3:30 pm - 5:00 pm
550 General Services Building, 550 General Services Building University of Alberta , Edmonton Alberta
Title: Stochastic growth and regime shift risk in renewable resource management (Joint with Florian Diekert)
Speaker: Dr. Bruno Nkuyia
Date: Friday, January 13, 2023
Time: 3:30 – 5:00 PM
Location: 550 General Services Building
Renewable resources are affected by both environmental variability, which makes the year-to-year stock growth uncertain, and the risk of an irreversible regime shift (e.g., a fishery collapse). Little is known about how a renewable resource harvester would optimally respond to the combined effects of both sources of risk. In this paper, we propose a simple dynamic resource model to investigate this issue. For significant regions of the parameter space, our analysis recommends policy that reverses conventional wisdom. For instance, for some structures of the harvesting cost function, we find that anticipating a higher variability in biological growth induces a cautious management policy, but only when the risk of regime shift is accounted for. Accounting for the risk of regime shift may prescribe large changes in management responses to anticipated random changes in biological growth whereas ignoring such a risk prescribes small changes in management. Optimal escapement is not constant but varies across all periods when the planning horizon is finite and the risk of regime shift is endogenous.
More generally, this paper highlights the value of appropriately accounting the above- mentioned sources of risk in management.