Income Targeting and the Evolution of a Fishery

John Lynham and David Siegel

F-cubed meeting, Jan. 24th, 2007

What is Income Targeting?

• Camerer et al., 1997

• Chou, 2000

• Fehr and Goette, 2005

• Farber, 2005

• Koszegi and Rabin, 2002

Income Targeting in Fisheries

• Anthropological and anecdotal evidence suggests that commercial fishermen exhibit income-targeting behavior: “Their concern is going out, obtaining a certain amount of fish in a reasonable amount of time, and returning to port.” (Orbach, 1977, p. 197)

• The Fisherman and the Industrialist story

The Evolution of a Fishery

• Jackson et al., 2001

• Watson and Pauly, 2001

• Pauly et al., 2002

• Worm et al., 2006

“Boom” and “Bust” trend

“Boom” and “Bust” trend

“Boom” and “Bust” trend

Economic Agents and the Evolution of a Fishery

Northern California Red Urchin Fishery

Northern California Red Urchin Fishery(1) (2) (3)

Dependent Variable: Hours Worked Pounds Harvested Hours Worked

Independent Variable: Price Price Biomass

88 -*** -*** -***

89 +*** + +***

90 - -*** +

91 -* -*** +***

92 -* -*** +**

93 -*** -*** -***

94 +*** -*** -

95 + -*** -

96 - -*** -

97 - -*** -***

98 +*** -** -

99 - -*** -

Northern California Red Urchin Fishery

(1) (2) (3)

Dependent Variable:

Hours Harvest Hours

Independent Variable:

Price Price Biomass

88 -*** -*** -***

89 +*** + +***

90 - -*** +

91 -* -*** +***

92 -* -*** +**

93 -*** -*** -***

94 +*** -*** -

95 + -*** -

96 - -*** -

97 - -*** -***

98 +*** -** -

99 - -*** -

A Model of Fishery Evolution

• The model allows for two types of economic agents: income maximizers and income targeters

• Daily fish abundance is an i.i.d. uniformly distributed random variable (within a season)

• Each day within a season the agents in the fishery choose how many hours to work

• At the end of each season, the agents decide to either enter or exit the fishery

• The rest of the model is identical to standard fisheries economics models

Model Details

• Biomass:

• Entry and Exit

2

1

1i

nni

nii

nnn BEHqKBgBB

E in ki

Tn

ETn di

Model Details

• How many hours do fishermen decide to work?

• In general, income-maximizers will work all day long

• Income-targeters decide how long to work based on observed abundance. If it’s a good day (high abundance) they work until they hit their daily target. If it’s a bad day (low abundance) they try to get as close to their daily target as possible.

Model Details

• Income-Maximizer [zero marginal cost]:

• Income-Targeter

mmj hh

0

0

if

if

BBh

BBBq

y

hnjm

njn

ji

d

sj

Model Details

0

0

if

if

BBh

BBBq

y

hnjm

njn

ji

d

sj

Steady State• 3 equations, 3 unknowns• Revenues=Costs

• Growth=Harvest

• Expected Total Hours:

pqsBnHs

n cHsn ds

ns

nss

nEHqK

Bg 1

0

0

0

*B

nj

njn

js

d

Bnjm

nj

ns dBBf

Bq

ydBhBfDH

.

Model Simulation• Parameters

• Years=20• Days=300• Carrying Capacity=1000• Intrinsic Growth Rate=5%• Targeters' catchability= 3.6312e-007• Maximizers' catchability: 4.8000e-007• 10 work hours in a day• Price=1• Speed of entry of Targeters=20• Speed of entry of Maximizers=40• Alternative Profit Opportunity for Targeters=0.08• Alternative Profit Opportunity for Maximizers=0.5• Biomass Target=50• Marginal cost of Harvest=0

• Predicted Steady State Values:

• Total Number of Fishermen=100• Biomass=800

Model Simulation

Next Step: Policy Experiment

• Once the model reaches steady-state, we prevent further entry and rebuild the stock

• How does this improve the livelihoods of the incumbent fishermen?

• Is it sufficient incentive to motivate support for government regulation of their fishery?

Policy Experiment – An Extreme Example

• Suppose that costs are zero and the daily distribution of biomass takes the following form:

• This implies that the incumbent fishermen can not be made better off by closing entry to the fishery and rebuilding biomass

nnj

nnjn

j BB

BBBBf

0

1)( 0

Summary

• First empirical evidence of Income-Targeting behavior in a fishery

• Income-Targeting behavior tends to be most prevalent during the “Bust” period of the fishery

• We present a simple extension of a standard fisheries economics model that matches the evolution of economic types observed

• The model and subsequent policy experiment provides one possible explanation for why incumbent fishermen rarely support fisheries management proposals