Risk Preferences and Compliance in Recreational Fisheries

Abstract

This paper studies the returns on the allocation of harvest to the recreational sector when anglers exhibit risk aversion for random catch. By using data from choice experiments that explicitly introduce uncertainty in harvest as a trip attribute, we specify and estimate different models of constant absolute risk aversion (CARA). With evidence that anglers exhibit disutility from randomness in the catch, we use our estimates to draw comparisons with standard linear models. We calibrate a model of the Northeast Region summer flounder fishery and run Monte Carlo experiments to simulate alternative policy strategies for enforcing the recreational total allowable catch (TAC). Our results show that risk aversion leads to different predictions on angler participation and welfare from those assuming risk neutrality. Unlike the case of risk neutrality, the same TAC enforced with different catch restrictions and season lengths results in different numbers of expected trips and welfare estimates under CARA preferences. It is the entire catch distribution rather than the mean catch that determines anglers' behavior and implied values. Under risk aversion for random catch, regulators may also find enforcement of harvest restrictions to be less costly. More broadly, our approach provides a consistent way to incorporate risk in quality attributes into the discrete choice framework that is pervasive in the literature on recreational demand modeling.