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Measuring sustainability under regime shift uncertainty: A resilience pricing approach

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Author Info

  • Li, Chuan-Zhong

    ()
    (Department of Economics)

  • Mäler, Karl-Göran

    ()
    (The Beijer Institute of Ecological Economics)

Abstract

This paper is concerned with the theory of resilience pricing and sustainability measurement in the presence of risk for regime shift in a dynamic economy-environment system. Following Holling (1973),we consider resilience as the maximal perturbation that the system can absorb without flipping into a qualitatively different state. Using a multisector growth model under uncertainty, we derive the shadow price of resilience that affects the probabilities of the system to flip in the future. We also analyze the role of resilience on sustainability with both ex-ante and ex-post welfare measures.

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File URL: http://uu.diva-portal.org/smash/get/diva2:457405/FULLTEXT01.pdf
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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2010:16.

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Length: 20 pages
Date of creation: 02 Jul 2010
Date of revision:
Handle: RePEc:hhs:uunewp:2010_016

Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Email:
Web page: http://www.nek.uu.se/
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Related research

Keywords: Regime shift; resilience; ecosystem; valuation; and inclusive wealth;

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References

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  1. Brian Walker & Leonie Pearson & Michael Harris & Karl-Göran Maler & Chuan-Zhong Li & Reinette Biggs & Tim Baynes, 2010. "Incorporating Resilience in the Assessment of Inclusive Wealth: An Example from South East Australia," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 45(2), pages 183-202, February.
  2. Karl-Göran Mäler, 2008. "Sustainable Development and Resilience in Ecosystems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(1), pages 17-24, January.
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Cited by:
  1. Stephen Polasky & Aart de Zeeuw & Florian Wagener, 2010. "Optimal Management with Potential Regime Shifts," CESifo Working Paper Series 3237, CESifo Group Munich.
  2. Chuan-Zhong Li & Gunnar Isacsson, 2012. "Valuing urban accessibility and air quality in Sweden," Empirical Economics, Springer, vol. 42(3), pages 881-898, June.
  3. Ben Heijdra & Pim Heijnen, 2013. "Environmental Abatement and the Macroeconomy in the Presence of Ecological Thresholds," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 55(1), pages 47-70, May.

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