Measuring the value of ecosystem-based fishery management using financial portfolio theory

We highlight the potential benefits of adopting Ecosystem-based Fishery Management (EBFM). We compare the EBFM implementation with the more traditional single-stock approach. We show the contribution of the portfolio theory to the EBFM, which can be achieved by selecting an optimal portfolio to maxi...

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Bibliographic Details
Published in:Ecological economics 2020-03, Vol.169, p.106431, Article 106431
Main Authors: Carmona, Itsaso, Ansuategi, Alberto, Chamorro, José Manuel, Escapa, Marta, Gallastegui, María Carmen, Murillas, Arantza, Prellezo, Raúl
Format: Article
Language:English
Subjects:
Diversification
Fishery management
Inshore fishery
Risk gaps
Stock correlations
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Summary:We highlight the potential benefits of adopting Ecosystem-based Fishery Management (EBFM). We compare the EBFM implementation with the more traditional single-stock approach. We show the contribution of the portfolio theory to the EBFM, which can be achieved by selecting an optimal portfolio to maximise the average revenues and minimise the variance. We use this approach to construct two frontiers: the ecosystem efficient frontier, which considers stock interactions (the variance-covariance matrix), and the stock efficient frontier, only considering individual stock variances. We also define two risk gaps. The first gap shows the reduction in the standard deviation per unit of revenue that the fleet could have achieved if they had decided to use the optimal portfolio of the stock frontier instead of the historical portfolio. The second gap reflects the reduction in the standard deviation per unit of revenue when the management moves from the stock frontier to the ecosystem frontier portfolio. This approach is adapted to the Basque inshore fleet. According to our results, taking the single-stock approach as the benchmark, the EBFM would obtain the same historical revenue while reducing the risk by 23%. Alternatively, allowing the same level of risk, it could achieve a 21% increase in revenues. •Portfolio theory contributes to operationalize and value Ecosystem-based fishery management.•Two risk gaps are defined to measure, separately, fishing firm's and managers' sub-optimal decisions.•Diversification does not always reduce the level of risk.
ISSN:0921-8009
1873-6106
DOI:10.1016/j.ecolecon.2019.106431