Costly Renewable Resource Management and International Trade

Abstract

Renewable resource management is necessary to avoid the dissipation of

inter-temporal rents due to open access exploitation. In reality management is

costly, which implies that the first best solution is not appropriate. Management

costs must be considered explicitly in optimization problems, to find the

appropriate second best solutions. This is the focus of this dissertation, which

contains applied theoretical analyses of dynamic bio-economic models, where

moving away from open access exploitation of a renewable resource is costly.

Partial equilibrium problems of harvesting a scarce renewable resource

are analyzed, where economic incentives of poachers, who are punished if

caught, are included. Harvest, enforcement and resource price are endogenously

determined. The punishment increases poachers' expected marginal costs and the

resource market price, which forces at least some poachers out of the market.

Different relative harvest cost structures are considered between social planner

and poachers, which drives the manner in which the market supply is optimally

shared between them. Corrective policies are given for a pseudo-monopolist

seeking to maximize his discounted profit instead of total economic surplus.

Further policy adjustments are characterized, in case the resource entails nonmarket

values.

A two-good, two-variable-factor bio-economic trade model is also

developed for a small country. Open access, first and second best resource

management models are analyzed, assuming that instantaneous gains are

independent of the resource stock and that resource management incurs a flow of

instantaneous fixed cost. The most empirically realistic model allows for

resource management regime switches, which is influenced by the trade regime

and the world price of the resource good.

Different cases are characterized in relation to changes in welfare and

conservation, following a move from autarky to free trade. Free trade is

unambiguously beneficial in some cases, but not always. Specifically, if open

access is the second best management regime in autarky, then a small

comparative advantage in the resource good could be detrimental to the home

country. There exists a greater comparative advantage in the resource good,

above which free trade would be beneficial. Understanding what drives the

empirically relevant detrimental consequences of free trade can be helpful for

policy-making.