A Reply to “Option Value of Harvesting†Revisited (The Comment)

Li’s results (1998) are correct and robust. The Comment offers an interesting perspective from real-options theory, albeit misguided--from a resource-economics point of view. In particular, the lack of sensitivity in the optimal harvest trigger to biomass uncertainty is questionable. This reply begins with a general overview of resource-economic principles and the role of real options in them. A specific reply to each point raised in The Comment will then be addressed.Productivity Analysis, Research Methods/ Statistical Methods,

OPTION VALUE OF HARVESTING: THEORY AND EVIDENCE

Real options analysis shows that fishery harvesting becomes more conservative, and catch efficiency is raised, when exploitation is subject to irreversibility, uncertainty, and delay for a cooperative profit-maximizing fleet. With Rock Lobster catch and effort data from Fisheries Victoria of the Department of Natural Resources and Environment in Australia, the options-augmented surplus-yield model is tested and compared with the performance of its conventional profit-maximizing and biological maximum-sustainable-yield counterparts.Resource /Energy Economics and Policy,

COOPERATIVE HIGH-SEAS STRADDLING STOCK AGREEMENT AS A CHARACTERISTIC FUNCTION GAME

In the economic management of high-seas straddling fish stocks, we analyze the negotiation of a cooperative agreement by way of a characteristic function game (c-game). The benefits of a grand coalition may be distributed differently, depending on the negotiating members' harvesting efficiency and the concept of fairness chosen during negotiation. In the paper, we examine three such concepts: nucleolus, Shapley-value, and egalitarian. In general, a fleet's harvesting efficiency will determine the contribution it makes to any subcoalitions, or the grand coalition, in which it is the last to join. Analysis shows that the imputation to each member under each fairness concept differs according to whether the maximum, or the average, contribution is used, or whether the contribution can be regarded as bargaining power at all. By making certain assumptions regarding fleet efficiency, we calculated the exact imputation under each fairness concept and compared the change from one to another. Conclusions are then drawn with suggested further research.Institutional and Behavioral Economics, Resource /Energy Economics and Policy,