The taxation of nonreplenishable natural resources revisited

The theory of nonreplenishable resource extraction has been extended to allow for extraction costs which increase as deposits are increasingly depleted. In these cases, profit maximization may result in the cessation of extraction before reserves are totally exhausted. The effect of various taxation policies on optimal extraction patterns in these models are derived. With a few exceptions, the results are that the imposition of a tax will cause operators to extract at faster rates over shorter periods of time and to reduce the total amount of ore extracted. The analysis allows for an output price which increases over time.     

Optimal harvesting of ecologically interdependent fish species

The optimal exploitation of a two-species predator-prey system is considered, using Lotka-Volterra-type equations. Due to the density-dependence of ecological efficiency, both species should be harvested simultaneously over a range of relative prices. Beyond the limits of this price range, either the prey species should be utilized indirectly by harvesting the predator, or the predator should be eliminated to maximize the prey yield. Neglecting harvesting costs, the simultaneous harvest of prey and predators requires that a unit of prey biomass increase in value by being “processed” by predators. Certain results from single-species fishery models are shown not to apply to multispecies models. These are as follows: (i) Optimal regulation of a free access fishery may call for subsidizing instead of taxing the harvest of predator species. (ii) Increasing the discount rate may, at “moderate” levels, imply that the optimal standing stock of biomass increases instead of decreasing. (iii) A rising price or a falling cost per unit fishing effort of a species may raise and not lower the optimal standing stock of that species.     

Maximal yields from multispecies fisheries systems: rules for systems with multiple trophic levels.

Increasing centralization of the control of fisheries combined with increased knowledge of food-web relationships is likely to lead to attempts to maximize economic yield from entire food webs. With the exception of predator-prey systems, we lack any analysis of the nature of such yield-maximizing strategies. We use simple food-web models to investigate the nature of yield- or profit-maximizing exploitation of communities including two types of three-species food webs and a variety of six-species systems with as many as five trophic levels. These models show that, for most webs, relatively few species are harvested at equilibrium and that a significant fraction of the species is lost from the web. These extinctions occur for two reasons: (1) indirect effects due to harvesting of species that had positive effects on the extinct species, and (2) intentional eradication of species that are not themselves valuable, but have negative effects on more valuable species. In most cases, the yield-maximizing harvest involves taking only species from one trophic level. In no case was an unharvested top predator part of the yield-maximizing strategy. Analyses reveal that the existence of direct density dependence in consumers has a large effect on the nature of the optimal harvest policy, typically resulting in harvest of a larger number of species. A constraint that all species must be retained in the system (a "constraint of biodiversity conservation") usually increases the number of species and trophic levels harvested at the yield-maximizing policy. The reduction in total yield caused by such a constraint is modest for most food webs but can be over 90% in some cases. Independent harvesting of species within the web can also cause extinctions but is less likely to do so.     

Valuing environmental amenities through inverse optimization: Theory and case study

Amenity values of private forests are implicit but play a critical role in decision and policy making. This study presents an innovative valuation approach integrating techniques of operations research and economic theory of pricing environmental goods. A forest planning problem was inversed through altering its reward function of timber values so that the observed harvesting behavior became optimal. The discrepancy between the original and new rewards uncovered amenities values which were linked to forest attributes via hedonic models. This method was applied to a case study of the U.S. southern pine region. Depending on forest conditions, total economic values of amenities varied from zero to just under one thousand dollar per ha. At a discount rate of 3%, a typically managed forest generated on average $243 ha⁻¹ of amenities values per annum, more than twice of harvested timber values. Structural diversity and density of large pine trees were the key determinants to preserving forests for environmental amenities.     

Causasilty among wildfire,ENSO, timber harvest,and urban sprawl: The vector autoregression approach

This article demonstrates the applicability of vector autoregression (VAR) modeling in probing the causality relationships among wildfire, El Niño/Southern Oscillation (ENSO), timber harvest, and urban sprawl in the U.S. The VAR approach allows for the multi-directional, multi-faceted interactions among the variables concerned and enables us to portray the temporal impacts of ENSO, the volume of timber harvested, and urban sprawl on wildfire. The empirical analysis, though intended mainly for illustration, reveals that an individual factor may not affect wildfire activity (number of fires and area burned) when acting alone, but can significantly influence fire activity when coupled with other factors, and that wildfire activity has feedback effects on other variables. The impact of a change in ENSO, the volume of timber harvested, and urban population density on wildfire activity could last two decades with the most noticeable impact occurring in the initial 5–10 years. Though ENSO, timber harvest, and urban sprawl all Granger-cause wildfire activity, the impulse response functions show that wildfire activity is more responsive to urban population density than to the volume of timber harvested or ENSO. Thus, controlling urban sprawl represents another option for wildfire mitigation; and integrative wildfire management is essential.     

Choosing ecosystem service investments that are robust to uncertainty across multiple parameters

Info-gap decision theory facilitates decision making for problems in which uncertainty is large and probability distributions of uncertain variables are unknown. The info-gap framework allows the decision maker to maximize robustness to failure in the presence of uncertainty, where uncertainty is in the parameters of the model and failure is defined as the model output falling below some minimally acceptable performance threshold. Info-gap theory has found particular application to problems in conservation biology and ecological economics. In this study, we applied info-gap theory to an ecosystem services tradeoff case study in which a decision maker aiming to maximize ecosystem service investment returns must choose between two alternative land uses: native vegetation conservation or the establishment of an exotic timber plantation. The uncertain variables are the carbon price and the water price. With a "no-information" uncertainty model that assumes equal relative uncertainty across both variables, info-gap theory identifies a minimally acceptable reward threshold above which conservation is preferred, but below which plantation establishment is preferred. However, with an uncertainty model that allows the carbon price to be substantially more uncertain than the water price, conservation of native vegetation becomes an economically more robust investment option than establishing alien pine plantations. We explored the sensitivity of the results to the use of alternative uncertainty models, including asymmetric uncertainty in individual variables. We emphasize the general finding that the results of info-gap analyses can be sensitive to the choice of uncertainty model and that, therefore, future applications to ecological problems should be careful to incorporate all available qualitative and quantitative information relating to uncertainties or should at least justify the no-information uncertainty model.     

An environmental tax-shift with indirect desirable effects

Imposing environmental taxation on external costs of energy will not only affect the environmental impact of the energy sector itself, but it will tend to decrease environmental damage from other sectors of the economy as well. We have assessed the effects of a shift of taxation from taxing labour to taxation of external costs caused in the energy sector. Several examples give results compatible with the hypothesis that the changing price relation between labour and energy resulting from such a tax shift will make re-use, repairs and recycling increasingly competitive and thus tend to decrease mining as well as waste production. Likewise, less energy-intensive commodities and services in general would become increasingly competitive, and would tend to decrease the environmental load further. These environmentally desirable effects are beyond the taxed external effects of the energy sector itself and occur as an indirect effect of the increased relative price of energy.     

Housing values,census estimates,disequilibrium, and the environmental cost of airport noise: A case study of Atlanta

Two unresolved issues about airport noise-property value studies are addressed. The first issue concerns the comparability of empirical results from aggregate census data vs individual sales values, and the second issue concerns the homogeneity and stability of results from housing price studies over time and across markets. Hedonic price models from two sets of data for a residential area near the Atlanta International Airport are estimated at two points in time 1979–1980 and 1970–1972. The available data yield similar estimates of the noise discount over time, and from the prices of individual house sales vs owner-appraised census block aggregates.     

Poaching, enforcement, and the efficacy of marine reserves.

Marine reserves are promoted as an effective supplement to traditional fishery management techniques of harvest quotas and effort limitation. However, quantitative fishery models have ignored the impact of noncompliance (poaching). Here we link a model of a harvested fish population to a game-theoretic representation of fisherman behavior to quantify the effect of poaching on fishery yield and the enforcement effort required to maintain any desired level of reserve effectiveness. Although higher fish densities inside reserves will typically entice fishermen to poach, we show that the initial investment in enforcement efforts provides the greatest return on maintaining the benefits of the reserve to the fishery. Furthermore, we find that poaching eliminates the positive effect of fish dispersal on yield that is predicted by traditional models that ignore fisherman behavior. Our results broaden a fundamental insight from previous models of marine reserves, the effective equivalence of the harvest quota and reserve fraction, to the more realistic scenario in which fishermen attempt to maximize their economic payoffs.     

The Inefficiency of Decentralized Non-renewable Resource Extraction: The Case of Soviet Timber

This paper argues that the structure of the government in the former Soviet Union and the present Russia has led to inefficiency in harvesting non-renewable resources such as timber. It analyzes the dynamic optimization problems of the central and local authorities in choosing the path of harvesting and explains the sources and effects of inefficiency. The features of the model are compared with a hypothetical one in which the inefficiency has been removed. This hypothetical model is then applied to suggest some policies for reducing the existing inefficiency.     

Harvest in a fluctuating environment and conservative harvest for the Fox surplus production model

Relations between optimal yield and abundance in a fluctuating environment and conditions for a conservative level of harvest were obtained for the Fox surplus production model and compared with those for the logistic surplus production model. Environmental variation was included in the optimization of harvest with the Fox surplus production model to obtain a relation in which the maximum sustainable yield (MSY) and biomass at the MSY varied as the environment varied. The relation can be applied for management of fisheries at the optimum levels in a fluctuating environment. For both models there is only one maximum sustainable yield under equilibrium conditions, but in a variable environment the maximum sustainable yield and optimum biomass and effort vary as the environment varies. The results were applied to the blue crab (Callinectes sapidus) fishery of the Chesapeake Bay. Although several numerical results for the logistic and Fox models were similar, the parameter estimates were different and the Fox model predicted a much larger decrease in population abundance at the MSY. Harvesting at a conservative level with either the Fox model or the logistic model could increase blue crab abundance substantially with little decrease in harvest. At a conservative level of harvest, there is a 20% increase in biomass with a 6% decrease in yield for the logistic model and a 37% increase in biomass with a 9% decrease in yield for the Fox model. Both the Fox and the logistic surplus production models indicate that the blue crab fishery has been consistently over harvested.     

Enforcement and price controls in emissions trading

This paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms' abatement costs. The analysis highlights how an enforcement strategy can cause abatement-cost risk to be transmitted to enforcement costs via the price of permits. When this occurs, accommodating the effect of abatement-cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second-best optimal values. However, it is possible to design an enforcement strategy that shields enforcement costs from abatement-cost risk by tying sanctions directly to permit prices. This enforcement strategy stabilizes enforcement effort, the optimal permit supply and price controls are independent of enforcement costs, and the policy produces the second-best optimal outcome.     

Policy-relevant nonconvexities in the production of multiple forest benefits

This paper challenges common assumptions about convexity in forest rotation models which optimize timber plus nontimber benefits. If a local optimum occurs earlier than the globally optimal age, policy based on marginal incentives may achieve suboptimal results. Policy-relevant nonconvexities are more likely if (i) nontimber benefits dominate for young stands while the optimal age depends primarily on timber benefits, or (ii) nontimber benefits dominate for mature stands and also determine the optimal age. Nonconvexities may create either temporary or persistent difficulties. Policymakers may improve efficiency by exploiting the relationship between the timber-only optimum and the global optimum.     

The value of time in recreation benefit studies

This paper examines the role of time costs—both on-site and travel—in models describing recreation behavior, and draws implications for the travel-cost approach to recreation site benefit estimation. The analysis shows that both recreation and travel time are costly. The latter can be valued in terms of its scarcity value, but the former may be most appropriately valued in terms of the “alue of travel time saved.” Although there are cases in which on-site time costs need not be explicitly considered in recreation benefit models, it is not clear such cases are the rule rather than the exception. Suggestions are made for measuring on-site and travel time costs.     

Trends in natural-resource commodity prices: An analysis of the time domain

This paper attempts to reconcile the theoretical predictions of increasing real prices for nonrenewable natural-resource commodities obtained from Hotelling-style models with the empirical findings of falling prices for these commodities. A theoretical model for relative-price movements is derived for the case of exogenous technical change and endogenous change in the grade of ores mined. The model suggests a U-shaped time path for relative prices. The implied price movements are tested for all the major metals and fuels and the model parameters are found to be statistically significant for 11 out of the 12 commodities tested.     

Price expectations and the supply of wastepaper

For some time the price response of the supply of wastepaper has been analyzed in terms of either static simultaneous equation models, or by the use of fairly ad hoc distributed lag models. This paper suggests that a model based on the price expectations of wastepaper suppliers is capable of explaining certain anomalies in earlier empirical work, and confirms the view that purely price-based policies to stimulate wastepaper recycling are likely to be ineffective. Not only is the supply of wastepaper insensitive to changes in price expectations, but the latter are themselves very slow to adjust to changes in actual prices.     

Set-up costs and the existence of competitive equilibrium when extraction capacity is limited

Although set-up costs are prevalent and substantial in natural resource extraction, it is known that a Walrasian competitive equilibrium cannot exist in simple extraction models with set-up costs. This paper demonstrates that this result is sensitive to the assumption of unlimited extraction capacity and derives sufficient conditions for existence. An equilibrium exists if extraction is limited such that each firm earns sufficient surplus to cover its set-up costs or if firms choose extraction capacity subject to non-increasing returns. The resulting competitive equilibrium price either grows at the rate of interest when total extraction is below industry capacity or is constant when industry capacity is fully utilized. In the equilibrium, identical deposits are opened simultaneously, and set-up costs for new deposits are incurred when the industry has excess capacity rather than when capacity is fully utilized.     

Modeling Recreation Demand in the Presence of Unobservable Travel Costs: Toward a Travel Price Model

An important issue in the application of travel cost models is the construction of a travel cost variable. This paper develops an econometric approach that views travel costs as an unobserved latent variable. The latent variable approach utilizes indicators to capture the role of individual travel costs in recreational demand models. The latent variables approach has at least two advantages over conventional approaches. One, the indicators can include both traditional components such as time and distance and non-traditional components such as the scenic beauty. Second, the estimation procedure results in each indicator being valued in dollar terms.     

Integrating selected ecological effects of mixed European beech–Norway spruce stands in bioeconomic modelling

The simplicity of many bioeconomic models has been criticised several times, due to their lack of realism resulting from a deterministic nature and a single-species focus. In this context it was interesting to test the financial sensitivity of bioeconomic modelling against fairly well documented ecological effects in mixed forests. For this purpose our study linked existing results of ecological research with bioeconomic modelling. The presented methodological approach could not only show the importance of considering ecological effects in bioeconomic models; it in fact enabled prioritising ecological research from a financial point of view.In a first step, the possible influence of the tree species mixture on forest stand resistance, productivity and timber quality was derived from existing studies. In a second step, the available Monte Carlo simulations for Norway spruce (Picea abies [L.] Karst.) and European beech (Fagus sylvatica L.), simulated under site conditions and risks typical of southern Germany, were extended by the mentioned ecological effects and then evaluated from a financial perspective.The results showed a clear influence of all tested ecological effects on the financial indicators, financial risk and return. While testing each ecological effect separately, an increased resistance against wind, snow and insect attacks had the greatest influence on financial risk and return. It over-proportionally enhanced the financial return while simultaneously the financial risk was reduced. In contrast, a degraded timber quality could eliminate the positive effect of risk compensation in mixed forests almost completely. The least influence on the financial indicators finally showed a changed volume growth in mixed forests.A combination of the separately tested ecological effects (increased resistance, changed volume growth and decreased timber quality), between both tree species, underlined the dominating importance of the stand resistance. The integration of ecological effects, induced by interdependent tree species, in our bioeconomic model resulted in significantly lower financial risk than ignoring these effects. Moreover, the financial return of mixed stand variants with a proportion of Norway spruce greater than 60% even exceeded that of the most profitable pure stand.In conclusion this paper clearly confirmed that ignoring ecological effects in bioeconomic models could lead to seriously biased financial results. While a changed volume growth proved rather to be of minor importance for European beech/Norway spruce stands, tree resistance and timber quality may change the financial results significantly.     

Do lower electricity storage costs reduce greenhouse gas emissions?

In the electricity sector, innovation in large-scale storage is anticipated to reduce costs and improve performance. The effect on greenhouse gas emissions of lower storage costs depends on the interactions between storage and the entire grid. The literature has disagreed on the role of storage in reducing emissions. In this paper we present a stylized model, which suggests that the effect of storage costs on emissions depends on the supply responsiveness of both fossil and renewable generators. Under common conditions in the United States, lower storage costs are more likely to reduce emissions when wind investment responds to equilibrium electricity prices and when solar investment does not. Simulations of a computational model of grid investment and operation confirm these intuitions. Moreover, because of its effect on coal and natural gas–fired supply responsiveness, introducing a carbon dioxide emissions price may increase the likelihood that lower storage costs reduce emissions.