Fisheries Management Under Irreversible Investment: Does Stochasticity Matter?

30 Pages Posted: 10 Nov 2011

See all articles by Diwakar Poudel

Diwakar Poudel

Norwegian School of Economics (NHH) - Department of Business and Management Science

Leif Kristoffer Sandal

Norwegian School of Economics (NHH) - Department of Business and Management Science

Sturla Kvamsdal

Norwegian School of Economics (NHH)

Stein Ivar Steinshamn

Norwegian School of Economics (NHH) - Department of Business and Management Science

Date Written: November 4, 2011

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.

Keywords: Physical capital, irreversible investment, stochastic growth, long-term sustainable optimal

JEL Classification: Q20, Q22

Suggested Citation

Poudel, Diwakar and Sandal, Leif Kristoffer and Kvamsdal, Sturla and Steinshamn, Stein Ivar, Fisheries Management Under Irreversible Investment: Does Stochasticity Matter? (November 4, 2011). NHH Dept. of Finance & Management Science Discussion Paper No. 2011/20. Available at SSRN: https://ssrn.com/abstract=1957601 or http://dx.doi.org/10.2139/ssrn.1957601

Diwakar Poudel (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Leif Kristoffer Sandal

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 95 93 41 (Phone)

Sturla Kvamsdal

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Stein Ivar Steinshamn

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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