NONRENEWABLE RESOURCE EXTRACTIONS WITH A POLLUTION SIDE EFFECT: A COMPARATIVE DYNAMIC ANALYSIS

ABSTRACT. In this paper, we present a nonrenewable resource model including environmental pollution as a state variable. The model is analyzed to identify some of the characteristics of the optimal paths. In addition, we present a numerical example on the basis of the algebraic solutions of our qualitative model, and identify some of characteristics of the optimal time paths for two sets of social costs of the pollutant. These results are consistent with the proposition of the previous literature that levying the shadow cost of the pollution stock reduces the consumption of resource; hence, it slows the accumulation of the pollutant in the atmosphere. One quirk in the results, however, is that extractions will persist longer in the higher pollution cost scenario. The costate variable for the resource stock is decomposed into a scarcity effect and a cost effect; and the costate variable for the pollution stock is decomposed into an undesirable abundance effect and a cost effect. Both of these, however, are cost effects.     

THE COSTATE VARIABLE IN A STOCHASTIC RENEWABLE RESOURCE MODEL

ABSTRACT. In this paper we discuss the costate variable in a stochastic optimal control model of a renewable natural resource, which we call a fishery. The role of the costate variable in deterministic control models has been discussed extensively in the literature. See for example Lyon [1999], Clark [1990, pp. 102 107] and Arrow and Kurz [1970, pp. 35 37]; however, there is little discussion of this variable for stochastic models, even though thecostate variable has similar roles in the two models. In both models the costate variableis a shadow value of the associated state variable, and as such has the role of rationingthe use of the state variable. In addition, as has been shown in Lyon [1999], in natural resource problems the costate variable can be partitioned into a scarcity effect and a cost effect. We show that this same partitioning can be done in the stochastic renewable resource problem. We discuss and contrast the similarities and differences in these concepts for deterministic and stochastic models. In addition, we present a numerical example to help solidify the results.     

DEPLETION COST EFFECTS,USER COSTS AND INTERTEMPORAL SUPPLIES OF A NONRENEWABLE RESOURCE

Most resource economists would likely agree that the price-cost circumstances of a nonrenewable resource are critical for determining efficient allocations and that constrained resource availability is largely a convenient artifice. In this paper a resource-unconstrained optimizing model exhibiting rising marginal costs is formulated and solved to elucidate concepts of allocational efficiency. User costs are highlighted, and the results employed to probe several interpretations of user cost by the National Energy Board of Canada. One of these, long employed in the cost-benefit analysis of many billions of dollars of prospective gas exports, is shown to be conceptually flawed.     

Average shadow price and equilibrium price: A case study of tradable pollution permit markets

Shadow prices indicate implicit values of limited resources at the margin and provide important information in decision making for resource management. In continuous economic models, shadow prices associated with demand-supply balance constraints represent consumers’ willingness to pay and producers’ marginal cost, hence they correspond to market equilibrium prices. As well known, however, marginal analysis fails in the case of discrete optimization, such as mixed integer programming. An alternative concept has been introduced in the literature to measure the value of an extra unit of a limited resource in such cases. This concept is based on average rather than marginal values, thus called the average shadow price, and interpreted in the same way as conventional shadow prices. Whether average shadow prices in a discrete economic model can serve as market equilibrium prices has not been addressed in the related literature. The present paper addresses this issue in an empirical setting. Using a tradable pollution permit market as an example, where firms’ YES/NO type technology adoption decisions are represented by binary variables, we show that the average shadow price of tradable permits can be interpreted as the equilibrium price only when certain conditions related to the cost structure and emission levels hold. On the other hand, we show that an iterative procedure based on individual firms’ cost minimizing behavior presents a better approach for finding a price that can eliminate or reduce the gap between demand and supply of permits in the market.     

Equilibrium path in oligopolistic market of nonrenewable resource

In this paper we study the oligopoly model of nonrenewable resource in which the unit production cost is variable and depends on the resource reserve level. We consider both the open-loop strategy and the closed-loop strategy of this dynamical differential game. For the case of linear cost function we have observed that the open-loop equilibrium and the self-feedback equilibrium satisfy the same equilibrium conditions, which can be described as a dynamical system. The analysis shows that the equilibrium path of the model is the stable orbit of this system, and this result leads to further studies of the properties of the total extraction and reserve and the individual ones of each producer. For the total extraction rate and reserve, some of the properties are similar to those of most oligopoly models with fixed unit production cost. For the individual behaviors, we have found out the solution expressions of the individual extraction rate and resource reserve and got the main result that the producer with larger initial stock has a larger but declining market share and the share of each producer converges toward the average one when time approaches to infinite.     

The average shadow price for MILPs with integral resource availability and its relationship to the marginal unit shadow price

The economic significance of the average shadow price for integer and mixed integer linear programming (MILP) problems has been established by researchers [Kim and Cho, Eur. J. Operat. Res. 37 (1988) 328; Crema Eur. J. Operat. Res. 85 (1995) 625]. In this paper we introduce a valid shadow price (ASPIRA) for integer programs where the right-hand side resource availability can only be varied in discrete steps. We also introduce the concept of marginal unit shadow price (MUSP). We show that for integer programs, a sufficient condition for the marginal unit shadow price to equal the average shadow price is that the Law of Diminishing Returns should hold. The polyhedral structures that will guarantee this equivalence have been explored. Identification of the problem classes for which the equivalence holds complements the existing procedure for determining shadow price for such integer programs. The concepts of ASPIRA and MUSP introduced in this paper can play a vital role in resource acquisition plans and in defining efficient market clearing prices in the presence of indivisibilities.     

NATURAL RESOURCE ECONOMICS UNDER UNCERTAINTY: EFFECT OF FUTURES MARKETS

The effects of hedging and time-dependent price and geological uncertainty on the behavior of a firm exploiting a nonrenewable natural resource are derived. Contrasts in behavior with and without hedging and uncertainty are identified and discussed. Much of the analysis centers on the firm's implicit value of its in situ reserves, marginal user cost. The main result is that time-dependent uncertainty lowers the implicit value of reserves. Hedging ameliorates this effect somewhat. Under some conditions even with risk reducing hedging, the firm tilts its extraction and development paths toward the present and may also shorten its decision-making time horizon.     

A SIMPLIFIED FEEDBACK APPROACH TO OPTIMAL RESOURCE MANAGEMENT

ABSTRACT. Optimal exploitation of a renewable capital stock is derived as a feedback rule for a general dynamic optimization problem with a single resource. By a feedback rule is meant that optimal exploitation is given as an explicit function of the capital stock. The value of the simplified approach will be appreciated by all who have tried to determine the separatrix solution numerically and experienced problems. The method described here can be applied to fisheries management, animal stock conservation and conservation of the environment in general. The operationality of the method outlined here is illustrated by two simple examples, one related to fisheries management and one related to pollution control.     

不可再生与可再生能源开发的博弈均衡分析

能源开发的时间路径上,不可再生能源面临资源储量约束,可再生能源面临知识与技术水平的约束,R&D投资促进知识增长与技术进步.就此情形构建了两类能源的生产者以各自的市场利润最大化为目标,以能源的开发与市场供给时间路径为战略选择的一个动态微分博弈的理论模型,研究两类能源并存的能源市场的均衡路径,分析两类能源的市场供给、市场价格、不可再生能源储量等经济变量的均衡特征和时间依变性质.     

A model to optimize project resource allocation by construction of a balanced histogram

This paper examines a scheduling method to improve productivity in resource-constrained projects. When resources are nonrenewable the duration of each activity has only one value. Optimal solutions are derived through criticalism of groups of activities using the same resource so as to eliminate interruption times and associated costs. The corresponding resource histogram is balanced and its design is derived by means of a program suitable for personal computer implementation.In the case where resources are renewable, activity durations are resource driven. We introduce a new view of discreetness for activity execution times which enables us to obtain optimal solutions relating to the cost functions of the activities.Finally we account for doubly constrained resources by (a) defining a maximum level of resource utilization and a maximum cost increase per period of usage of renewable resources and (b) considering as acceptable only those optimal solutions which keep total cost increase for the overall project below a tolerable limit.An application example is given using personal computer and commercially available software.     

A STOCHASTIC FEEDBACK MODEL FOR OPTIMAL MANAGEMENT OF RENEWABLE RESOURCES

Analytical expressions for optimal harvest of a renewable resource stock which is subject to a stochastic process are found. These expressions give the optimal harvest as an explicit feedback control law. All relations in the model, including the stochastic process, may be arbitrary functions of the state variable (stock). The objective function, however, is at most a quadratic function in the control variable (yield). A quadratic objective function includes the cases of downward sloping demand and increasing marginal costs which are the most common sources for nonlinearities in the economic part of the model. When it is assumed that there is a moratorium on harvest for stock sizes below a certain level (biological barrier), it is shown that the barrier requirements influence the optimal harvest paths throughout.     

An empirical re-examination of natural resource scarcity and economic growth

This paper is concerned with the effect of natural resource scarcity on economic growth in the United States. After defining the notion of scarcity and introducing two measures of scarcity—unit costs and relative resource price—changes in resource scarcity trends for lead, zinc, nickel, aluminium, silver, iron and copper over the most recent three decades are investigated. Only for silver and iron is there any indication that such a change has occurred. For silver, the change is transitory. To the extent that change takes place, it has implications for future economic growth, i.e. natural resource scarcity and economic growth are interrelated. To see whether this is a relevant concern, subsequent to the examination of changing resource scarcity trends an objective effort is made to identify a long-run equilibrium relationship between natural resource scarcity and economic growth. Relying on cointegration techniques, only for the unit cost measure for lead and copper for one of the measures of cointegration is there a suggestion that natural resource scarcity has affected economic growth in the United States over the period 1889–1992.     

REBUILDING THE EASTERN BALTIC COD STOCK UNDER ENVIRONMENTAL CHANGE (PART II): TAKING INTO ACCOUNT THE COSTS OF A MARINE PROTECTED AREA

Abstract This study adds a cost analysis of the Eastern Baltic cod fishery to the existing model presented in Röckmann et al. [2007a] . As cost data on this international fishery do not exist, data from Denmark are extrapolated to the whole international fishery. Additionally, unit and total variable costs are simulated, and the sensitivity to a set of different cost–stock and cost–output elasticities is tested. The study supports preliminary conclusions that a temporary marine reserve policy, which focuses on protecting the Eastern Baltic cod spawning stock in the International Council for the Exploration of the Sea (ICES) subdivision 25, is a valuable fisheries management tool to (i) rebuild the overexploited Eastern Baltic cod stock and (ii) increase operating profits. The negative effects of climate change can be postponed for at least 20 years—depending on the assumed rate of future climate change. Including costs in the economic analysis does not change the ranking of management policies as proposed in the previous study where costs were neglected.     

成本约束下不可再生资源开采微分对策问题研究

研究开采成本等重要因素对不可再生资源开采的影响.假定有N个厂商对不可再生资源进行开采,其面临的市场需求价格弹性为常数,开采成本是开采量的线性函数.利用微分对策理论,分析该寡头市场中各个厂商的均衡开采策略.研究表明,开采成本对是否开采、开采速度、结束时点等有重要影响.同时,本文还与某些经典论文进行了简要比较.     

A note on the paper ‘On dynamical multi-team Cournot game in exploitation of a renewable resource’

In a recent paper (Asker, 2007) [1] a dynamic Cournot oligopoly game is proposed and it is claimed that this model represents competition among firms that exploit a common access natural resource. According to the author’s claim, the feature that relates the model with renewable natural resource harvesting is given by the presence of a particular cost function where the total cost of each fisherman is proportional to the square of the own quantity of harvesting and inversely proportional to the total harvesting quantity. In contrast, the usual function used in the literature on the exploitation of natural resources (such as fisheries) is inversely proportional to the available resource stock, and not to the total harvesting. This, in some sense, assumes exactly the opposite (as the available resource is inversely proportional to the total harvesting). So, we believe that the paper (Asker, 2007) [1] contains an error which is probably due to a misunderstanding or a misreading and misinterpretation of the (well-established) literature on bioeconomic modelling, but nevertheless misleading to researchers interested in bioeconomic modelling. The aim of this short note is to explain the mistake and to summarize the correct derivation and interpretation of the cost function. Our goal is to avoid the propagation of a subtle (but nevertheless misleading) error.     

Constant Sustainable Consumption Rate in Optimal Growth with Exhaustible Resources

The problem of optimal growth with an exhaustible resource deposit under R. M. Solow's criterion of maximum sustainable consumption rate, previously formulated as a minimum-resource-extraction problem, is shown to be a Mayer-type optimal-control problem. The exact solution of the relevant firstorder necessary conditions for optimality is derived for a Cobb-Douglas production function, whether or not the constant unit resource extraction cost vanishes. The related problem of maximizing the terminal capital stock over an unspecified finite planning period is investigated for the development of more efficient numerical schemes for the solution of multigrade-resource deposit problems. The results for this finite-horizon planning problem are also important from a theoretical viewpoint, since they elucidate the economic content of the optimal growth paths for infinite-horizon problems.     

COMPETITION AND COOPERATION IN A DYNAMICAL MODEL OF NATURAL RESOURCES

Abstract In this paper, we propose a model describing the commercial exploitation of a common renewable resource by a population of strategically interacting agents. Players can cooperate or compete; cooperators maximize the payoff of their group while defectors maximize their own profit. The partition of the players into two groups, defectors and cooperators, results from the players' choices, so it is not predetermined. This partition is decided as a Nash equilibrium of a static game. It is shown that different types of players can exist in an equilibrium; more precisely, depending on the parameter values such as resource stock, cost, and so on, there might be equilibria only with defectors, cooperators, or with a combination of cooperators and defectors. In any case the total harvest depends on the renewable resource stock, so it influences agents' positions. It is assumed that at each time period the agents harvest according to Nash equilibrium, which can be combined with a dynamic model describing the evolution of fish population. A complete analysis of the equilibria is presented and their stability is analysed. The effect of the different Nash equilibria on the stability of the fish stock, showing that full cooperation is the most stable case, is examined.     

Preemptive scheduling of independent jobs on parallel machines subject to financial constraints

The paper deals with the preemptive scheduling of independent jobs on parallel unrelated machines with the use of additional renewable resources (manpower, facilities) and the consumption of a nonrenewable resource (money). Money becomes available at different dates in specified amounts (financial constraints). Two scheduling criteria are considered: schedule length and total cost. The algorithm consists in solving a parametric linear program and using its results to construct a most satisfactory schedule in polynomial time. The reduction of job preemptions in a feasible schedule is considered.     

Catch‐to‐stock dependence: The case of small pelagic fishery with bounded harvesting effort

Biologic characteristics of schooling fish species explain why the rates of harvesting in pelagic fisheries are not proportional to the existent stock size and may exhibit no variation between the periods of fish abundance and scarcity. Therefore, the stock‐dependent nonlinearities in catchability must be reflected in the design of flexible fishing policies, which target the sustainable exploitation of this important natural resource. In this study, such nonlinearities are expressed through eventual variability of the “catch‐to‐stock” parameter that measures the sensitivity of an additional catch yield to marginal changes in the fish‐stock level. Using the optimal control modeling framework, we establish that each value of the “catch‐to‐stock” parameter generates a unique steady‐state size of the fish stock and the latter engenders an optimal fishing policy that can be sustained as long as the “catch‐to‐stock” parameter remains unchanged. We also prove the continuous dependence of the steady‐state stock and underlying fishing policy upon the mentioned “catch‐to‐stock” parameter and then focus on the analysis of the equilibrium responses to changes in this parameter induced by external perturbations. Recommendations for Resource Managers

• Marginal catches of pelagic fish stocks do not react in a linear way to changes in existing stock level, and the latter is captured in our model by the “catch‐to‐stock” parameter . Each observable value of engenders a unique steady‐state stock size that defines an optimal fishing policy, which can be sustained as long as remains unchanged.
• The ability of fishery managers to detect variations in the levels of hyperstability expressed by the “catch‐to‐stock” parameter may help them to anticipate new equilibrium responses in stock evolution and to make timely adjustments in the fishing policy.
• Plausible estimations of the “catch‐to‐stock” parameter , as well as detection of its possible alterations, can be carried out within the framework of Management Strategy Evaluation (MSE) approach where different data collected inside and outside the fishery are contrasted via the validation of a relatively simple decision‐making model (presented in this paper) coupled with other “operation models” of higher complexity.
• If the “catch‐to‐stock” parameter cannot be reasonably assessed (), the fishery managers may rely upon the lower bound of stationary stock size, which depends on economic and biological factors (such as the present and future economic values of the exploited fish stock, its marginal productivity, and underlying dynamics of biological growth).

     

An elaborative unit cost structure-based fuzzy economic production quantity model

The purpose of this paper is to investigate and propose a fuzzy extended economic production quantity model based on an elaboratively modeled unit cost structure. This unit cost structure consists of the various lot-size correlative components such as on-line setups, off-line setups, initial production defectives, direct material, labor, and depreciation in addition to lot-size non-correlative items. Thus, the unit cost is correlatively modeled to the production quantity. Therefore, the modeling or the annual total cost function developed consists of not only annual inventory and setup costs but also production cost. Moreover, via the concept of fuzzy blurred optimal argument and the vertex method of the α-cut fuzzy arithmetic (or fuzzy interval analysis), two solution approaches are proposed: (1) a fuzzy EPQ and (2) a compromised crisp EPQ in the fuzzy sense. An optimization procedure, which can simultaneously determine the α-cut-vertex combination of fuzzy parameters and the optimizing decision variable value, is also proposed. The sensitivity model for the fuzzy total cost and thus EPQ to the various cost factors is provided. Finally, a numerical example with the original data collected from a firm demonstrates the usefulness of the new model.