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Time-consistent renewable resource management with present bias and regime shifts

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  • Arvaniti, Maria
  • Krishnamurthy, Chandra Kiran B.
  • Crépin, Anne-Sophie
Abstract
We investigate the extraction plan of present-biased decision makers managing a renewable resource stock whose growth is uncertain and which could undergo a rapid and significant change when stock falls below a threshold. We show that the Markov-Nash equilibrium extraction policy is unique, time consistent, and increasing in resource stock. An increase in the threshold leads to increased resource extraction, rather than the precautionary reduction in extraction often observed with exponential discounting. An increase in the degree of present bias also leads to an increase in resource extraction. Our analysis suggests that accounting for and appropriately dealing with resource managers’ present bias may be important to understand resource use sustainability.

Suggested Citation

  • Arvaniti, Maria & Krishnamurthy, Chandra Kiran B. & Crépin, Anne-Sophie, 2023. "Time-consistent renewable resource management with present bias and regime shifts," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 479-495.
  • Handle: RePEc:eee:jeborg:v:207:y:2023:i:c:p:479-495
    DOI: 10.1016/j.jebo.2023.01.016
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    More about this item

    Keywords

    Renewable resources; Regime shifts; Hyperbolic discounting; Present bias; Uncertainty; Markov equilibrium;
    All these keywords.

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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