In many economic models, we assume firms are unconstrained by credit. However, this assumption does not hold across all industries or regions of production. A notable example is the aquaculture sector, one of the fastest-growing food production industries, where firms often struggle to secure financing due to limited collateral. This lack of credit access potentially forces firms to operate below their optimal production levels, increasing their risk of closure.
Aquaculture, like other food production sectors, faces inherent risks due to its susceptibility to environmental factors and market volatility. These risks may exacerbate the consequences of operating far from optimal production levels. This project explores the theoretical and simulated impacts of credit constraints on prospective aquaculture firms.
Our theoretical model, depicted in Figure 1, compares three scenarios: K) typical firm capital accumulation with access to credit, K̂) capital accumulation when larger firms are more resilient to external shocks, and Ǩ) capital accumulation under credit constraints. The model indicates that the most significant differences in optimal capital accumulation time-paths occur in the early years of a firm’s existence, suggesting this to be the most critical period for firm survival.
To quantify our model, we employed a Monte-Carlo simulation for a prospective clam aquaculture firm. Preliminary results, illustrated in Figure 2, corroborate our theoretical findings. Firms with access to credit, able to acquire capital more rapidly, exhibit a higher survival rate. This trend is consistent across various initial endowments (shown on the horizontal axis). Overall, our results show the importance of access to credit for aquaculture firms, particularly new and small firms.