A Model of Quota Arbitrage in Multispecies Fisheries

Suggested Bibliographic Reference: Challenging New Frontiers in the Global Seafood Sector: Proceedings of the Eighteenth Biennial Conference of the International Institute of Fisheries Economics and Trade, July 11-15, 2016. Compiled by Stefani J. Evers and Ann L. Shriver. International Institute of Fisheries Economics and Trade (IIFET), Corvallis, 2016.Proceedings of the Eighteenth Biennial Conference of the International Institute of Fisheries Economics and Trade, held July 11-15, 2016 at Aberdeen Exhibition and Conference Center (AECC), Aberdeen, Scotland, UK.This paper addresses adverse incentives built into the process of TAC setting as an instrument to prevent overfishing in multispecies fisheries. Under the Magnuson Stevens Act (MSA), the primary law governing marine fisheries management in U.S. federal waters, regional Fishery Management Councils must develop a rebuilding plan for every overfished fishery, and must specify a time period for rebuilding that should not exceed 10 years (3 MSA § 304(e)(4)(A)(i)‐(ii)). In this research we look at the incentives created by managers’ commitment to this rebuilding timeline in the context of joint production and cooperation across harvesters. We develop a game-theoretic model to characterize conditions under which the manager’s commitment to rebuild fish populations leads to further stock depletion. In equilibrium, cooperative harvesters strategically trade off higher costs today from targeting a stock likely to become a choke species (i.e. its quota is exhausted first), for a reduction in the likelihood of hitting its lower TAC (causing a shutdown in access to all the species in the fishery) in the next season. In accordance with anecdotal evidence from the Northeast Multispecies fishery, overfished status may become self-fulfilling when the manager’s commitment to prevent it creates intertemporal quota arbitrage opportunities