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Renewable Resource Harvesting Under Correlated Biological and Economic Uncertainties: Implications for Optimal and Second-Best Management

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  • Chris J. Kennedy

    () (George Mason University)

  • Edward B. Barbier

    (University of Wyoming)

Abstract

Abstract Biologists have long recognized environmental disturbances impact both the growth of renewable resources and the efficiency of harvest effort. However, models of renewable resource management under uncertainty have commonly assumed economic and biological uncertainties to be uncorrelated. We present examples of valuable fish species that experience correlated variation in biological growth and catchability, in response to a common environmental disturbance. Building correlation into a model of renewable resource management under uncertainty, we find correlation to alter the optimal response by managers to cost disturbances, and impact the value of retaining intra-period flexibility over harvest targets. Examining the performance of three harvest control mechanisms—harvest quotas, effort quotas, and taxes—reveals that positive correlation between costs and growth favors harvest quotas over effort quotas, and effort quotas over taxes (and vice versa). The model is then applied numerically to the Pacific bigeye tuna fishery, which experiences positively correlated shocks driven by the El Niño Southern Oscillation. Correlation qualitatively changes the optimal response to a cost shock, and harvest quotas are found to be strongly favored over both effort quotas and taxes.

Suggested Citation

  • Chris J. Kennedy & Edward B. Barbier, 2015. "Renewable Resource Harvesting Under Correlated Biological and Economic Uncertainties: Implications for Optimal and Second-Best Management," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(3), pages 371-393, March.
  • Handle: RePEc:kap:enreec:v:60:y:2015:i:3:d:10.1007_s10640-014-9771-2
    DOI: 10.1007/s10640-014-9771-2
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    References listed on IDEAS

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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    2. Weitzman, Martin L., 2002. "Landing Fees vs Harvest Quotas with Uncertain Fish Stocks," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 325-338, March.
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    6. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
    7. Danielsson, Asgeir, 2002. "Efficiency of Catch and Effort Quotas in the Presence of Risk," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 20-33, January.
    8. Reed, William J., 1979. "Optimal escapement levels in stochastic and deterministic harvesting models," Journal of Environmental Economics and Management, Elsevier, vol. 6(4), pages 350-363, December.
    9. Robert A. Androkovich & Kenneth R. Stollery, 1991. "Tax Versus Quota Regulation: A Stochastic Model of the Fishery," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(2), pages 300-308.
    10. Chris J. Kennedy & Edward B. Barbier, 2013. "Renewable resource management with environmental prediction: the importance of structural specification," Canadian Journal of Economics, Canadian Economics Association, vol. 46(3), pages 1110-1122, August.
    11. Costello, Christopher & Polasky, Stephen, 2008. "Optimal harvesting of stochastic spatial resources," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 1-18, July.
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