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Managing a renewable resource facing the risk of a regime shift in the ecological system

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  • de Zeeuw, Aart
  • He, Xiaoli

Abstract

Resource management has to take account of the possibility of regime shifts in the ecological system that provides the resource. Regime shifts are uncertain and lead to structural changes in the system dynamics, lowering the carrying capacity of the resource. Optimal management is driven by two considerations. First, it becomes precautionary if a higher stock of the renewable resource decreases the hazard of a regime shift. Second, it either becomes precautionary or more aggressive depending on the adjustments that are needed after the regime shift. This in turn depends on the elasticity of intertemporal substitution. In conclusion, facing the risk of a regime shift in the ecological system, optimal management is ambiguous but precautionary if the marginal hazard rate of the regime shift is sufficiently high.

Suggested Citation

  • de Zeeuw, Aart & He, Xiaoli, 2017. "Managing a renewable resource facing the risk of a regime shift in the ecological system," Resource and Energy Economics, Elsevier, vol. 48(C), pages 42-54.
    • Handle: RePEc:eee:resene:v:48:y:2017:i:c:p:42-54
    DOI: 10.1016/j.reseneeco.2017.01.003
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    References listed on IDEAS

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    Cited by:

    1. Nkuiya, Bruno & Diekert, Florian, 2023. "Stochastic growth and regime shift risk in renewable resource management," Ecological Economics, Elsevier, vol. 208(C).
    2. Arvaniti, Maria & Krishnamurthy, Chandra Kiran B. & Crépin, Anne-Sophie, 2023. "Time-consistent renewable resource management with present bias and regime shifts," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 479-495.

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    More about this item

    Keywords

    Q22; C61; D81; Regime shifts; Tipping points; Uncertainty; Renewable resources; Precaution;
    All these keywords.

    JEL classification:

    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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