Managing Rare Bycatch Events in the Pacific Groundfish Trawl Fishery

Individual bycatch quotas strengthen individual incentives to avoid bycatch and may reduce the likelihood that the bycatch caps will limit target species catch. However, in cases where bycatch is highly uncertain and highly variable, individual quotas and markets may be subject to high price variability and may fail to allocate quota efficiently. Even when quota markets operate efficiently they can leave individual fishermen facing high levels of income risk associated with costs of acquiring bycatch quota. In such cases bycatch management may be better viewed as a risk management exercise for which insurance based approaches may be more useful than markets. The Pacific Groundfish fishery recently introduced an individual quota system of management which includes transferable quotas on a number of depleted rockfish species with very low quotas. Bycatch of some of these species is very rare and unpredictable and many of the fishery participants have begun to form risk pools in which bycatch quota is pooled and available to all pool members but members must also follow practices designed to minimize bycatch risk. This form of self-insurance may substantially reduce financial risk for participants relative to reliance on a competitive quota market; however, the success of risk pools may depend on whether they can specify and monitor fishing practices the make bycatch risk purely random thereby minimizing incentives for fishermen to continue fishing practices that increases their individual profits but also increase bycatch risk. In the insurance literature this is referred to as moral hazard. This paper presents an analysis of the relationship between bycatch risk and fishing behavior based on observer data and discusses the implications of the results for design of risk pools including which species are better suited to management with risk pools and what types of monitorable fishing practices risk pools could specify to minimize moral hazard.