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A Real Options Approach to Modeling Fishery Participation

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  • Dominant models of harvester behavior typically focus on where or when harvesters allocate their effort within a fishery, adjusting effort on the intensive margin in response to fishing conditions and management.  However, many harvesters participate in multiple fisheries during a year, and thus a major consequence of management change is modifying whether and how much harvesters participate, on the extensive margin.  Addressing participation requires a novel modeling framework that captures future opportunities in other fisheries, including expected harvest, harvest uncertainty, quota and bycatch limits, and open and closed seasons.  In this paper, we propose a tractable theoretical and empirical framework for fisheries participation based on real options models used in finance.  This approach is more appropriate than a fishing portfolio approach because the latter does not account for the irreversible cost of owning vessels and quota, which is necessary to participate in a fishery.  We lay out the model, and demonstrate its application in a situation motivated by fishing opportunities present in the US West Coast groundfish fishery: Groundfish harvesters a prevented from fishing by a rare by severely limiting bycatch species, leading to high variance in total incomes for participants, but a new, low-bycatch gear technology has been developed which reduces shutdown risk.  The model characterizes the conditions under which harvesters will adopt the new low-bycatch gear.
  • Proceedings of the Eighteenth Biennial Conference of the International Institute of Fisheries Economics and Trade, held July 11-15, 2016 at Aberdeen Exhibition and Conference Center (AECC), Aberdeen, Scotland, UK.
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  • Challenging New Frontiers in the Global Seafood Sector: Proceedings of the Eighteenth Biennial Conference of the International Institute of Fisheries Economics and Trade, July 11-15, 2016. Compiled by Stefani J. Evers and Ann L. Shriver. International Institute of Fisheries Economics and Trade (IIFET), Corvallis, 2016.
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  • 0976343290

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