2002 World Congress of Environmental and Resource Economists

Our analysis melds two traditional approaches to promoting the quality of a resource. The first is restoring the stock of quality. The second is abating its flow of deterioration. Although both approaches are widely used in real-world settings, analytic models have tended to focus on one strategy or the other.We consider a class of problems, which we call "SFQ" problems, in which both stocks and flows can be controlled to promote quality. We develop our results in the context of environmental quality, drawing on examples from atomic wastes to zebra mussels. But the lessons are general, and we show how they apply to promoting the quality of both physical and human capital. We first study optimal policies in the limiting cases when only abatement or restoration is possible. We then focus on the full SFQ world, where both approaches can be used. We show that the optimal policy employs both instruments, but that neither strategy takes the form it would in the absence of the other. Moreover, we explore how the importance of restoration relative to abatement depends on the flow of deterioration.



	Paper Title:	Controlling Stocks And Flows: The Environment, With Applications To Physical And Human Capital
	Presenting Author:	Nathaniel O Keohane (Yale School of Management)
	Coauthor 1:	Benjamin Van Roy
	Coauthor 2:	Richard J Zeckhauser
	Coauthor 3:
	Abstract:	Our analysis melds two traditional approaches to promoting the quality of a resource. The first is restoring the stock of quality. The second is abating its flow of deterioration. Although both approaches are widely used in real-world settings, analytic models have tended to focus on one strategy or the other.We consider a class of problems, which we call "SFQ" problems, in which both stocks and flows can be controlled to promote quality. We develop our results in the context of environmental quality, drawing on examples from atomic wastes to zebra mussels. But the lessons are general, and we show how they apply to promoting the quality of both physical and human capital. We first study optimal policies in the limiting cases when only abatement or restoration is possible. We then focus on the full SFQ world, where both approaches can be used. We show that the optimal policy employs both instruments, but that neither strategy takes the form it would in the absence of the other. Moreover, we explore how the importance of restoration relative to abatement depends on the flow of deterioration.
	Link to paper:	Not available

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

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