Game theory and fish wars: The case of the Northeast Atlantic mackerel fishery

Simple non-cooperative and cooperative game theory is used to explore the crisis involving the European Union (EU), Norway, Iceland and the Faroe Islands regarding the size and relative allocation of total allowable catches (TACs) in the mackerel fishery in the Northeast Atlantic. The analysis of the mackerel crisis is based on a statistical estimation of relevant functional relations, and the behavior of the players is explained using a fully specified empirical model. Simple, non-cooperative game theory shows that all players have an incentive to act non-cooperatively, a result that is robust to changes in basic assumptions regarding demand and cost functions. Thus, using the estimated parameters and functions, simple, non-cooperative game theory cannot explain the cooperative behavior of EU and Norway during the mackerel crisis. Simple cooperative game theory shows that no player has an incentive to enter a bargaining agreement by forming coalitions, a prediction that is consistent with the actual behavior of the EU, Norway, Iceland and the Faroe Islands between 2010 and 2014 when no bargaining solution was reached. Therefore, the fact that the EU and Norway entered a bilateral agreement in 2010 and that the EU, Norway and the Faroe Islands reached a bargaining solution in 2014 cannot be explained by simple cooperative game theory. However, actual behavior during the mackerel crisis can be explained by opportunity costs, including alternative fishing possibilities and regulations, rather than actual harvest costs, but we do not have information about the opportunity costs of harvesting mackerel.