Markets, pooling and insurance for managing bycatch in fisheries

Bycatch is a nearly universal problem for fisheries, and it is increasingly common to place strict limits on allowable bycatch either on individuals or an industry sector. Individual bycatch quotas strengthen individual incentives to avoid bycatch and may reduce the likelihood that the bycatch cap will limit target species catch. However, in cases where bycatch is highly uncertain and variable, individual quotas and markets may be subject to high price variability and may fail to allocate quota efficiently. In some cases such as sea turtles, marine mammals, rare seabird and certain fish species, the allowable take may be less than one per permit holder. There are a number of reasons to believe that a transferable quota market may not function effectively in these cases. I explore the implications of stochasticity and uncertainty of bycatch for valuing quota in an individual bycatch quota system. I explore the degree to which a quota market increases expected profit and reduces individual risk relative to simply having a non-transferable individual bycatch quota, and how pooling approaches and possibly market insurance can be used to reduce financial risk for fishermen associated with uncertain bycatch.