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Stochastic Production and Heterogeneous Risk Preferences: Commercial Fishers’ Gear Choices

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Author Info

  • Eggert, Håkan

    ()
    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

  • Tveterås, Ragnar

    ()
    (Stavanger University College, Department of Business Administration,)

Abstract

As long as total effort cannot be completely controlled, a more thorough understanding of fishers’ supply response decisions will be beneficial for fishery managers. In this paper, we present a model of fishers’ gear choice, which is empirically estimated on a panel of Swedish demersal trawlers. The approach allows for heterogeneity both in production technology and in risk preferences. Stochastic revenue functions with fixed effects are estimated and used to predict expected revenue and standard deviation for each trip. We employ a linear utility function in the mean-standard deviation framework and then analyze the gear choices, using the predicted values together with vessel capacity and lagged variables for the previous trip in a random parameters-logit model, which allows for heterogeneous risk preferences. The results indicate that fishers have a strong tendency to choose the same gear used on the previous trip, while in general they react to changes in economic and biological conditions by responding positively to increases in expected landing values and negatively to increases in the variability of the expected landing values, indicating risk aversion.

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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 54.

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Length: 21 pages
Date of creation: 05 Sep 2001
Date of revision:
Publication status: Forthcoming in American Journal of Agricultural Economics.
Handle: RePEc:hhs:gunwpe:0054

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research

Keywords: Risk preferences; two-moment decision models; Just-Pope production function; random-parameters logit; Swedish fisheries;

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References

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  1. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
  2. Weitzman, Martin L., 2002. "Landing Fees vs Harvest Quotas with Uncertain Fish Stocks," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 325-338, March.
  3. Smith, Vernon L, 1971. "Economics of Production from Natural Resources: Reply," American Economic Review, American Economic Association, vol. 61(3), pages 488-91, June.
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  9. Johan A. Mistiaen & Ivar E. Strand, 2000. "Location Choice of Commercial Fishermen with Heterogeneous Risk Preferences," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(5), pages 1184-1190.
  10. Daniel S. Holland & Jon G. Sutinen, 2000. "Location Choice in New England Trawl Fisheries: Old Habits Die Hard," Land Economics, University of Wisconsin Press, vol. 76(1), pages 133-149.
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  14. Eggert, Håkan, 2001. "Technical efficiency in the Swedish trawl fishery for Norway lobster," Working Papers in Economics 53, University of Gothenburg, Department of Economics.
  15. Kenneth E. Train, 1998. "Recreation Demand Models with Taste Differences over People," Land Economics, University of Wisconsin Press, vol. 74(2), pages 230-239.
  16. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
  17. Sean Pascoe & Louisa Coglan, 2002. "The Contribution of Unmeasurable Inputs to Fisheries Production: An Analysis of Technical Efficiency of Fishing Vessels in the English Channel," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 585-597.
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  19. Barry T. Coyle, 1999. "Risk Aversion and Yield Uncertainty in Duality Models of Production: A Mean-Variance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 553-567.
  20. Herriges, Joseph A. & Kling, Catherine L., 1999. "Valuing Recreation and the Environment: Revealed Preference Methods in Theory and Practice, New Horizons in Environmental Economics," Staff General Research Papers 12330, Iowa State University, Department of Economics.
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Citations

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Cited by:
  1. Kerri Brick & Martine Visser & Justine Burns, 2012. "Risk Aversion: Experimental Evidence from South African Fishing Communities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 133-152.
  2. Junjie Zhang & Martin Smith, 2011. "Heterogeneous Response to Marine Reserve Formation: A Sorting Model approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(3), pages 311-325, July.
  3. Nguyen, Quang, 2009. "Do fishermen have different preferences?: Insights from an experimental study and household data," MPRA Paper 16012, University Library of Munich, Germany.
  4. Martin Smith & James Wilen, 2005. "Heterogeneous and Correlated Risk Preferences in Commercial Fishermen: The Perfect Storm Dilemma," Journal of Risk and Uncertainty, Springer, vol. 31(1), pages 53-71, July.
  5. Eggert, Håkan & Tveterås, Ragnar, 2004. "Potential Rent and Overcapacity in the Swedish Baltic Sea Trawl Fishery," Working Papers in Economics 152, University of Gothenburg, Department of Economics.
  6. Sundar, B. & Virmani, Vineet, . "Attitudes towards Risk of Forest Dependent Communities - Evidence from Andhra Pradesh," IIMA Working Papers WP2013-12-01, Indian Institute of Management Ahmedabad, Research and Publication Department.

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