Risk aversion in renewable resource harvesting

Claudia Kelsall, Martin Quaas and Nicolas Querou
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Claudia Kelsall: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier

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Abstract: We study optimal harvesting of a renewable resource with stochastic dynamics. To focus on the effect of risk aversion, we consider a resource user who is indifferent with respect to intertemporal variability. In this setting, a constant escapement strategy is optimal, i.e. the stock after optimal harvesting is constant. We find that under common specifications of risk aversion, increasing risk and risk aversion increase current resource use. We show that this is due to an investment effect, i.e. the resource user invests in risk free alternatives, rather than the risky resource stock. A quantitative application of the model for the Eastern Baltic cod fishery shows that risk and risk aversion can have a much larger effect on optimal harvesting than found in the previous literature. ✩ We thank Mickael Beaud, Mabel Tidball, Rudi Voss, Marc Willinger, the editor and two referees for helpful comments and suggestions. The authors acknowledge the ANR-DFG project CRaMoRes (Grant ANR-19-FRAL-0010-01 and DFG QU 357/14-1). C. Kelsall acknowledges the support of labEx CeMEB, an ANR ''Investissements d'avenir'' program (ANR-10-LABX-04-01). M. Quaas acknowledges funding by BMBF under grant 03F0876B.

Keywords: Resource; economics; Investment; under; uncertainty; Risk; aversion; Prudence; Precautionary; savings (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-agr, nep-env and nep-upt
Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-04190160v1
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Published in Journal of Environmental Economics and Management, 2023, 121, pp.102855. ⟨10.1016/j.jeem.2023.102855⟩

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Journal Article: Risk aversion in renewable resource harvesting (2023)
Working Paper: Risk aversion in renewable resource harvesting (2022)
Working Paper: Risk aversion in renewable resource harvesting (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04190160

DOI: 10.1016/j.jeem.2023.102855

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