Optimal management of a stochastically varying population when policy adjustment is costly

TL;DR

This paper investigates how different costs associated with policy adjustments influence optimal management strategies for stochastically varying ecological populations, revealing that some costs can increase policy variability and ignoring these costs can lead to economic losses.

Contribution

It introduces a framework analyzing the impact of various policy adjustment costs on optimal management, highlighting that certain costs can paradoxically increase policy variability.

Findings

Different forms of adjustment costs have contrasting effects on optimal policies.

Ignoring adjustment costs can lead to worse economic outcomes.

Some costs can increase policy variability rather than dampen it.

Abstract

Ecological systems are dynamic and policies to manage them need to respond to that variation. However, policy adjustments will sometimes be costly, which means that fine-tuning a policy to track variability in the environment very tightly will only sometimes be worthwhile. We use a classic fisheries management question -- how to manage a stochastically varying population using annually varying quotas in order to maximize profit -- to examine how costs of policy adjustment change optimal management recommendations. Costs of policy adjustment (here changes in fishing quotas through time) could take different forms. For example, these costs may respond to the size of the change being implemented, or there could be a fixed cost any time a quota change is made. We show how different forms of policy costs have contrasting implications for optimal policies. Though it is frequently assumed that costs to adjusting policies will dampen variation in the policy, we show that certain cost structures can actually increase variation through time. We further show that failing to account for adjustment costs has a consistently worse economic impact than would assuming these costs are present when they are not.