Contents
Preface page ix
1 Basic Concepts 1
1.0 Renewable, Nonrenewable, and Environmental
Resources 1
1.1 Discounting 4
1.2 A Discrete-Time Extension of the Method of
Lagrange Multipliers 9
1.3 Questions and Exercises 16
2 Solving Numerical Allocation Problems 19
2.0 Introduction and Overview 19
2.1 An Optimal Depletion Problem 23
2.2 An Optimal Harvest Problem 27
2.3 Questions and Exercises 31
3 The Economics of Fisheries 32
3.0 Introduction and Overview 32
3.1 Net Growth 32
3.2 Fishery Production Functions 35
3.3 The Yield–Effort Function 36
3.4 The Static Model of Open Access 37
3.5 The Dynamic Model of Open Access 39
3.6 Static Rent Maximization by a Sole Owner 41
3.7 Present Value Maximization 44
3.8 Traditional Management Policies 49
3.9 Bioeconomic Management Policies 52
3.10 ITQ Programs in New Zealand, Australia, and Canada 54
3.11 Questions and Exercises 57
4 The Economics of Forestry 59
4.0 Introduction and Overview 59
4.1 The Volume Function and Mean Annual Increment 60
4.2 The Optimal Single Rotation 62
4.3 The Faustmann Rotation 63
4.4 An Example 65
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vi Contents
4.5 Timber Supply 68
4.6 The Optimal Stock of Old-Growth Forest 70
4.7 Questions and Exercises 75
5 The Economics of Nonrenewable Resources 77
5.0 Introduction and Overview 77
5.1 A Simple Model 78
5.2 Hotelling’s Rule 79
5.3 The Inverse Demand Curve 80
5.4 Extraction and Price Paths in the Competitive
Industry 82
5.5 Extraction and Price Paths under Monopoly 86
5.6 Reserve-Dependent Costs 88
5.7 Exploration 91
5.8 The Economic Measure of Scarcity 96
5.9 Questions and Exercises 98
6 Stock Pollutants 101
6.0 Introduction and Overview 101
6.1 The Commodity-Residual Transformation Frontier 102
6.2 Damage Functions and Welfare 104
6.3 A Degradable Stock Pollutant 107
6.4 Diffusion and a Nondegradable Stock Pollutant 113
6.5 Optimal Extraction with a Nondegradable Waste 119
6.6 Recycling 124
6.7 Emission Taxes and Marketable Pollution Permits 127
6.8 Questions and Exercises 134
7 Option Value and Risky Development 141
7.0 Introduction and Overview 141
7.1 Cost–Benefit Analysis 142
7.2 Option Value in a Simple Two-Period Model 148
7.3 Option Value: An Infinite-Horizon Model 150
7.4 The Trigger Values for Irreversible Decisions 154
7.5 Questions and Exercises 164
8 Sustainable Development 166
8.0 Introduction and Overview 166
8.1 Sustainable Development as a Steady State 167
8.2 Intergenerational Altruism and the Stock of a
Renewable Resource 168
8.3 Coevolution 173
8.4 Adaptive Development 182
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Contents vii
8.5 A Requiem for Sustainable Development? 185
8.6 Questions and Exercises 187
Annotated Bibliography 189
B.0 Texts 189
B.1 Basic Concepts 190
B.2 Solving Numerical Allocation Problems 191
B.3 The Economics of Fisheries 193
B.4 The Economics of Forestry 195
B.5 The Economics of Nonrenewable Resources 197
B.6 Stock Pollutants 202
B.7 Option Value and Risky Development 204
B.8 Sustainable Development 206
Index 209
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