Resource Economics

Issues in Determining Optimal Extraction Amounts

Nonrenewable resource models have been criticized because little empirical support exists for the Hotelling rule and in part because, as Matthias Ruth suggested, the model does not account for individual firm characteristics. Renewable resource models have been criticized for their inability to provide meaningful advice to resource managers, as well as for how resource economics values the benefits provided by natural resources. Renewable resource models vary according to the biological characteristics of the resource. For instance, biomass stock models for fisheries are a function of species population, carrying capacity, and growth rates. However, growth rates, selling price, and efficiencies of fishing operations, as well as other biological factors, are typically considered exogenous in calculating the optimal harvest for renewable resources; because of their noninclusion, the applicability of the models for use by resource managers is limited.

Costanza and Daly proposed that renewable resource ecosystems not only yield goods through their harvest but, if left in place, provide services as well, such as erosion control or water catchments. In choosing an optimal extraction path, the costs of extraction, including the impacts on the local environment, have been largely explored. However, the benefits of leaving the resource in situ have predominantly been ignored, and ideally, the costs and benefits should be calculated simultaneously.

It has been argued that in calculating an optimal extraction path, the impacts of human actions on ecosystems are often overlooked. For example, the impact of the intensity and duration of extractive actions are not accounted for in calculating annual extraction amounts. It is possible, under one set of assumptions in which the needs of an ecosystem are overlooked, to arrive at an extraction path that is spread over many years, placing constant pressure on the resource. Alternatively, taking the ecosystem's needs into consideration, a more intensive extraction path may be selected with less overall disruption to the natural habitat.

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