Managing a renewable resource facing the risk of a regime shift in the ecological system

Aart de Zeeuw, Xiaoli He

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Resource management has to take account of the possibility of regime shifts in the ecological system that provides the resource. Regime shifts are uncertain and lead to structural changes in the system dynamics, lowering the carrying capacity of the resource. Optimal management is driven by two considerations. First, it becomes precautionary if a higher stock of the renewable resource decreases the hazard of a regime shift. Second, it either becomes precautionary or more aggressive depending on the adjustments that are needed after the regime shift. This in turn depends on the elasticity of intertemporal substitution. In conclusion, facing the risk of a regime shift in the ecological system, optimal management is ambiguous but precautionary if the marginal hazard rate of the regime shift is sufficiently high.
Original languageEnglish
Pages (from-to)42-54
Number of pages12
JournalResource and Energy Economics
Volume48
DOIs
Publication statusPublished - 17 Feb 2017

    Fingerprint

Keywords

  • Regime shifts
  • Tipping points
  • Uncertainty
  • renewable resources
  • precaution

Cite this