Essays on natural resources management with potential regime shift

Abstract

This dissertation includes three essays on natural resources management with potential regime shift, which is a rapid and persistent change of ecosystem processes leading to decline in the economic value of natural resources. The first essay analyzes the impact of a regime shift that reduces the natural growth of a renewable resource and shows that aggressive management is optimal under reasonable conditions. This is in contrast to the precautionary principle discussed in recent literature of resource economics. The second essay focuses on the allocation of risk of regime shift. It is shown that the regime shift that only threatens a portion of the resource stock causes more aggressive management, and the effect of regime shift changes non-monotonically as the share of threatened stock increases. The third essay considers a duopolistic resource market where the regime shift has asymmetric effects on two Cournot players' private resource stocks. Some examples are used to show that Cournot competition causes distortions that depend on the relative sizes of two Cournot players' stocks and the share of stocks that are under the threat of regime shift. It is found that the largest loss in social welfare occurs in the case where the regime shift affects the entire stock of one Cournot player's stock and has no impact on the other Cournot player's stock.