OPTIMAL LAND CONVERSION AND GROWTH WITH UNCERTAIN BIODIVERSITY COSTS

Anke Leroux and John Creedy

No 957, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: An important characteristic defining the threat of environmental crises is the uncertainty about their consequences for future welfare. Random processes governing ecosystem dynamics and adaptation to anthropogenic change are important sources of prevailing ecological uncertainty and contribute to the problem of how to balance economic development against natural resource conservation. The aim of this study is to examine optimal growth subject to non-linear dynamic environmental constraints. In a two-sector exogenous growth framework we model a stochastic environmental good, exhibiting uncertain ecological responses to environmental change, and describe the economic and environmental trade-offs that ensue for a risk-averse social planner. Allowing for ecological risk tends to slow economic growth if environmental impacts are assumed to increase exponentially as the rate of disturbance increases. Taken in isolation the effects of ecosystem resilience and ecological uncertainty on the rate of natural resource development are ambiguous and depend on normative parameters such as the social planner’s attitude to risk and rate of time preference.

Pages: 22 pages
Date: 2005
New Economics Papers: this item is included in nep-agr
Note: This paper is forthcoming (2006) in: Creedy, J. and Leroux, A. , Optimal Land Conversion and Growth with Uncertain Biodiversity Costs, Ecological Economics.
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Journal Article: Optimal land conversion and growth with uncertain biodiversity costs (2007)
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