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Title:Optimal management with potential regime shifts PDF Logo
Authors:Polasky, Stephen
de Zeeuw, Aart
Wagener, Florian
Issue Date:2010
Series/Report no.:CESifo working paper: Resource and Environment Economics 3237
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.
Subjects:optimal management
growth
renewable resources
regime shifts
JEL:C61
Q20
O40
E61
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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