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Econometrics Informing Natural Resources Management

Selected Empirical Analyses

Edited by Phoebe Koundouri

This fascinating book outlines the fundamental principles and difficulties that characterise the challenging task of using econometrics to inform natural resource management policies, and illustrates them through a number of case studies from all over the world. The book offers a comprehensive overview of the broader picture of the state-of-the-art in econometrics as applied to environmental and natural resource management.
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Chapter 11: Stochastic production in a regulated fishery: the importance of risk considerations

Phoebe Koundouri and Marita Laukkanen


11. Stochastic production in a regulated fishery: the importance of risk considerations Phoebe Koundouri and Marita Laukkanen 1. INTRODUCTION Variability of output, often referred to as production risk, is inherent in marine fisheries susceptible to changing environmental conditions. Risk plays an important role in input use decisions. Input quantities not only determine the volume of output produced but some of these inputs also affect the extent of production risk. In this chapter we address the implications of production risk for controlling fishing effort in a regulated fishery within a framework where fishers maximize expected utility of profit. We focus on controlling effort through season closures that limit the number of days the fishery is open to harvest each year. Risk attitudes of economic agents are an important factor in input allocation decisions and hence in output produced (see, for example, Stiglitz, 1974; Just and Pope, 1978; Antle, 1987). Risk considerations are necessary in the analysis of the fishery sector as there exist a number of possible cases where policy formulation should consider not only the marginal contribution of input use to the mean of output, but also the marginal reduction in the variance or higher moments of output. To this end, we investigate fishers’ behaviour towards production risk, their input choices and the respective effects on output, and discuss the policy implications of production risk for regulating a fishery through controlling season length. In particular we consider fishers’ capacity choice and fishing effort, approximated...

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