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Irreversible Investments Revisited

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  • Sandal, Leif K.
  • Steinshamn, Stein Ivar
  • Hoff, Ayoe
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    Abstract

    A multi-dimensional, non-linear dynamic model in continuous time is presented for the purpose of finding the optimal combination of exploitation and capital investment in optimal renewable resource management. Non-malleability of capital is incorporated in the model through an asymmetric cost-function of investment, and investments can be both positive and negative. Exploitation is controlled through the utilisation rate of available capital. A novel feature in this model is that there are costs associated with the available capital, whether it is utilised or not. And, in contrast to most of the previous literature, the state variables, namely the physical capital and the biological resource, enter the objective function. Due to the nonlinearities in this model, some of the results are in sharp contrast to previous literature.

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    File URL: http://purl.umn.edu/47054
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    Bibliographic Info

    Article provided by Marine Resources Foundation in its journal Marine Resource Economics.

    Volume (Year): 22 (2007)
    Issue (Month): 3 ()
    Pages:

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    Handle: RePEc:ags:mareec:47054

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    Web page: http://www.uri.edu/cels/enre/mre/mre.htm

    Related research

    Keywords: Irreversible investments; non-malleable capital; renewable resources; Environmental Economics and Policy; International Relations/Trade; Production Economics; Research Methods/ Statistical Methods; D92; Q20; Q22;

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    References

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    1. Charles, Anthony T. & Munro, Gordon R., 1985. "Irreversible Investment and Optimal Fisheries Management: A Stochastic Analysis," Marine Resource Economics, Marine Resources Foundation, vol. 1(3).
    2. Boyce John R., 1995. "Optimal Capital Accumulation in a Fishery: A Nonlinear Irreversible Investment Model," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 324-339, May.
    3. McKelvey, Robert, 1985. "Decentralized regulation of a common property renewable resource industry with irreversible investment," Journal of Environmental Economics and Management, Elsevier, vol. 12(4), pages 287-307, December.
    4. Clark, Colin W. & Munro, Gordon R., 1975. "The economics of fishing and modern capital theory: A simplified approach," Journal of Environmental Economics and Management, Elsevier, vol. 2(2), pages 92-106, December.
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    Cited by:
    1. Asle Gauteplass and Anders Skonhoft, 2012. "Optimal exploitation of a renewable resource with capital limitations," Working Paper Series 12912, Department of Economics, Norwegian University of Science and Technology.
    2. Nostbakken, Linda & Thebaud, Olivier & Sorensen, Lars-Christian, 2011. "Investment Behaviour and Capacity Adjustment in Fisheries: A Survey of the Literature," Marine Resource Economics, Marine Resources Foundation, vol. 26(2).
    3. Poudel, Diwakar & Sandal, Leif K. & Kvamsdal, Sturla F. & Steinshamn, Stein I., 2011. "Fisheries Management under Irreversible Investment: Does Stochasticity Matter?," Discussion Papers 2011/20, Department of Finance and Management Science, Norwegian School of Economics.

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