Analyzing Risk of Stock Collapse in a Fishery Under Stochastic Profit Maximization

24 Pages Posted: 2 May 2012

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)

Date Written: April 27, 2012

Abstract

In commercial fisheries, stock collapse is an intrinsic problem caused by overexploitation or due to pure stochasticity. To analyze the risk of stock collapse, we apply a relatively simple Monte Carlo approach which can capture complex stock dynamics. We use an economic model with downward sloping demand and stock dependent costs. First, we derive an optimal exploitation policy as a feedback control rule and analyze the effects of stochasticity. We observe that the stochastic solution is more conservative compared to the deterministic solution at low level of stochasticity. For moderate level of stochasticity, a more myopic exploitation is optimal at small stock and conservative at large stock level. For relatively high stochasticity, one should be myopic in exploitation. Then, we simulate the system forward in time with the optimal solution. In simulated paths, some stock recovered while others collapsed. From the simulation approach, we estimate the probability of stock collapse and characterize the long term stable region.

Keywords: stochasticity, ensemble kalman filter, stock collapse, probability

JEL Classification: C61, Q22, Q57

Suggested Citation

Poudel, Diwakar and Sandal, Leif Kristoffer and Kvamsdal, Sturla, Analyzing Risk of Stock Collapse in a Fishery Under Stochastic Profit Maximization (April 27, 2012). NHH Dept. of Finance & Management Science Discussion Paper No. 2012/4, Available at SSRN: https://ssrn.com/abstract=2049784 or http://dx.doi.org/10.2139/ssrn.2049784

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

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