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Uncertainty in the Theory of Renewable Resource Markets

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  • Robert S. Pindyck

Abstract

The natural growth rate of most renewable resource stocks is in part stochastic. This paper examines the implications of such ecological uncertainty for competitive equilibrium in a market with property rights. We show that stochastic fluctuations add a risk premium to the rate of return required to keep a unit of stock in situ, and we examine the effects of fluctuations on resource rent. Examples are used to show that extraction can increase, decrease, or be left unchanged as the variance of the fluctuations increases, depending on the extent of market "self-correction". Regulatory implications are also discussed.

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  • Robert S. Pindyck, 1984. "Uncertainty in the Theory of Renewable Resource Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(2), pages 289-303.
    • Handle: RePEc:oup:restud:v:51:y:1984:i:2:p:289-303.
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