistics and Supply-chain Management, edited by A. M. Brewer, K. J. Button and D. A. Hensher (Oxford: Pergamon).
83. Heaver, T. D., 2002, The evolving roles of shipping lines in international logistics. International Journal of Maritime Economics 4, 310-330.
84. Brewer et al. (Brewer, A. M., Button, K. J. and Hensher, D. A. (eds), 2001, Handbook of Logistics and Supply-chain Management (Oxford: Pergamon) contains a set of original papers setting out key themes in modern logistics
85. McKinnon et al. (McKinnon, A., Button, K. J. and Nijkamp, P. (eds), 2002, Transport Logistics (Cheltenham: Edward Elgar) provides a selection of classic papers in the field.
86. From an institutional economic perspective logistics is simply a way of reducing transactions costs as systems of information flows have been improved; it is a logical outcome of Coasian (Coase, R. H., 1937, The nature of the firm. Economica, 4, 386-405.) economics. It is a way of minimizing production costs in a situation where it is possible to trade-off production, distribution and inventory costs
87. It is a way of minimizing production costs in a situation where it is possible to trade-off production, distribution and inventory costs (Baumol, W. J. and Vinod, H. D., 1970, An inventory theoretical model of freight transport demand. Management Science, 16, 413-421).
88. Porter, M. E., 1985, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press).
89. Sinha-Ray, P., Carter, J., Field, A., Marshall, J., Polak, J., Schumacher, K., Song, D. and Woods, J., 2003, Container world: global agent based modelling of the container transport business. In: Proceedings of the 4th Workshop on Agent-based Simulations, edited by J.-P. Müller and M.- M. Seide (Montpellier: SCS Europe).
90. There is also an increasing use of the notion of networks when considering port competition in this context (Gambardella, L. M., Rizzoli, A. E. and Zaffalon, M., 1998, Simulation and planning of an intermodal container terminal. Simulation Journal in Habour and Maritime Management, 21, 107-116.
91. Beenstock, M. and Vergottis, A., 1989, An econometric model of the world market for dry cargo freight and shipping. Applied Economics, 21, 339-356.
92. Hale, C. and Vanags, A., 1989, Spot and period rates in the dry bulk market: some tests for the period 1980-1986. Journal of Transport Economics and Policy, 23, 281-291.
93. Kavussanos, M. G., 1996, Comparisons of volatility in the dry-cargo ship sector: spot versus time charters and smaller versus large vessels. Journal of Transport Economics and Policy, 30, 67-82.
94. Glen, D., Owen, M. and Van der Meer, R., 1981, Spot and time charter rates for tankers, 1970-77. Journal of Transport Economics and Policy 15, 45-58.
95. Kavusannos, M. G. and Alizadeh-M, A. H., 2002, The expectations hypothesis of the term structure and premium in dry bulk shipping freight markets. Journal of Transport Economics and Policy, 36, 267-304.
96. Veenstra, A. W., 2000, The term structure of ocean freight rates. Maritime Policy and Management, 26, 279-294.
97. Gardner, B., 1985, The container revolution and its effects on the structure of traditional UK liner shipping companies. Maritime Policy and Management, 12, 195-208.
98. Brooks, M. R. and Button, K. J., 1994, Yield management: a phenomenon of the 1980s and 1990s? International Journal of Transport Economics, 21, 177-196.
99. Brooks, M. R. and Button, K. J., 1996, The determinants of shipping rates: a North Atlantic case study. Transport Logistics, 1, 21-30.
100. Lack of adequate is a particular problem in this work. Little is carried at published rates and information on actual rates is not readily available.
101. Leibenstein, H., 1966, Allocative efficiency vs X-efficiency. American Economic Review, 56, 392-415.
102. Devanney, J. W., Livanos, V. M. and Stewart, R. J., 1975, Conference rate making and the West Coast of South America. Journal of Transport Economics and Policy, 9, 154-177.
103. Park, R.-K. and De, P., 2004, An alternative approach to efficiency measurement of seaports. Maritime Economics and Logistics, 6, 53-69.
104. Tongzon, J., 2001, Efficiency measurement of selected Australian and other international ports using data envelopment analysis. Transportation Research A, 35, 113-128.
105. Roll, Y. and Hayuth, Y., 1993, Port performance comparison applying data envelopment analysis. Maritime Policy and Management, 20, 153-161.
106. Butz, D. A., 1993, Ocean shipping economics: free trade and antitrust implications. Contemporary Policy Issues, 11, 86-87.
107. Coeck, C., Notteboom, T. E., Verbeke, A. and Winkelmans, W., 1995, The unreliability of maritime trade statistics, an extension of results. International Journal of Transport Economics, 22, 217-224.
108. Perhaps the classic example was the work of Hall and Hitch (Hall, R. L. and Hitch, C. J., 1939, Price theory and business behaviour. Oxford Economics Papers, 2, 12-45) on the kinked demand curve in oligopoly.
109. Bode, S., Isensee, J., Krause, K. and Michaelowa, A., 2002, Climate policy: analysis of ecological, technical and economic implications for international maritime transport. International Journal of Maritime Economics, 4, 164-184.
110. Coase, R. H., 1960, The problem of social cost. Journal of Law and Economics, 3, 1-44.
111. Gilman, S., 1994, Contestability and public policy in liner short sea shipping. In: Competition Policy in Liner Shipping, edited by H. J. Molenaar and E. Van der Voorde (Antwerp: UFSIA).
112. Wright, H., 2000, Spot and period rates in the wet bulk shipping market: testing for long-run parity. Journal of Transport Economics and Policy 34, 55-68.