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The Estimation of Compensation for Revoking a License for Fishery Business and Appropriate Discount Rate

어업권 취소에 대한 손실보상액 추정과 이자율

  • Jung, Hyung-Chan (Division of Business Administration, Pukyong National University) ;
  • Chung, Man-Hwa (Fisheries Economic Institute / Research Fellow, National Federation of Fisheries Cooperatives)
  • 정형찬 (부경대학교 경영학부) ;
  • 정만화 (수협중앙회 수산경제연구원)
  • Received : 2013.02.11
  • Accepted : 2013.08.28
  • Published : 2013.09.30

Abstract

We investigate the appropriateness of the fixed 12% discount rate to be used in estimating the amount of compensation for revoking a license for fishery business by the Enforcement Decree of Fisheries Act in Korea. We also suggest the appropriate discount rate fully reflecting the change of market interest rate in the Korean financial market. The capital asset pricing model, or, CAPM is the best known model of risk and return, and is widely used to estimate the expected rate of return for the risky projects. Even though the CAPM implies that the discount rate or the expected rate of return should change as the related market factors do, the discount rate used to estimate compensation for revoking a license for fishery business remains to be the same 12% rate for the last 15 years by law. During this period, however, the yield to maturity for the 5-year government bonds in Korea has dramatically changed from about 12% to less than 3%. In order to provide the fair compensation for the damages against the coastal fisheries and evaluate the intrinsic value of fishery resources in the coastal areas, we suggest that the appropriate discount rate should be determined by the yield to maturity of the government bonds with 5-year maturity, instead of the current fixed 12% interest rate.

Acknowledgement

Supported by : 부경대학교

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