Heterogeneity and the fragility of the first best: Putting the “micro” in bioeconomic models of recreational resources

We bridge the non-market microeconomic recreational demand and bioeconomic modeling literatures by constructing a dynamic model to guide optimal management of recreational fisheries. Our model incorporates multiple forms of angler heterogeneity and directly models feedbacks between policy instruments and angler behavior rather than dictating behavior as a social planner. This approach highlights the importance of distinct forms of heterogeneity for price and technology based management. We show that management with a price instrument charged per unit fish mortality or a differentiated charge per trip, an input to fish mortality, fully internalizes the dynamic stock externality when the manager observes agent heterogeneity in stock impacts, but is naïve to heterogeneity in preferences. Unobserved heterogeneity in stock impacts leads to welfare loss that increases with the variance of unobserved stock impacts. When the manager uses technology constraints to manage the fishery, understanding heterogeneity in preference, price, and stock impacts leads to greater social welfare, and understanding all sources of heterogeneity is necessary to optimally manage the resource. Nevertheless, technology based management can never replicate the first best. Explicit incorporation of heterogeneity and behavior enables us to show exactly where welfare is lost.