Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

Abstract: This paper investigates the effects of climate-induced rising of ocean temperature on the optimal fishing policies in a two players? non-cooperative game setting. We compare reactive management, under which the manager does not believe in or know about temperature trend, with proactive management where the manager considers the future temperature change in his decisions. We assume that the fish stock is initially solely owned by country one. As temperature rises, the stock starts spilling over to the zone of the other country and eventually becomes under its sole ownership. A stochastic dynamic programming model is developed to identify Nash management strategies for the two players. The main findings are that anticipation of temperature trend induces notable strategic interactions between two players. Knowing that it is gradually loosing the stock, country one is often harvesting more aggressively, whereas the country that is increasing its ownership harvests more conservatively. Compared to reactive management, proactive management benefits both parties in terms of their cumulative pay-offs; the biological stock is also larger much of the time. In most cases, the difference between two management regimes is subtle, but when the stock is slow-growing and highly schooling, proactive management may save it from collapse.

Keywords: Climate change; Nash game; stochastic dynamic programming; optimal fishing policy

JEL-codes: Q50

19 pages, December 30, 2010

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