A dynamic model of renewable resource harvesting with Bertrand competition

In this paper a dierential game model of renewable resource ex- ploitation is considered in which rms compete in exploiting a com- mon resource in a Bertrand price-setting game. The model character- izes a situation in which rms extract a common renewable resource which after harvesting may be considered a dierentiated product. Firms then choose prices rather than harvest quantities. Quantities extracted are determined by consumer demand. Optimal price and harvest policies are determined in a linear state dierential game for whichr open-loop and feedback strategies are known to be equuiva- lent. Furthermore, the case of search costs and capacity constraints is analysed and the role they play in determining the dynamics of the resource stock is considered. The results are compared to those of Cournot competition which has been analysed extensively in the literature. Previous studies of dierential games applied to renewable resource harvesting have concentrated on quantity competition (see for example [12]) and the case of price competition has been largely ignored. the exceptions to this have been in the more empirical litera- ture where evidence for price competition versus quantity competition for renewable resources such as sheries is mounting [1]. Consequently the results presented here are not only new, but possibly of greater empirical relevance than existing results on quantity competition.linear-state differential game, Bertrand competition, renewable resources, fisheries

The river sharing problem: A review of the technical literature for policy economists

Water is essential for life. However, the basic problem of water resource allocation has been that water tends to be over-allocated. Demand for water exceeds the available supply. Essentially, the water economy is bankrupt. Bankruptcy problems have been almost exhaustively studied in the literature on economic theory-primarily from the perspective of cooperative game theory. The main concern of this literature has been how to fairly divide up the assets of a bankrupt entity. In water resource economics cooperative game theory has often been employed as a means of analyzing water resource allocation. It was only recently that the problem of directional flow was incorporated into such analyses. This has come to be known as the “river sharing problem” in the theoretical literature. Accounting for the direction of flow in water resource allocation problems has profound implications for policies that wish to facilitate both fair and efficient water allocations. This is the case whether proposed policies are interventionist or market based in nature. There is now a considerable literature on the allocation and distribution of water resources characterized by unidirectional flow. In this paper I critically review and appraise this literature with a view to making it more accessible to applied and policy economists. A key feature of the paper is that the connection between the bankruptcy literature, which has recently also realized the importance of flow, and the river sharing literature is discussed. The current state of the art in game theoretic models of water resource allocation with directional flow is discussed and implications and consequences for water resource policy highlightedRiver sharing problem, Bankruptcy, Cooperative game theory, Water resouyrce allocation, distributive justice

Rent seeking, interest groups and environmental lobbying: Cane Farmers versus Great Barrier Reef Protectionists

In this paper an interest group model of rent seeking behaviour between sugarcane farmers and environmental protectionists is developed. The motivation for this scenario comes from the debate over fertilizer run-off and its possible impact on Queensland’s Great Barrier Reef. The paper takes Gordon Tullock’s rent-seeking model and applies it to the bargaining process over controls on fertilizer application in an effort to learn something about the likely political outcomes of this debate.Public choice; Environmental economics; Agricultural policy

End-Point versus Point of Sale Levying of Plant Breeding Royalties: An Economic Analysis using Optimal Control Theory

Intellectual property rights for commercial crops have become in- creasingly controversial as plant breeders have sought to protect their investment through licensing and royalties, and farmers, in particular ecologically-oriented farmers, have promoted seed-saving as a conser- vation measure. Plant breeders have argued that seed saving reduces sales to breeders and that the imposition of royalties is necessary to maintain sales and to compensate them for the intellectual property invested in commercial varieties. These issues are explored here. In this paper, an optimal control model of seed purchase decisions in the presence of seed saving is developed. The model is used to analyze the impact of both point of sale royalties and end-point royalties on seed puchase decisions. The two approaches to levying royalties are then compared and policy conclusions drawn.Agricultural economics, plant breeding, intellectual property, royalties

Are international environmental agreements stable ex-post?

In this paper we present a model of international environmental agreements in the presence of threshold effects. The model is in the tradition of models of international environmental agreements formulated as games in partition function form. Games in partition function form allow the incorporation of external effects between players. The model is applied to global climate change agreements. The agreement involves a contract between nations as to the level of abatement of greenhouse gas emissions and how these benefits are to be shared. Benefits to emissions abatement are subject to a threshold. Consequently, we model climate as a global threshold public good. This allows a mechanism to explore incentives and disincentives for signing agreements consequent to a critical number of other players committing to an agreement. We show that thresholds may destabilize what would be an otherwise stable agreement and that combining an emissions tax with an international agreement can be used to restore stability.International environmental agreements; threshold public good; gamma core, global warming and emissions taxation

Environmental lobbying with imperfect monitoring of environmental quality

In this paper we present a two stage game of political lobbying for policies designed to enhance environmental quality. Unlike previous work which has tended to assume perfect monitoring of environmental quality in lobbying games we allow for imperfect monitoring of environmental quality. We characterize perfect public (politico-economic) equilibria in the game for the case of both perfect and imperfect monitoring of environmental quality and compare these with imperfect private monitoring of environmental quality. Results are discussed with respect to farmer behaviour in the context of non-point source pollution and implications for the political consequences of farm extension programmes highlighted.Game theory; public choice; imperfect public monitoring; imperfect private monitoring; non-point source pollution; agricultural extension and public education

Rent Seeking Behavior and Optimal Taxation of Pollution in Shallow Lakes

In this paper we extend earlier work on the economics of shallow lakes by M\"aler, Xepapadeas and de Zeeuw (2003) to the case where two communities have incommensurable preferences about lake eutrophication. In the case of incommensurable preferences interest group behavior arises, we therefore consider the case where society is divided into two interest groups and is thus unable to agree on a single management objective. In particular, the communities that share the use of the lake disagree on the relative importance of the shallow lake acting as a waste sink for phosphorus run-off as opposed to other ecosystem services. A dynamic game in which communities maximize their use of the lake results in a Nash equilibrium where the lake is in a eutrophic state when in fact the Pareto optimum would be for the lake to be in an oligotrophic state. Our paper differs from previous work by considering two communities or interest groups with different preferences for environmental services. The tax that would induce, in a noncooperative context, all of society's members to behave in such a way as to achieve a Pareto optimal outcome is derived under the assumption that a social planner does not favor one community or another. We then ask whether or not such a tax rate would in fact be implemented if each community were able to bear political pressure on the social planner and the social planner were a public representative seeking re-election. In this case both types of communities lobby to have their preferred level of tax applied based on their relative preferences for a clean lake and phosphorus loading. The effects of the lobbying on the application of the optimal tax are investigated numerically for particular values of relative preferences and the relative size of each group. The representative seeking election proposes a different tax rate in order to maximize their probability of electoral success. This problem is solved numerically assuming that the lake is in a eutrophic equilibrium. It is shown that political representatives have an incentive to propose tax rates that are insufficient to achieve a return to an oligotrophic steady-statePollution of shallow lakes; optimal eco-taxation; dynamic rent seeking

The political economy of shallow lakes

Shallow lakes display hysteresis in their response to phosphorous loading. Gradual increases in the nutrient content of the lake can appear to have little effect on the oligotrophic state of the lake until a point at which the lake suddenly flips to a eutrophic state. Ecotaxes on phosphorous loading have been suggested as means to maintain the lake in the socially desirable state - oligotrophic or not - when society can agree on a common welfare function. In this paper, we consider the case where society is divided into two interest groups and is thus unable to agree. In particular, the communities that share the use of the lake disagree on the relative importance of the shallow lake acting as a waste sink for phosphorous run-off as opposed to other ecosystem service. A dynamic game in which communities maximize their use of the lake results in a Nash equilibrium where the lake is in a eutrophic state when in fact the Pareto-optimum would be for the lake to be in an oligotrophic state. The tax that would induce, in a non-cooperative context, all of society's members to behave in such a way as to achieve a Pareto-optimal outcome is derived. Further, both types of communities lobby to have their preferred level of tax applied based on their relative preferences for a clean lake and phosphorous loading. The effects of the lobbying on the application of the optimal tax are investigated for particular values of relative preferences and the relative size of each group.Resource /Energy Economics and Policy,

Comparing Income Distributions Between Economies That Reward Innovation And Those That Reward Knowledge

In this paper, we develop an optimal control model of labor allocation in two types of economy - one economy is for innovative workers and the other one for knowledge workers. In both economies, workers allocate time between learning and discovering new knowledge. Both markets consist of a continuum of heterogeneous agents that are distinguished by their learning ability. Workers are rewarded for the knowledge they possess in the knowledge economy, and only for the new knowledge they create in the innovative economy. We show that, at steady state, while human capital accumulation is higher in the knowledge economy, the rate of knowledge creation is not necessarily higher in the innovative economy. Secondly, we prove that when the cost of learning is sufficiently high, the distribution of net wage income in the knowledge economy dominates that in the innovative economy in the first degree.

Multi-jurisdiction quota enforcement for transboundary renewable resources

Many renewable resources, such as fish stocks, water or environmental quality, are shared between different countries. The management of such resources then relies on international agreements. We develop a model of a shared renewable resource for which there is an international agreement that determines each country’s share of total extractions. Each government is responsible for the enforcement of their national quota. The countries can cheat on the agreement by reducing enforcement efforts and thereby inducing their firms to violate their quotas. We analyze the effects of this in a differential game framework. There are two games. First, a Stackelberg game between the government and the firms within each country. Second, an enforcement game at the international level between different governments. Our results suggest that no free-riding only occurs if countries have asymmetric beliefs regarding the environmental preferences of rival countries. The extent of free-riding in enforcement can be influenced by both domestic and international policy instruments. The effectiveness of domestic instruments (legislation) versus international instruments (treaties) depends to a large extent on resource dynamics and the countries’ preferences for sustainability