Stochastic Production and Heterogeneous Risk Preferences: Commercial Fishers' Gear Choices

As long as total effort cannot be completely controlled, a more thorough understanding of fishers' supply decisions will be beneficial for fishery managers. In this paper, we present a model of fishers' choice, which is empirically estimated on a panel of Swedish demersal trawlers. The approach allows heterogeneity both in production technology and in risk preferences. Stochastic revenue functions with effects are estimated and used to predict expected revenue and standard deviation for each trip. We a linear utility function in the mean-standard deviation framework and then analyze the gear, using the predicted values together with vessel capacity and lagged variables for the previous trip a random parameters-logit model, which allows for heterogeneous risk preferences. The results indicate fishers have a strong tendency to choose the same gear used on the previous trip, while in general they to changes in economic and biological conditions by responding positively to increases in expected values and negatively to increases in the variability of the expected landing values, indicating risk.