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Fisheries Management under Irreversible Investment: Does Stochasticity Matter?

Author

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  • Poudel, Diwakar

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Sandal, Leif K.

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Kvamsdal, Sturla F.

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Steinshamn, Stein I.

    (SNF, Institute for Research in Economics and Business Administration)

Abstract

We present a continuous, nonlinear, stochastic and dynamic model for capital investment in the exploitation of a renewable resource. Both the resource stock and capital stock are treated as state variables. The resource owner controls fishing effort and the investment rate in an optimal way. Biological stock growth and capital depreciation rate are stochastic in the model. We find that the stochastic resource should be managed conservatively. The capital utilization rate is found to be a non-increasing function of stochasticity. Investment could be either higher or lower depending on the interaction between the capital and the resource stocks. In general a stochastic capital depreciation rate has only weak influence on optimal management. In the long run, the steady state harvest for a stochastic resource becomes lower than the deterministic level.

Suggested Citation

  • Poudel, Diwakar & Sandal, Leif K. & Kvamsdal, Sturla F. & Steinshamn, Stein I., 2011. "Fisheries Management under Irreversible Investment: Does Stochasticity Matter?," Discussion Papers 2011/20, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2011_020
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    File URL: http://hdl.handle.net/11250/164170
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    References listed on IDEAS

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    1. Boyce John R., 1995. "Optimal Capital Accumulation in a Fishery: A Nonlinear Irreversible Investment Model," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 324-339, May.
    2. Panos Fousekis & James S. Shortle, 1995. "Investment Demand When Economic Depreciation is Stochastic," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(4), pages 990-1000.
    3. McKelvey, Robert, 1985. "Decentralized regulation of a common property renewable resource industry with irreversible investment," Journal of Environmental Economics and Management, Elsevier, vol. 12(4), pages 287-307, December.
    4. Dueker Michael & Fischer Andreas & Dittmar Robert, 2007. "Stochastic Capital Depreciation and the Co-movement of Hours and Productivity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-24, January.
    5. Bourguignon, Francois, 1974. "A particular class of continuous-time stochastic growth models," Journal of Economic Theory, Elsevier, vol. 9(2), pages 141-158, October.
    6. Singh, Rajesh & Weninger, Quinn & Doyle, Matthew, 2006. "Fisheries management with stock growth uncertainty and costly capital adjustment," Journal of Environmental Economics and Management, Elsevier, vol. 52(2), pages 582-599, September.
    7. Sandal, Leif Kristoffer & Steinshamn, Stein Ivar, 2006. "Irreversible Investments Revisited," Discussion Papers 2006/11, Norwegian School of Economics, Department of Business and Management Science.
    8. Doyle, Matthew & Singh, Rajesh & Weninger, Quinn, 2006. "Fisheries Management with Stock Uncertainty and Costly Capital Adjustment," Staff General Research Papers Archive 12770, Iowa State University, Department of Economics.
    9. Munro, Gordon R. & Scott, Anthony D., 1985. "The economics of fisheries management," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 2, chapter 14, pages 623-676, Elsevier.
    10. Clark, Colin W & Clarke, Frank H & Munro, Gordon R, 1979. "The Optimal Exploitation of Renewable Resource Stocks: Problems of Irreversible Investment," Econometrica, Econometric Society, vol. 47(1), pages 25-47, January.
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    Cited by:

    1. Poudel, Diwakar & Sandal, Leif K., 2014. "Stochastic Optimization for Multispecies Fisheries in the Barents Sea," Discussion Papers 2014/2, Norwegian School of Economics, Department of Business and Management Science.
    2. Steven Rust & Sarah Jennings & Satoshi Yamazaki, 2016. "Excess Capacity and Capital Malleability in a Fishery with Myopic Expectations," Marine Resource Economics, University of Chicago Press, vol. 31(1), pages 63-81.
    3. Jose Pizarro & Eduardo S. Schwartz, 2018. "The Valuation of Fisheries Rights: A Real Options Approach," NBER Working Papers 25140, National Bureau of Economic Research, Inc.
    4. Diwakar Poudel & Leif K. Sandal & Sturla F. Kvamsdal, 2015. "Stochastically Induced Critical Depensation and Risk of Stock Collapse," Marine Resource Economics, University of Chicago Press, vol. 30(3), pages 297-313.
    5. Jose Pizarro & Eduardo Schwartz, 2021. "Fisheries Optimal Harvest Under Price and Biomass Uncertainty," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 147-175, January.

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    More about this item

    Keywords

    Physical capital; irreversible investment; stochastic growth; long-term sustainable optimal;
    All these keywords.

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery

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