Misreporting time preferences in the cooperative management of a common fish pool

Abstract: Many fish stocks have been exhausted or are currently overexploited. Cooperative management of common fish pools may be necessary to sustain stock levels and future harvests. Even when countries have differing time preferences, and thus conflicting management objectives, it has been proven that cooperation can be set up such that it benefits every country involved. This, however, may require higher shares of the harvest for countries with lower discounting factors. A game theoretical approach is used to show that hiding time preferences may be a beneficial strategy for individual players. This is shown, however, to be detrimental for total welfare. The bioeconomic model proposed by Levhari & Mirman (1980), and extended by Breton & Keoula (2014), is used as a frame and optimal management strategies are determined. When cooperating, players are given a weight. These weights are then used to establish harvesting levels, by maximizing the sum of each players weighted utility. Three methods for establishing weights are proposed. This is done in order to capture real life situations. Reporting a lower discount factor is proven to be beneficial under several scenarios depending on actual time preferences, growth potential of the stock considered and how weights are set. A second-best policy is then set up so that a truthful player (the Principal) may induce the other player (the Agent) to report truthfully as well. This comes at a cost for the Principal in terms of information rent. The second-best arrangement is however often preferred over the outcomes associated with i) competition or ii) cooperation with a misreporting Agent. Finally, the case where both players are misreporting is examined. It is shown that both players may have incentives to report lower discount factors. This may potentially lead to a standard “prisoners’ dilemma” situation, where the parties involved would be better off if reporting truthfully.