Investment and Development of Fishing Resources: A Real Options Approach.*

The valuation of the opportunity to either invest or exploit a fishery is particularly difficult because of the high uncertainty concerning the resource price. The traditional net-present-value (NPV) and other discounted-cash-flows (DCF) methods cannot prop-erly capture the management's flexibility and strategic value aspects of a fishery, thus they may understate its value. The rationale for using an option-based ap-proach to capital budgeting arises from its potential to conceptualize and quantify this flexibility, as new information arrives, to alter its operating strategy, to defer investments, to shut down (and restart) fishery development. Real Options valuation has tradition-ally been applied in the area of natural resource in-vestments different from fishing resources. This paper presents a general bioeconomic model for the value of a fishery. It suffices to determine not only the value of the fishery when open and closed, but also the op-timal policy for opening, closing and setting the har-vest rate. Moreover, the paper turns to the valuation of a fishery investment opportunity and the optimal investment rule. The natural growth rate of fishing resource stock and the production function are those of the Schaefer model. Finally, results for the Pacific Yellowfin ~l~na re presented