On the Optimality of a Fishery Moratorium

Abstract

While a moratorium that completely closes an overharvested fishery may best facilitate stock recovery, such a policy can be particularly costly for economies dependent on fish consumption for sustenance, or on fishing and fishing-related industries for income and economic well-being. Nevertheless, even if a fishing moratorium is a policy option that should be reserved only for the most dire of circumstances, it is useful to understand the economic consequences both of potentially failing to prevent such a worst-case scenario, and having already mismanaged fisheries to the point of collapse. In this Master's thesis, we develop a bioeconomic model to evaluate the optimality of a fishing moratorium when costs to labor and capital are taken into consideration. We first present our model analytically, drawing parallels and distinctions between the optimal Faustmann-Wicksell forest rotation and optimal fishery moratorium with ex gratia unemployment relief and vessel depreciation payments, deriving an analytic solution for the case of logistic growth, and extending the model to allow for time-varying prices. We subsequently apply our model to a numerical case study of the ongoing moratorium instituted on the Northern Atlantic cod fishery off the Canadian province of Newfoundland and Labrador beginning in 1992. Under our model and baseline parameter assumptions calibrated to fishery conditions in 1992, we find that the cod moratorium is economically inefficient if the option value of the alternative ``business-as-usual'' policy to refrain from imposing a moratorium is zero: the costs of annual ex gratia unemployment relief significantly outweigh the benefits of increased revenues from greater sustainable post-moratorium harvests. The cod moratorium may become optimal if (i) the intrinsic growth rate of the Northern cod stock is sufficiently high; (ii) the anticipated future net dockside price of cod is sufficiently high; (iii) the social discount rate is sufficiently low; (iv) the unemployment benefits paid to fishermen during the moratorium are sufficiently low; or (v) the option value of the alternative ``business-as-usual'' no moratorium policy is severely negative, possibly owing to the risk of potential collapse or even extinction of the stock. However, in the baseline scenario, when compared to an alternative ``business-as-usual'' policy with an expected economic value of zero, the cod moratorium remains economically inefficient even with cod prices that vary or are forecast using actual price data from Newfoundland over 1990-2016.