The Role of Competition, Expectations and Harvesting Costs in Commercial Fishing

In this chapter oligopoly theory and population dynamics are combined to describe the exploitation of a living resource under imperfect competition. This requires an interdisciplinary approach, because profit maximization arguments must be combined with the biological laws which regulate the natural growth of living resources in order to determine the long-run behavior of the natural system. The results obtained are often characterized by complex behavior and bifurcation phenomena, because the interaction of human economic decision making with ecological dynamics are highly non linear (see e.g. Rosser Jr., 2001). Indeed, resource economics is a very important field of application of dynamic analysis. In the literature on the economics of renewable resources, a plethora of questions has been studied using the tools from optimal control theory, dynamic programming and the theory of nonlinear dynamical systems. Renewable resources, e.g. grass, trees or fish, have the capacity for reproduction and growth over time and their stock is diminished by the harvesting activities of a sole owner or several individuals. Among the problems which have been investigated extensively are: How do (optimal) harvesting paths look like? Under which conditions is it more likely to observe conservation or extinction of the resource? What is the influence of the market structure? In the last 50 years considerable progress has been made, in particular, in fishery economics (for an overview, see Conrad 1995). To appreciate the breadth of topics which are the focus in the economics of fisheries and for a presentation of the main economic insights, the interested reader is advised to consult the book by Clarke (1990). Furthermore, the texts of Conrad and Clarke (1987) and Conrad (1999) can be recommended. In this chapter, we will introduce a bioeconomic model of commercial fishing to study the evolution of the stock of a fish population which is subject to harvesting over time. We will focus on three points: (i) the influence of the market structure, in particular, the role of strategic effects; (ii) the problem of extinction or conservation of the resource and the role of harvesting costs; (iii) the influence of errors in predicting the fish stock when determining future harvesting activities.