Optimal management with potential regime shifts

Stephen Polasky, Aart de Zeeuw, Florian Wagener

Research output: Contribution to journalArticle

100 Scopus citations

Abstract

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 in economics has focused on stock collapse with endogenous probabilities and reaches ambiguous conclusions on whether the potential for regime shift will increase or decrease intensity of resource use and level of resource stock. 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 in the sense of maintaining higher resource stock levels.

Original languageEnglish (US)
Pages (from-to)229-240
Number of pages12
JournalJournal of Environmental Economics and Management
Volume62
Issue number2
DOIs
StatePublished - Sep 2011

Keywords

  • Growth
  • Optimal management
  • Regime shifts
  • Renewable resources

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