The Option to Change the Flag of a Vessel

The International Handbook of Maritime Economics, 47-62, 2011, Edward Elgar Publishing

Posted: 8 Feb 2014

See all articles by Manolis G. Kavussanos

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance

Andrianos E. Tsekrekos

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: 2011

Abstract

The objective of this paper, in recognition of the strategic significance of the ship registration decision, is to provide a theoretical framework that helps explain the interaction of factors that influence the decisions to register a 'flag of convenience.' This highlights the risk-return trade-off that is at its core. A decision problem is formulated as a switching option under the assumptions of uncertainty and costly reversibility. It is shown that the likelihood and timing of registry switching decisions can be affected by uncertainties over the level of savings in tax and labor costs that accrue from 'flagging-out,' as well as the level of correlation of a vessel's operation with the market portfolio. The authors' model shows that the optimal flag-switching policy for a maritime firm can be influenced by a number of factors and offers a practical method for assessing the available alternatives for fleet registration.

Suggested Citation

Kavussanos, Manolis G. and Tsekrekos, Andrianos E., The Option to Change the Flag of a Vessel (2011). The International Handbook of Maritime Economics, 47-62, 2011, Edward Elgar Publishing. Available at SSRN: https://ssrn.com/abstract=2391748

Manolis G. Kavussanos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission St
TK 104 34 Athens
Greece
0030 210 8203167 (Phone)
0030 210 8228816 (Fax)

Andrianos E. Tsekrekos

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

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