Premium
Dynamic Resource Management: Intertemporal Substitution and Risk Aversion
Author(s) -
Knapp Keith C.,
Olson Lars J.
Publication year - 1996
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 - 10.2307/1243856
Subject(s) - elasticity of intertemporal substitution , economics , substitution (logic) , econometrics , microeconomics , elasticity of substitution , risk aversion (psychology) , comparative statics , stock (firearms) , limiting , monotonic function , computer science , expected utility hypothesis , mathematical economics , mathematics , production (economics) , mechanical engineering , engineering , growth model , programming language , mathematical analysis
We consider resource management with recursive preferences. These generalize expected utility while eliminating some well‐known difficulties. Monotonicity and convergence properties of optimal decision rules are established using lattice programming methods. Empirical applications are rangeland and groundwater management. Decreasing the intertemporal elasticity of substitution implies greater (lower) resource usage with limited (abundant) stocks. This moderates stock evolution and stabilizes consumption. Increasing risk aversion implies the same or reduced usage over the state space. Intertemporal substitution has a substantial effect on the optimal decision rule and a moderate effect on the limiting distribution, while risk aversion has a very small effect.