Fisheries for multiple species are linked via exposure to environmental shocks as well as the participation patterns of fishers patterns increasingly constrained by exclusionary regulatory measures. Numerous studies have examined fishers short-run supply decisions such as daily participation and location choices. However, medium-term decisions, such as annual permit choices, have attracted little attention. In this paper, we analyze fishers supply decisions in a multispecies context, with a focus on the annual choice of limited entry permits across the entire west coast of the United States.
Our modeling incorporates at least two ways in which portfolios of limited entry permits are distinct from financial assets. First, limited entry permits do not generate dividend flows unless the permit holder (or a lease) the permit. This means that feasible combinations of permits are limited by fishing season, gear, and other regulatory constraints. Second, limited entry permits have an option value. The permit holder does not have to exercise it if the market and/or environmental conditions are unfavorable. These differences are important in specifying our model.
We combine fish ticket and state and federal permit data to examine the relationship between permit portfolios and the resulting landings/revenue. Our dataset includes >16,000 owners over the period 1991 - 2015. The number of limited entry permits increased from four in 1991 to 87 in 2015. The majority of owners have only one permit per year, but many owners possess two or three permits. Salmon and Dungeness crab permits are most common.
Using this dataset, we estimate a discrete choice model to determine how fishermen choose their limited entry permit portfolio. In so doing, we utilize machine learning techniques to obtain the expected revenue and variance of revenue. We also attempt to build a theory of limited entry permit choice, where we highlight the fact that the opportunity cost of holding a permit is the sum of the marginal profits of exercising the permit and the capital gain/loss from price changes.