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Dynamic adaptation to resource scarcity and backstop availability: theory and application to groundwater *
Author(s) -
Koundouri Phoebe,
Christou Christina
Publication year - 2006
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/j.1467-8489.2006.00333.x
Subject(s) - scarcity , stock (firearms) , resource (disambiguation) , natural resource economics , groundwater , economics , optimal control , environmental economics , value (mathematics) , non renewable resource , social cost , environmental science , microeconomics , renewable energy , computer science , engineering , mathematics , mathematical optimization , computer network , mechanical engineering , machine learning , geotechnical engineering , electrical engineering
In this paper we analyse the optimal management of a renewable resource (groundwater) with stock‐dependent extraction cost and a backstop substitute, facing two‐sector linear demands. Application to the Kiti region in Cyprus demonstrates the model's performance and is used to test for the difference between optimal and myopic behaviour. It is found that the presence of a backstop resource diminishes the importance of optimal dynamic behaviour, whereas in the absence of backstop the optimal control solution yields a value for social welfare significantly larger than the myopic policy.