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.