Choice of Remuneration Regime in Fisheries: The Case of Hawaii’s Longline Fisheries

One of the most prominent features of remuneration in Hawaii’s longline fisheries industry has been the norm of share contract regimes. This paper investigates whether the use of the share contract regime is positively correlated to increased economic returns. The principal-agent framework is applied to develop a theoretical model for the remuneration choice. Empirical estimation is conducted using a switching regression model that accounts for the effects of certain vessel characteristics on revenue, depending on remuneration regime used (i.e., share contract or flat wage), as well as the potential selection bias in the vessels’ contractual choice. Key findings from counterfactual simulations indicate: (a) a negative selection related to choosing share contracts, and (b) flat wage vessels would experience significantly higher revenues if they switched to share contracts. Thus, even though the labor market in Hawaii’s longline fisheries relies upon foreign crew members, the results suggest that owners of flat wage vessels would benefit by applying share contracts to increase their revenues.