Bycatch risk pools for the US West Coast Groundfish Fishery

Individual transferable quotas (ITQs) in multispecies fisheries create incentives for fishermen to avoid bycatch of species for which quota is scarce. However, when bycatch is highly uncertain, individual quota demand and prices may be volatile creating substantial financial risk for fishermen. The US Pacific Groundfish fishery recently introduced an ITQ system with low quotas for several overfished species with highly uncertain bycatch rates. Some fishery participants formed risk pools where bycatch quota is pooled and available to all pool members. Risk pools can reduce financial risk and transactions costs for individuals, but they also create moral hazard and adverse selection problems. We present an empirical analysis of bycatch risk that informs several issues of risk pool design including which bycatch species to include, pools size, and how to evaluate and mitigate adverse selection and moral hazard problems.

► Individual quotas can be problematic for bycatch species with highly uncertain catch rates ► Pooling bycatch quota allows groups of fishermen to reduce financial risk ► Risk pools can be undermined by moral hazard and adverse selection ► Some fishermen in the US Pacific Groundfish Fishery formed risk pools in 2011 ► An analysis of determinants and variability of bycatch is presented to inform risk pool design