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

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  • 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.

Suggested Citation

  • Eggert, Håkan & Tveterås, Ragnar, 2001. "Stochastic Production and Heterogeneous Risk Preferences: Commercial Fishers’ Gear Choices," Working Papers in Economics 54, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0054
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    Cited by:

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    3. Sultan, Riad, 2020. "Fishing location choice and risk preferences among small fishers – Implications for fisheries management policies," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 15(2), June.
    4. Haynie, Alan C. & Hicks, Robert L. & Schnier, Kurt E., 2009. "Common property, information, and cooperation: Commercial fishing in the Bering Sea," Ecological Economics, Elsevier, vol. 69(2), pages 406-413, December.
    5. Carpentier, Alain & Gohin, Alexandre & Sckokai, Paolo & Thomas, Alban, 2015. "Economic modelling of agricultural production: past advances and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 131-165, March.
    6. Johnson, Ayana Elizabeth & Saunders, Daniel Kaiser, 2014. "Time preferences and the management of coral reef fisheries," Ecological Economics, Elsevier, vol. 100(C), pages 130-139.
    7. César Salazar Espinoza, 2015. "Share Contract Choices and Economic Performance: Empirical Evidence from the Artisanal Fisheries Sector in Chile," Marine Resource Economics, University of Chicago Press, vol. 30(1), pages 71-95.
    8. Frank Asche, 2009. "Adjustment Cost and Supply Response in a Fishery: A Dynamic Revenue Function," Land Economics, University of Wisconsin Press, vol. 85(1), pages 201-215.
    9. Håkan Eggert & Peter Martinsson, 2004. "Are Commercial Fishers Risk-Lovers?," Land Economics, University of Wisconsin Press, vol. 80(4).
    10. 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.
    11. Nakashima, Takahiro, 2006. "Linear Structural Models of Production under Price Uncertainty: A Mean-Standard Deviation Approach," Japanese Journal of Agricultural Economics (formerly Japanese Journal of Rural Economics), Agricultural Economics Society of Japan (AESJ), vol. 8, pages 1-11.
    12. Smith, Martin D. & Zhang, Junjie & Coleman, Felicia C., 2008. "Econometric modeling of fisheries with complex life histories: Avoiding biological management failures," Journal of Environmental Economics and Management, Elsevier, vol. 55(3), pages 265-280, May.
    13. McConnell, Kenneth E. & Price, Michael, 2006. "The lay system in commercial fisheries: Origin and implications," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 295-307, May.
    14. Giné, Xavier & Martinez-Bravo, Monica & Vidal-Fernández, Marian, 2017. "Are labor supply decisions consistent with neoclassical preferences? Evidence from Indian boat owners," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 331-347.
    15. Gelcich, Stefan & Edwards-Jones, Gareth & Kaiser, Michel J., 2007. "Heterogeneity in fishers' harvesting decisions under a marine territorial user rights policy," Ecological Economics, Elsevier, vol. 61(2-3), pages 246-254, March.
    16. Zhang, Ruojin, 2016. "The Effects of Residue Tolerance on Pesticide Use, Hop Marketing and Social Welfare," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235155, Agricultural and Applied Economics Association.
    17. Wu, Feng & Guan, Zhengfei, 2014. "Efficient Estimation of Risk Attitude with Seminonparametric Risk Modeling," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170625, Agricultural and Applied Economics Association.
    18. Junjie Zhang & Martin Smith, 2011. "Heterogeneous Response to Marine Reserve Formation: A Sorting Model approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(3), pages 311-325, July.
    19. 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.
    20. Nguyen, Quang, 2009. "Do fishermen have different preferences?: Insights from an experimental study and household data," MPRA Paper 16012, University Library of Munich, Germany.
    21. Anna M. Birkenbach & Andreea L. Cojocaru & Frank Asche & Atle G. Guttormsen & Martin D. Smith, 2020. "Seasonal Harvest Patterns in Multispecies Fisheries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(3), pages 631-655, March.
    22. Sundar, B. & Virmani, Vineet, 2013. "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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    More about this item

    Keywords

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

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery

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