Valuation and Management of Fishing Resources Under Price Uncertainty
The traditional expected-net-present-value methods cannot properly capture the management flexibility and strategic value aspects of a fishery, and may understate its value. Instead, this paper develops a Real Options model to conceptualize and evaluate fishery exploitation flexibility. Specifically, general models to value the opportunity to either exploit or invest in a fishery are presented. They suffice to determine not only these values, but also the optimal policy for opening, closing, delaying and setting its harvest rate. The sustainable case in which the harvest rate equals the natural net growth function is also considered. Concerning the exploitation decision, it is found that, as could be expected, the higher the resource price the higher the value of this opportunity in both models (general and sustainable). However, the resource stock affects both models differently. As to the investment opportunity, its value is always lower than the exploitation opportunity because of investment costs. Finally, numerical simulations are run in order to illustrate the nature of the solution. Sensitivity analysis concerning the influence of the tax rate, convenience yield, risk-free interest rate and price volatility on the value of the fishery is also reported. Copyright Springer 2006
Volume (Year): 33 (2006)
Issue (Month): 1 (01)
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References listed on IDEAS
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- Anastasios Xepapadeas, 2001. "Irreversible Deveolpment of a Natural Resource: Management rules and policy issues when direct use values and environmental values are uncertain," Working Papers 0111, University of Crete, Department of Economics.
- Weninger, Quinn & Just, Richard E., 1997. "An Analysis of Transition From Limited Entry to Transferable Quota: Non-Marshallian Principles for Fisheries Management," Staff General Research Papers 5225, Iowa State University, Department of Economics.
- Neher,Philip A., 1990. "Natural Resource Economics," Cambridge Books, Cambridge University Press, number 9780521311748, 1.
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