Intertemporal quota arbitrage in multispecies fisheries

Jorge Holzer and Geret DePiper

Journal of Environmental Economics and Management, 2019, vol. 93, issue C, 185-207

Abstract: In the management of natural resources, regulation often induces behavioral responses by resource users that ultimately undermine stated policy objectives. Examples of these unintended consequences have been associated with regulations ranging from the Endangered Species Act to laws governing clean air. In this paper we investigate an unintended behavioral response that can be triggered by conservation measures in multispecies fishery management, which leads to increased targeting of the species the conservation measures are meant to protect. Harvest is subject to stochastic variation, with output partially determined by the probability of encountering species of interest, either due to targeting or avoidance. Given the right conditions, an intertemporal arbitrage opportunity arises due to the fact that by targeting a stock in the current period, the probability of encountering that stock in the next period, when announced conservation measures are implemented, decreases. We present an empirical case study that supports the findings of the theoretical model. The results indicate that, by targeting so called weak stocks, some New England fishermen are willing to trade off increased costs today for increased expected profits in the future. To prevent the potentially harmful effects of this behavioral response, a manager may adopt precautionary provisions at the time a quota reduction is announced, or alternatively allow the industry to bank part of its current season's quota in order to alleviate the consequences of the reduction in the ensuing period. These results highlight the challenge of developing effective conservation strategies.

Keywords: Arbitrage; Directional distance function; Fishery; Quota (search for similar items in EconPapers)
JEL-codes: D21 D24 H4 Q22 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:93:y:2019:i:c:p:185-207

DOI: 10.1016/j.jeem.2018.12.002

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