Posts Tagged ‘Environmental & Resource Economics’

Harvesting in a Fishery with Stochastic Growth and a Mean-Reverting Price

February 14, 2015

EREAt the end of last year, my research team got a study accepted in Environmental & Resource Economics. Our long and unsexy title — Harvesting in a Fishery with Stochastic Growth and a Mean-Reverting Price — tells only part of the story (but as much as we could fit!): We study a fish harvest model in two stochastic state variables (stock and price), where the price further is mean-reverting. Perhaps the most important finding is our demonstration of the complexity that arises in relatively simple models. The complex behavior of the optimal solution that we observe is difficult to understand intuitively, something which gave us a hard time in the peer-review process. As it should be, I guess. Anyway, our abstract reads as follows:

We analyze a continuous, nonlinear bioeconomic model to demonstrate how stochasticity in the growth of fish stocks affects the optimal exploitation policy when prices are stochastic, mean-reverting and possibly harvest dependent. Optimal exploitation has nonlinear responses to the price signal and should be conservative at low levels of biological stochasticity and aggressive at high levels. Price stochasticity induces conservative exploitation with little or no biological uncertainty, but has no strong effect when the biological uncertainty is larger. We further observe that resource exploitation should be conservative when the price reverts slowly to the mean. Simulations show that, in the long run, both the stock level and the exploitation rate are lower than in the deterministic solution. With a harvest-dependent price, the long-run price is higher in the stochastic system. The price mean reversion rate has no influence on the long-run solutions.


Behavioral Economics and the Environment

September 15, 2010

Gardner Brown and Daniel A. Hagen guestedited a recent special issue of Environmental & Resource Economics (Vol. 46, No. 2), and suprisingly wrote the first article themselves. They begin like this:

Many economists have embraced a paradigm characterized by perfect information, rational expectations and an otherwise benign environment in which perfect competition reigns, with very minor asides for imperfect competition. Rumblings of opposition have been growing louder. Nobel prizes are being awarded to scholars who have taken us out of this historic straight jacket. Lo and behold there can be asymmetric information, increasing returns to scale, cooperative behavior and agents who consistently fail to optimize.
Behavioral economics is another theme gathering strength, and it may be particularly germane to environmental and resource economics. Consumer theory, measurement of benefits, intergenerational discounting, mechanism design, and the role of fairness are all subjects of importance for environmental and resource economics and they are all areas in which behavioral economicsmay provide important insights.