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Estimating Intertemporal Preferences for Natural Resource Allocation
Author(s) -
Howitt Richard E.,
Msangi Siwa,
Reynaud Arnaud,
Knapp Keith C.
Publication year - 2005
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2005.00781.x
Subject(s) - preference , risk aversion (psychology) , time preference , consistency (knowledge bases) , discounting , econometrics , economics , constant (computer programming) , substitution (logic) , time consistency , computer science , microeconomics , mathematical economics , expected utility hypothesis , actuarial science , artificial intelligence , finance , programming language
In this article, we show how the degree of risk aversion, discounting, and preference for intertemporal substitution for a natural resource manager can be structurally estimated within a recursive utility framework. We focus on the management of a reservoir in California, and test the data for consistency with a recursive utility model specification versus standard time‐additive separability. The results show that the data are consistent with a risk‐averse manager with recursive preferences. The data also reject time‐additive separability, with or without risk aversion, such as the standard constant relative risk aversion utility model. The improvement in model fit when recursive preferences are used is notable.