Long run price flexibilities for high valued species in the UK: a co-integration systems approach

In this paper, the own and cross-price flexibilities for four high valued species (bass, lobster, sole and turbot) landed in the UK are estimated. These species were selected as a distinct group on the basis of a clustering analysis of the 53 main commercial species landed in the UK. System of equation models were developed using the vector error correction model (VECM) approach. Johansen’s multivariate approach was used to obtain estimates of the long-run steady state relationship (vectors) between fish prices and landings. To find unique vectors (i.e. no interdependent vectors) zero restrictions on the coefficients of the price variables were applied so that the model effectively contained quantity independent variables only. The resulting vectors were four unique cointegration long-run relationships of monthly fish prices and landings. Various tests suggested that the variables were I(1) non-stationary variables. The model also suggested that there are more than one cointegration vectors (relationships) between the variables. Therefore the Engle-Granger single equation approach was not efficient and a system of equations approach was adopted. It was found that bass has the largest absolute long run own price flexibility. Bass and lobster were found to be weak substitutes while sole and turbot were found to be substitutes. The results suggest, however, that the relationship is not symmetrical, with the quantity of sole having a greater effect on the price of turbot than turbot on sole.