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Regulating Renewable Resources under Uncertainty

Lars Hansen ()

No 2012/3, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: Renewable natural resources (like water, fish and wildlife stocks, forests and grazing lands) are critical for the livelihood of millions of people and understanding how they can be managed efficiently is an important economic problem. I show how regulator uncertainty about different economic and ecological parts of the harvesting system affect the optimal choice of instrument for regulating harvesters. I bring prior results into a unified framework and add to these by showing that: 1) quotas are preferred under ecological uncertainty if there are substantial diseconomies of scale in harvesting, 2) that a pro-quota result under uncertainty about prices and marginal costs is unlikely, requiring that the resource growth function is highly concave locally around the optimum and, 3) that quotas are always preferred if uncertainly about underlying structural economic parameters dominates. These results showing that quotas are preferred in a number of situations qualify the pro fee message dominating prior studies.

Keywords: Prices vs. quantities; renewable resource regulation (search for similar items in EconPapers)
JEL-codes: H23 Q2 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2012-02
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