Regime Switching in a Fishery with Stochastic Stock and Price

Abstract

A bioeconomic model of a fishery subject to stock uncertainty and price uncertainty is developed. With a linear control model, the optimal harvest policy is a bang–bang approach to the optimal stock level, where one harvests either at minimum or full capacity. It is assumed that changing the harvest rate is subject to a switching cost. In this case it is shown that there are two switching curves in stock-price space, one for entering and one for leaving the fishery. Numerical methods are used to characterise the optimal switching policy for the fishery.

Publication
Journal of Environmental Economics and Management