Time-consistent renewable resource management with present bias and regime shifts

Abstract

We investigate the extraction plan of present-biased decision makers managing a renew-able resource stock whose growth is uncertain and which could undergo a rapid and sig-nificant change when stock falls below a threshold. We show that the Markov-Nash equi-librium extraction policy is unique, time consistent, and increasing in resource stock. An increase in the threshold leads to increased resource extraction, rather than the precau-tionary reduction in extraction often observed with exponential discounting. An increase in the degree of present bias also leads to an increase in resource extraction. Our analy-sis suggests that accounting for and appropriately dealing with resource managers' present bias may be important to understand resource use sustainability.(c) 2023 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license ( http://creativecommons.org/licenses/by/4.0/ )

Keywords

Renewable resources; Regime shifts; Hyperbolic discounting; Present bias; Uncertainty; Markov equilibrium

Published in

Journal of Economic Behavior and Organization
2023, volume: 207, pages: 479-495
Publisher: ELSEVIER

SLU Authors

• Krishnamurthy, Chandra

  • Department of Forest Economics, Swedish University of Agricultural Sciences
    

UKÄ Subject classification

Economics

Publication identifier

• DOI: https://doi.org/10.1016/j.jebo.2023.01.016

Permanent link to this page (URI)

https://res.slu.se/id/publ/122036