Environmentally-determined production frontiers and lease utilization in Virginia's eastern oyster aquaculture industry

Abstract

During the last decade, oyster aquaculture has rebounded in Virginia and has been associated with an increase in subaqueous leased area. Production levels remain historically low, however, and many leases are thought to be underutilized. This study uses a novel approach leveraging high-resolution environmental data to evaluate lease utilization and identify constraints on aquaculture development. Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA) were used to define environmentally-determined production frontiers, i.e. production possibilities based on empirical observations of aquaculture production, available space, and environmental conditions. Both methods estimated Lease Capacity Utilization (LCU, from 0 to 1) for leases producing oysters with intensive culture methods from 2007 to 2016. Models revealed significant heterogeneity in lease utilization and mean LCU scores of 0.25 (DEA) and 0.27 (SFA), which suggests many leases could scale up production or reduce the size of their lease to more efficiently utilize ambient environmental conditions (i.e., achieve scores closer to 1). Capacity underutilization arising from characteristics of the leaseholder and surrounding spatial environment were quantified and indicated efficiency gains for horizontally integrated leaseholders, though also suggested leases in more populated areas were less efficiently used, possibly due to increased use conflicts. These results highlight potential externalities and tradeoffs associated with aquaculture development and can inform the design of more efficient aquaculture leasing systems.