Calibrated Stochastic Dynamic Models for Resource Management
In this paper we develop a positive calibrated approach to stochastic dynamic programming. Risk aversion, discount rate, and intertemporal substitution preferences of the decision-maker are calibrated by a procedure that minimizes the mean squared error from data on past decisions. We apply this framework to managing stochastic water supplies from Oroville Reservoir, located in Northern California. The calibrated positive SDP closely reproduces the historical storage and releases from the dam and shows sensitivity of optimal decisions to a decision-maker's risk aversion and intertemporal preferences. The calibrated model has average prediction errors that are substantially lower than those from the model with an expected net present value objective.
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
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.:
- Keane, Michael P & Wolpin, Kenneth I, 1994.
"The Solution and Estimation of Discrete Choice Dynamic Programming Models by Simulation and Interpolation: Monte Carlo Evidence,"
The Review of Economics and Statistics,
MIT Press, vol. 76(4), pages 648-72, November.
- Michael P. Keane & Kenneth I. Wolpin, 1994. "The solution and estimation of discrete choice dynamic programming models by simulation and interpolation: Monte Carlo evidence," Staff Report 181, Federal Reserve Bank of Minneapolis.
- Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
- Michel Normandin & Pascal St-Amour, 1996.
"Substitution, Risk Aversion, Taste Shocks and Equity Premia,"
Cahiers de recherche CREFE / CREFE Working Papers
39, CREFE, Université du Québec à Montréal.
- Michel Normandin & Pascal St-Amour, 1998. "Substitution, risk aversion, taste shocks and equity premia," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 265-281.
- Normandin, M. & St-Amour, P., 1996. "Substitution, Risk Aversion, Taste Shocks and Equity Premia," Papers 9606, Laval - Recherche en Politique Economique.
- Michel Normandin & Pascal St-Amour, 1996. "Substitution, Risk Aversion, Taste Shocks and Equity Premia," Finance 9607001, EconWPA.
- Normandin, Michel & St-Amour, Pascal, 1996. "Substitution, Risk Aversion, Taste Shocks and Equity Premia," Cahiers de recherche 9606, Université Laval - Département d'économique.
- Sergio H. Lence, 2000. "Using Consumption and Asset Return Data to Estimate Farmers' Time Preferences and Risk Attitudes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 934-947.
- Robert E. Hall, 1981.
"Intertemporal Substitution in Consumption,"
NBER Working Papers
0720, National Bureau of Economic Research, Inc.
- Minh Ha-Duong & Nicolas Treich, 1999. "Recursive Intergenerational Utility in Global Climate Risk Modeling," CIRANO Working Papers 99s-40, CIRANO.
- Kydland, Finn E & Prescott, Edward C, 1991.
" The Econometrics of the General Equilibrium Approach to Business Cycles,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 93(2), pages 161-78.
- Finn E. Kydland & Edward C. Prescott, 1990. "The econometrics of the general equilibrium approach to business cycles," Staff Report 130, Federal Reserve Bank of Minneapolis.
- Miranda, Mario J & Schnitkey, Gary D, 1995. "An Empirical Model of Asset Replacement in Dairy Production," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages S41-55, Suppl. De.
- Fulton, Murray & Karp, Larry, 1989. "Estimating the objectives of a public firm in a natural resource industry," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 268-287, May.
- Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
- David M Kreps & Evan L Porteus, 1978.
"Temporal Resolution of Uncertainty and Dynamic Choice Theory,"
Levine's Working Paper Archive
625018000000000009, David K. Levine.
- Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
- King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
- Tjalling C. Koopmans, 1959. "Stationary Ordinal Utility and Impatience," Cowles Foundation Discussion Papers 81, Cowles Foundation for Research in Economics, Yale University.
- Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
- Provencher, Bill & Bishop, Richard C., 1997. "An Estimable Dynamic Model of Recreation Behavior with an Application to Great Lakes Angling," Journal of Environmental Economics and Management, Elsevier, vol. 33(2), pages 107-127, June.
- Keith C. Knapp & Lars J. Olson, 1996. "Dynamic Resource Management: Intertemporal Substitution and Risk Aversion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 1004-1014.
- Knapp Keith C. & Olson Lars J., 1995. "The Economics of Conjunctive Groundwater Management with Stochastic Surface Supplies," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 340-356, May.
- Lence, Sergio H., 2000. "Using Consumption and Asset Return Data to Estimate Farmersï¾’ Time Preferences and Risk Attitudes," Staff General Research Papers 1930, Iowa State University, Department of Economics.
- Provencher Bill, 1995. "Structural Estimation of the Stochastic Dynamic Decision Problems of Resource Users: An Application to the Timber Harvest Decision," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 321-338, November.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea02:19620. 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: (AgEcon Search)
If references are entirely missing, you can add them using this form.