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Risk aversion in renewable resource harvesting

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  • Claudia Kelsall

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier, iDiv - German Centre for Integrative Biodiversity Research)

  • Martin F Quaas

    (iDiv - German Centre for Integrative Biodiversity Research)

  • Nicolas Quérou

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier)

Abstract

We study optimal harvesting of a renewable resource with stochastic dynamics. To focus on the effect of risk aversion, we consider a resource user who is indifferent with respect to intertemporal variability. We find that a constant escapement strategy is optimal, i.e. the stock after harvesting is constant. Under common specifications of risk aversion, increasing risk and risk aversion increase current resource use, the reason being a substitution effect, i.e. the resource user substitutes assets away from the risky resource stock. We apply the model to the case of the Eastern Baltic cod fishery and, in contrast to the previous literature, find a strong effect of risk and risk aversion on optimal harvesting.

Suggested Citation

  • Claudia Kelsall & Martin F Quaas & Nicolas Quérou, 2022. "Risk aversion in renewable resource harvesting," Working Papers hal-03696726, HAL.
    • Handle: RePEc:hal:wpaper:hal-03696726
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-03696726v1
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    More about this item

    Keywords

    Resource Economics; Investment under Uncertainty; Risk Aversion; Prudence; Precautionary Savings;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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