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Optimal Management of Ecosystem Services with Pollution Traps: The Lake Model Revisited

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  • Dieter Grass
  • Anastasios Xepapadeas
  • Aart de Zeeuw

Abstract

In this paper, optimal management of the lake model and common-property outcomes are reconsidered when the lake model is extended with the slowly changing variable. New optimal trajectories are found that were hidden in the simplified analysis. Furthermore, it is shown that two Nash equilibria may exist with the one leading to the steady state with a high level of ecological services dominating the other one. For larger initial states, only the Nash equilibrium with a low level of ecological services exists, which implies that the users of the lake can be trapped in the bad Nash equilibrium. Finally, it is shown that implementing the optimal phosphorus loadings from the simplified version into the full lake model can have considerable welfare losses, as the lake can end up in the wrong basin of attraction, but in most cases welfare losses are small because of the fast-slow dynamics.

Suggested Citation

  • Dieter Grass & Anastasios Xepapadeas & Aart de Zeeuw, 2017. "Optimal Management of Ecosystem Services with Pollution Traps: The Lake Model Revisited," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(4), pages 1121-1154.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/692090
    DOI: 10.1086/692090
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    Cited by:

    1. Dmitry Gromov & Thorsten Upmann, 2021. "Dynamics and Economics of Shallow Lakes: A Survey," Sustainability, MDPI, vol. 13(24), pages 1-16, December.
    2. Anne‐Sophie Crépin & Eric Nævdal, 2020. "Inertia Risk: Improving Economic Models of Catastrophes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(4), pages 1259-1285, October.
    3. Wagener, Florian & de Zeeuw, Aart, 2021. "Stable partial cooperation in managing systems with tipping points," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    4. Anastasios Xepapadeas, 2022. "On the optimal management of environmental stock externalities," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 119(24), pages 2202679119-, June.
    5. Tiho Ancev & Karunagaran Madhavan, 2023. "Size matters: Optimal management of dynamic systems with varying size," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(1), pages 137-153, January.

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