2002 World Congress of Environmental and Resource Economists

Simple rules that account for biological uncertainty and the possibility of resource extinction are still not available to resource managers. This paper attempts to fill this gap. It proposes a general theory of harvesting for biological assets with size-dependent stochastic growth. It presents a formulation that incorporates total and partial harvests and accounts for the risk of extinction. The harvesting decision is formulated as a disinvestment problem in continuous time using real options and general harvesting rules are derived. The probability of extinction is then analyzed for a class of growth functions widely used in resource economics. A dimensionless analysis of a logistic Brownian motion shows that expected net rents, the optimal biomass at harvest, and the amount harvested are not monotonic functions of uncertainty. Moreover, when uncertainty is large enough, a total harvest becomes optimal. More generally, this paper illustrates the importance of boundary conditions in stochastic investment problems.



	Paper Title:	Harvesting A Renewable Resource Under Uncertainty
	Presenting Author:	Jean-Daniel Saphores (University of California)
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	Abstract:	Simple rules that account for biological uncertainty and the possibility of resource extinction are still not available to resource managers. This paper attempts to fill this gap. It proposes a general theory of harvesting for biological assets with size-dependent stochastic growth. It presents a formulation that incorporates total and partial harvests and accounts for the risk of extinction. The harvesting decision is formulated as a disinvestment problem in continuous time using real options and general harvesting rules are derived. The probability of extinction is then analyzed for a class of growth functions widely used in resource economics. A dimensionless analysis of a logistic Brownian motion shows that expected net rents, the optimal biomass at harvest, and the amount harvested are not monotonic functions of uncertainty. Moreover, when uncertainty is large enough, a total harvest becomes optimal. More generally, this paper illustrates the importance of boundary conditions in stochastic investment problems.
	Link to paper:	Not available

	Session / Day / Time	2D / Monday / 10:15 - 11:45 am

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