EconPapers    
Economics at your fingertips  
 

Uncertainty and Natural Resources - Prudence Facing Doomsday

Johannes Emmerling

No 205459, Climate Change and Sustainable Development from Fondazione Eni Enrico Mattei (FEEM)

Abstract: This paper studies the optimal extraction of a non-renewable resource under uncertainty using a discrete-time approach in the spirit of the literature on precautionary savings. We find that boundedness of the utility function, in particular the assumption about U(0), gives very different results in the two settings which are often considered as equivalent. For a bounded utility function, we show that in a standard two-period setting, prudence is no longer sufficient to ensure a more conservationist extraction policy than under certainty. If on the other hand we increase the number of periods to infinity, we find that prudence is not anymore not anymore necessary to induce a more conservationist extraction policy and risk aversion is sufficient. These results highlight the importance of the specification of the utility function and its behavior at the point of origin.

Keywords: Environmental Economics and Policy; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 19
Date: 2015-05-27
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://ageconsearch.umn.edu/record/205459/files/NDL2015-049.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:feemcl:205459

DOI: 10.22004/ag.econ.205459

Access Statistics for this paper

More papers in Climate Change and Sustainable Development from Fondazione Eni Enrico Mattei (FEEM) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().

 
Page updated 2021-01-16
Handle: RePEc:ags:feemcl:205459