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Optimal management with potential regime shifts

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  • Polasky, Stephen
  • de Zeeuw, Aart
  • Wagener, Florian

Abstract

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 in economics has focused on stock collapse with endogenous probabilities and reaches ambiguous conclusions on whether the potential for regime shift will increase or decrease intensity of resource use and level of resource stock. 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 in the sense of maintaining higher resource stock levels.

Suggested Citation

  • Polasky, Stephen & de Zeeuw, Aart & Wagener, Florian, 2011. "Optimal management with potential regime shifts," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 229-240, September.
  • Handle: RePEc:eee:jeeman:v:62:y:2011:i:2:p:229-240
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    Keywords

    Optimal management Growth Renewable resources Regime shifts;

    JEL classification:

    • 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, Innovation, 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

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