Review of Industrial Organization 12: 733–750, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
Technological Change and the Production of Ocean
CHRISTOPHER C. KLEIN
Tennessee Public Service Commission, 460 James Robertson Parkway, Nashville, TN 37243-0505,
Business & Economic Research Center, College of Business, Middle Tennessee State University,
1301 East Main Street, MTSU Box 102, Murfreesboro, TN 37132, U.S.A.
Abstract. This paper presents results for the estimation of a translog variable proﬁt function for the
subsidized U.S. liner shipping industry. In a study of ﬁfteen ﬁrms for the period from 1971 through
1982, the estimation results for a translog variable proﬁt function indicate an industry characterized
by input-saving technological changes in the cargo-handling input and important scale economies
that increase in extent over the period. At the beginning of the period, the U.S. liner shipping industry
included ﬁfteen subsidized ﬁrms and several unsubsidized ﬁrms. At this writing, four subsizied ﬁrms
and one unsubsidized ﬁrm remain. The technological changes examined here and the diffusion of
that technology throughout the international shipping industry are major factors in explaining that
Key words: Liner shipping, subsidy, variable proﬁt function, technological change, scale economies.
From the earliest days of the Republic, ocean shipping has posed policy dilemmas
for this country.
Today, U.S. policy dealing with the maritime industry is under
review once again.
This paper contributes to the continuing debate by testing for
the effects of changes in production technology on the U.S. ocean liner shipping
industry through the estimation of a neoclassical variable proﬁt function (Olin,
1982). Linershippingis the commoncarrier segment of theocean shippingindustry.
The authors would like to thank Gary Olin who assisted with the collection of the original data
set and whose own work inspired this research. Thanks are also due to Laurence T. Phillips without
whose help this research would not have been possible. The views expressed here are those of the
authors and do not reﬂect those of the Tennessee Public Service Commission or its staff.
The ﬁrst Congress passed on July 4, 1789 tariff and tonnage duties with differential rates for
U.S. and foreign vessels, see Bauer (1988, 53) For the recent policy analyses, see Waters (1993); the
Report of the Advisory Commission on Conferences in Ocean Shipping (April 1992); and Quartel
In an early draft of the Clinton Administration’s “Reinventing Government” National Perfor-
mance Review, the idea of total deregulation of the U.S. maritime industry was included. The idea
did not survive the ﬁrst cut. Mid–1995 Congressional budget proposals called for the elimination of
the Maritime Administration and the Federal Maritime Commission.