The lay system in commercial fisheries: Origin and implications

Abstract In most commercial fisheries, the crew is remunerated via some form of the lay system. Under the lay system, the crew is paid with a share of revenues or a share of revenues less costs. Naturally, the presence and the functioning of the lay system are well known and accepted as one of fishery's important institutions. Compared with share contracts in agriculture, however, the lay in fisheries has garnered relatively little research. This article has two goals. First, we provide an explanation for the existence of the lay system as an incentive mechanism to alleviate a potential team agency problem. This explanation of the lay system explains anomalies, such as the presence of wages in some fisheries, that are odds with the theory of pure risk sharing. Second we show the implications of the lay system for econometric modeling of fisheries and for understanding firm behavior. In general we conclude that models that fail to account explicitly for the incentive properties of shares are likely to provide poor representations of fishing firm behavior. The thrust of the paper is that the formation and working of the lay system are a fundamental force in fisheries influencing firm behavior and research results in a way that has been largely ignored.