Can the desire to conserve our natural resources be self-defeating?
Abstract
This note develops a model of optimal resource extraction under uncertainty when the stock of the resource has amenity value. In non-stochastic models of resource extraction amenity value usually reduces the rate of extraction. In a stochastic model, however, amenity value may increase or decrease risk aversion. The change in risk aversion in turn may increase or decrease consumption - and hence extraction - depending upon whether the substitution effect dominates the income effect for riskless consumption paths. Paradoxically, it is possible for amenity value to increase the rate of extraction. By cherishing our natural resources we may hasten their depletion. © 2004 Elsevier Inc. All rights reserved.
Publication Title
Journal of Environmental Economics and Management
Recommended Citation
Smith, W., & Son, Y. (2005). Can the desire to conserve our natural resources be self-defeating?. Journal of Environmental Economics and Management, 49 (1), 52-67. https://doi.org/10.1016/j.jeem.2004.04.005
