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Measuring sustainability under regime shift uncertainty: a resilience pricing approach

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  • MÄLER, KARL-GÖRAN
  • LI, CHUAN-ZHONG

Abstract

This paper is concerned with the theory of resilience pricing and sustainability measurement in the presence of risk for regime shift in a dynamic economy-environment system. Following Holling (1973),we consider resilience as the maximal perturbation that the system can absorb without flipping into a qualitatively different state. Using a multisector growth model under uncertainty, we derive the shadow price of resilience that affects the probabilities of the system to flip in the future. We also analyze the role of resilience on sustainability with both ex-ante and ex-post welfare measures.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Environment and Development Economics.

Volume (Year): 15 (2010)
Issue (Month): 06 (December)
Pages: 707-719

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Handle: RePEc:cup:endeec:v:15:y:2010:i:06:p:707-719_00

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  1. Karl-Göran Mäler, 2008. "Sustainable Development and Resilience in Ecosystems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(1), pages 17-24, January.
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Cited by:
  1. De Zeeuw, A. & Polasky, S. & Wagener, F.O.O., 2010. "Optimal Management with Potential Regime Shifts," CeNDEF Working Papers 10-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.

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