Summary of natural resource economics, Public Economics

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Summary of Natural Resource Economics

This unit gives the optimal rules for extraction of natural resources. We began with the specification of optimal extraction path and the conditions underlying it for exhaustible resources. Since it involves inter-temporal choice, the problem has to be solved using dynamics. Two alternative models developed in the literature, with the assumption of (a) no stock effects, and (b) with stock effects, were analysed. An exhaustible resource with a backstop technology will be extracted until the resource price hits the choke price at which the backstop is profitable to operate.

Then we compared non-optimal extraction path and price path with the optimal ones. It does not deal with what would be the implications of uncertain stock level or uncertain demand on the optimal extraction path. Turning to renewable resources, the popular Schafer-Gordon biological and bionomic models were discussed. Then the Scott Gordon's hypothesis based on the notion of market failure due to common b property resource was characterized using diagrams. This leads us to the conclusion that some intervention' in the form of regulation is needed to bring up optimal harvesting of fishery.


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