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Fisheries Management under Irreversible Investment: Does Stochasticity Matter?

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Author Info

  • 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.

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Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2011/20.

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Length: 29 pages
Date of creation: 04 Nov 2011
Date of revision:
Handle: RePEc:hhs:nhhfms:2011_020

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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Keywords: Physical capital; irreversible investment; stochastic growth; long-term sustainable optimal;

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References

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  1. Fischer, Andreas & Michael J Dueker & Robert D Dittmar, 2003. "Stochastic Capital Depreciation and the Comovement of Hours and Productivity," Royal Economic Society Annual Conference 2003 80, Royal Economic Society.
  2. Singh, Rajesh & Weninger, Quinn & Doyle, Matthew, 2006. "Fisheries Management with Stock Growth Uncertainty and Costly Capital Adjustment," Staff General Research Papers 12765, Iowa State University, Department of Economics.
  3. 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.
  4. Bourguignon, Francois, 1974. "A particular class of continuous-time stochastic growth models," Journal of Economic Theory, Elsevier, vol. 9(2), pages 141-158, October.
  5. 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.
  6. 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.
  7. Sandal, Leif Kristoffer & Steinshamn, Stein Ivar, 2006. "Irreversible Investments Revisited," Discussion Papers 2006/11, Department of Business and Management Science, Norwegian School of Economics.
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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, Department of Business and Management Science, Norwegian School of Economics.

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