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Time-consistent resource management with regime shifts

Author

Listed:
  • Maria Arvaniti

    (Chair of Economics/Resource Economics, ETH, Zurich and Center for Environmental and Resource Economics (CERE), Umea, Sweden.)

  • Chandra K. Krishnamurthy

    (Beijer Institute for Ecological Economics, The Royal Swedish Academy of Sciences, Stockholm, Department of Forest Economics, Swedish Agricultural University, SLU, Umea and Center for Environmental and Resource Economics (CERE), Umea, Sweden.)

  • Anne-Sophie Crépin

    (Beijer Institute for Ecological Economics, The Royal Swedish Academy of Sciences, Stockholm and Stockholm Resilience Centre, Stockholm University, Stockholm.)

Abstract

We investigate how a resource user who is present-biased manages a renewable resource stock with variable growth that could undergo a reversible regime shift (an abrupt, persistent change in structure and function of the ecosystem supplying the resource). In a discrete-time quasihyperbolic discounting framework with no commitment device, and using only generic utility functions and stock transition with regime shifts, we show that there is a unique, time-consistent stationary Markov-Nash equilibrium extraction policy. Further, we find that the optimal extraction policy is increasing in the resource stock and in the degree of present bias. Overall, our results suggest that for characteristics of ecosystems commonly considered in the literature, presentbiased resource users will increase extraction when faced with regime shifts.

Suggested Citation

  • Maria Arvaniti & Chandra K. Krishnamurthy & Anne-Sophie Crépin, 2019. "Time-consistent resource management with regime shifts," CER-ETH Economics working paper series 19/329, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:19-329
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    Cited by:

    1. Neha Deopa & Daniele Rinaldo, 2020. "Quickest Detection of Ecological Regimes for Natural Resource Management," Papers 2005.11500, arXiv.org, revised Mar 2024.

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    More about this item

    Keywords

    Renewable resources; Regime shifts; Hyperbolic Discounting; Present bias; Uncertainty; Markov Equilibrium;
    All these keywords.

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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