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Estimating Intertemporal Preferences for Natural Resource Allocation

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  • Richard E. Howitt
  • Siwa Msangi
  • Arnaud Reynaud
  • Keith C. Knapp

Abstract

In this article, we show how the degree of risk aversion, discounting, and preference for intertemporal substitution for a natural resource manager can be structurally estimated within a recursive utility framework. We focus on the management of a reservoir in California, and test the data for consistency with a recursive utility model specification versus standard time-additive separability. The results show that the data are consistent with a risk-averse manager with recursive preferences. The data also reject time-additive separability, with or without risk aversion, such as the standard constant relative risk aversion utility model. The improvement in model fit when recursive preferences are used is notable. Copyright 2005, Oxford University Press.

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File URL: http://hdl.handle.net/10.1111/j.1467-8276.2005.00781.x
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 87 (2005)
Issue (Month): 4 ()
Pages: 969-983

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Handle: RePEc:oup:ajagec:v:87:y:2005:i:4:p:969-983

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Cited by:
  1. Couture, Stéphane & Reynaud, Arnaud, 2009. "Forest Management under Fire Risk when Forest Carbon Sequestration Has Value," TSE Working Papers 09-005, Toulouse School of Economics (TSE).
  2. Robert L. Hicks & Kurt Schnier, 2006. "A Spatial Model of Dolphin Avoidance in the Eastern Tropical Pacific Ocean," Working Papers 25, Department of Economics, College of William and Mary.
  3. COUTURE Stephane & REYNAUD Arnaud, 2006. "Multi-stand Forest Management Under a Climatic Risk: Do time and Risk Preferences Matter?," LERNA Working Papers 06.17.210, LERNA, University of Toulouse.

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