Regime Switching in a Fishery with Stochastic Stock and Price

We develop a bioeconomic model of a fishery subject to stock uncertainty and price uncertainty. With a linear control model, the optimal harvest policy is a bang-bang approach to the optimal stock level, where one harvests either at minimum or full capacity. It is assumed that changing between the fishing and no-fishing regimes are associated with fixed adjustment costs. In this case we show that there are two switching curves in stock-price space, one for entering and one for leaving the fishery. Numerical methods are used to characterize the optimal switching policy for the fishery.