Resource Management, Present Bias and Regime Shifts
Maria Arvaniti  1@  , Chandra K. Krishnamurthy  2@  
1 : CHAIR OF ECONOMICS/RESOURCE ECONOMICS, ETH  (ETH)
ZURICHBERGSTRASSE 18, 8092, ZURICH -  Suisse
2 : Department of Forest Economics, Swedish Agricultural University, SLU, Ume ̊a
UMEA -  Suède

We investigate the decision process that present biased resource users face when they manage a resource stock that could undergo a reversible regime shift. We focus on renewable resources with some uncertainty in the growth process and evaluate various policy questions in this set-up. To that end we develop a discrete-time model of hyperbolic discounting agents. We introduce uncertainty in a novel way by focusing on the distribution of future stocks rather than on their transition equation and make no special assumptions about functional forms for utility. We show that a Stationary Markov-Nash Equilibrium (SMNE) not only exists but is unique; and further, that the optimal extraction policy is increasing in the resource stock. Finally, we do not find that the resource user should harvest less with regime shifts than without.


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