Open AccessNONMARKET RESOURCE VALUATION: A BILEVEL OPTIMIZATION APPROACH
Author(s) -
Önal Hayri,
Muralidaran Vijay
Publication year - 1995
Publication title -
natural resource modeling
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.28
H-Index - 32
eISSN - 1939-7445
pISSN - 0890-8575
DOI - 10.1111/j.1939-7445.1995.tb00205.x
Subject(s) - bilevel optimization , shadow price , microeconomics , valuation (finance) , economics , common pool resource , constraint (computer aided design) , computer science , public good , environmental economics , optimization problem , mathematical optimization , mechanical engineering , algorithm , engineering , mathematics , finance
The social value of a common property/open access resource is in general different from the value attributed by individual users. Therefore, public intervention in the form of prices, quotas and marketable licenses has often been necessary to prevent overexploitation of such resources. This paper addresses the pricing issue. The existing mathematical programming studies in the resource economics literature suggest using the shadow price information obtained from an aggregate model where the sum of net returns to individual users and the management authority is maximized. When the policy maker's objective takes a different form, however, the shadow price strategy may result in a socially suboptimum or infeasible resource utilization. A bilevel optimization approach is proposed in this paper where the price of the resource is introduced as a policy variable and the optimizing behavior of individual users is considered as an explicit constraint in a global optimization problem. An empirical application of the proposed approach to the steady state management of a large scale irrigation system is presented.