Assessing Risk-Reward Trade-Offs in Multispecies Modeling Frameworks Using Financial Portfolio Theory

Portfolio management has been suggested as a tool to help implement EBFM. The portfolio approach involves the application of financial portfolio theory to multispecies fishery management to account for species interdependencies, uncertainty, and sustainability constraints. By considering the covariance across species, this approach allows economic risk and returns to be calculated across varying combinations of stock sizes. Tradeoffs between expected aggregate returns and portfolio risk can thus be assessed. 

The objectives of this study are to develop a procedure for constructing portfolio models to assist the implementation of EBFM in the northeastern United States, using harvest data from NMFS, and to demonstrate the feasibility and usefulness of the above procedure through case studies. First, we develop a measure of excessive risking taking, which may be used by managers to monitor signals of non-optimal harvests. Second, we develop portfolio assessments of historical commercial fishing performance from different accounting stances: at the New England regional level, the fishing community (port) level, and the large marine ecosystem (LME) level.  We show that portfolio analysis may help management at each level, and describe how the model can be coupled to multispecies models to assess risk-reward trade-offs in the context of Management Strategy Evaluation.