Selected Empirical Analyses
- New Horizons in Environmental Economics series
Edited by Phoebe Koundouri
Chapter 11: Stochastic production in a regulated fishery: the importance of risk considerations
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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