Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2010-11-04 Number: 10-111/1 Author-Name: Stephen Polasky Author-Workplace-Name: University of Minnesota Author-Name: Aart de Zeeuw Author-Workplace-Name: Tilburg University Author-Name: Florian Wagener Author-Workplace-Name: University of Amsterdam Title: Optimal Management with Potential Regime Shifts Abstract: This discussion paper led to a publication in 'Journal of Environmental Economics and Management', 62(2), 229-40.
We analyze how the threat of a potential future regime shift affects optimal management. We use a simple general growth model to analyze four cases that involve combinations of stock collapse versus changes in system dynamics, and exogenous versus endogenous probabilities of regime shift. Prior work has focused on stock collapse with endogenous probabilities and reaches ambiguous conclusions about the effect of potential regime shift on optimal management. We show that all other cases yield unambiguous results. In particular, with endogenous probability of regime shift that affects system dynamics the potential for regime shift causes optimal management to become precautionary. Classification-JEL: E61, O40, Q20, C61 Keywords: optimal management, growth, renewable resources, regime shift File-Url: http://papers.tinbergen.nl/10111.pdf File-Format: application/pdf File-Size: 1821021 bytes Handle: RePEc:tin:wpaper:20100111