Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal Management with Potential Regime Shifts

Contents:

Author Info

  • Stephen Polasky

    (University of Minnesota)

  • Aart de Zeeuw

    (Tilburg University)

  • Florian Wagener

    (University of Amsterdam)

Abstract

This discussion paper led to a publication in 'Journal of Environmental Economics and Management' , 62(2), 229-40. We analyze how the threat of a potential future regime shift affects optimal management. We use a simple general growth model to analyze four cases that involve combinations of stock collapse versus changes in system dynamics, and exogenous versus endogenous probabilities of regime shift. Prior work has focused on stock collapse with endogenous probabilities and reaches ambiguous conclusions about the effect of potential regime shift on optimal management. We show that all other cases yield unambiguous results. In particular, with endogenous probability of regime shift that affects system dynamics the potential for regime shift causes optimal management to become precautionary.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://papers.tinbergen.nl/10111.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-111/1.

as in new window
Length:
Date of creation: 04 Nov 2010
Date of revision:
Handle: RePEc:dgr:uvatin:20100111

Contact details of provider:
Web page: http://www.tinbergen.nl

Related research

Keywords: optimal management; growth; renewable resources; regime shift;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 1999. "Optimal climate policy under the possibility of a catastrophe," Resource and Energy Economics, Elsevier, Elsevier, vol. 21(3-4), pages 289-317, August.
  2. Tsur Yacov & Zemel Amos, 1995. "Uncertainty and Irreversibility in Groundwater Resource Management," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 149-161, September.
  3. Tsur, Yacov & Zemel, Amos, 2006. "Welfare measurement under threats of environmental catastrophes," Journal of Environmental Economics and Management, Elsevier, vol. 52(1), pages 421-429, July.
  4. W.A. Brock & D. Starrett, 2003. "Managing Systems with Non-convex Positive Feedback," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 26(4), pages 575-602, December.
  5. Tsur, Yacov & Zemel, Amos, 1996. "Accounting for global warming risks: Resource management under event uncertainty," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 20(6-7), pages 1289-1305.
  6. Mäler, Karl-Göran & Li, Chuan-Zhong, 2010. "Measuring sustainability under regime shift uncertainty: a resilience pricing approach," Environment and Development Economics, Cambridge University Press, Cambridge University Press, vol. 15(06), pages 707-719, December.
  7. Guo, Xin & Miao, Jianjun & Morellec, Erwan, 2005. "Irreversible investment with regime shifts," Journal of Economic Theory, Elsevier, Elsevier, vol. 122(1), pages 37-59, May.
  8. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  9. Eric N�vdal, 2001. "Optimal Regulation of Eutrophying Lakes, Fjords, and Rivers in the Presence of Threshold Effects," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 83(4), pages 972-984.
  10. Perrings, Charles & Walker, Brian, 1997. "Biodiversity, resilience and the control of ecological-economic systems: the case of fire-driven rangelands," Ecological Economics, Elsevier, Elsevier, vol. 22(1), pages 73-83, July.
  11. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, American Economic Association, vol. 80(3), pages 465-79, June.
  12. Gerard Gennotte and Hayne Leland., 1989. "Market Liquidity, Hedging and Crashes," Research Program in Finance Working Papers, University of California at Berkeley RPF-192, University of California at Berkeley.
  13. Mäler, K-G. & Xepapadeas, A. & Zeeuw, A.J. de, 2003. "The economics of shallow lakes," Open Access publications from Tilburg University urn:nbn:nl:ui:12-123314, Tilburg University.
  14. Yacov Tsur & Amos Zemel, 2008. "Regulating environmental threats," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 39(3), pages 297-310, March.
  15. Brock, W.A. & Hommes, C.H. & Wagener, F.O.O., 2006. "More hedging instruments may destabilize markets," CeNDEF Working Papers, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance 06-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  16. Tsur, Yacov & Zemel, Amos, 1998. "Pollution control in an uncertain environment," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(6), pages 967-975, June.
  17. Clarke, Harry R. & Reed, William J., 1994. "Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 18(5), pages 991-1010, September.
  18. Reed, William J., 1984. "The effects of the risk of fire on the optimal rotation of a forest," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 180-190, June.
  19. Brock, W.A. & Hommes, C.H., 1996. "Hetergeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model," Working papers, Wisconsin Madison - Social Systems 9621, Wisconsin Madison - Social Systems.
  20. Janssen, Marco A. & Anderies, John M. & Walker, Brian H., 2004. "Robust strategies for managing rangelands with multiple stable attractors," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 140-162, January.
  21. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
  22. Spence, A Michael & Starrett, David, 1975. "Most Rapid Approach Paths in Accumulation Problems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 388-403, June.
  23. Cropper, M. L., 1976. "Regulating activities with catastrophic environmental effects," Journal of Environmental Economics and Management, Elsevier, vol. 3(1), pages 1-15, June.
  24. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 193-227, April.
  25. Morton I. Kamien & Nancy L. Schwartz, 1971. "Optimal Maintenance and Sale Age for a Machine Subject to Failure," Management Science, INFORMS, INFORMS, vol. 17(8), pages B495-B504, April.
  26. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 797-817, August.
  27. Thomas Aronsson & Kenneth Backlund & Karl-Gustaf Löfgren, 1998. "Nuclear Power, Externalities and Non-Standard Pigouvian Taxes," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 11(2), pages 177-195, March.
  28. Keller, Klaus & Bolker, Benjamin M. & Bradford, D.F.David F., 2004. "Uncertain climate thresholds and optimal economic growth," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 723-741, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dgr:uvatin:20100111. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.