Application of modern portfolio theory to Chilean capture fisheries.
Supervisor: Ikerne del Valle (UPV/EHU)
Inadequate long-term ecosystem management and monitoring plans have led to coastal and ocean-wide ecosystem degradation. Innovative management strategies have been designed and applied in search for a sustainable natural resource exploitation. Amongst which one can find Ecosystem Based management (EBM) approach. This management method gives equal importance to both the socioeconomical and ecological components of an ecosystem. This focus is crucial to move towards sustainability, but the correct assessment of the human component and accurate measurement of species interactions has proven to be a challenge. Many ecosystems’ models (EM) have been developed to account for complex species interactions, but no single one by itself fulfills all EBM goals. Multi species models, and ecosystem models are data intensive and complicated to create. Moreover, data quality and availability are limiting factors in model development. In 2008 Sanchirico et al proposed a novel approach to solve these issues in the context of fisheries management. In their work they took Modern Portfolio Theory (MPT), a financial economics principle to deal with species interactions and aid in the implementation of EBFM. Modern Portfolio Theory developed in the 50’s by the Novel laureate Harry Markowitz, results in the reduction of investment risk through asset diversification within a portfolio, by analyzing assets returns, risks and their covariances. Applied to natural resources, Chilean capture fisheries for this project, hydrobiological species are considered assets conforming a portfolio, and their returns and risk are measured from historical annual landing data (2002-2019). Being the objective to optimize the current conditions and reduce risk, by proposing a new weight allocation for the national capture portfolio. From this empirical application we found that with the correct distribution of assets proportions it is possible to reduce the overall investment risk 11% from 2019 portfolio risk levels, by slightly increasing the capture of grey weed (3.5%), humboldt squid (6.9%) and chub mackerel (11.5%), and reducing weights from Peruvian anchoveta (9.5%), Chilean jack mackerel (13.3%) and araucanian herring (7.2%).