Optimal Management with Potential Regime Shifts
AbstractThis 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.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-111/1.
Date of creation: 04 Nov 2010
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optimal management; growth; renewable resources; regime shift;
Other versions of this item:
- Stephen Polasky & Aart de Zeeuw & Florian Wagener, 2010. "Optimal Management with Potential Regime Shifts," CESifo Working Paper Series 3237, CESifo Group Munich.
- 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.
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
- NEP-ENV-2011-02-26 (Environmental Economics)
- NEP-MAC-2011-02-26 (Macroeconomics)
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