# Resource Economics

**by**Jon M. Conrad

### 9780521697675

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## Summary

**Resource Economics** is a text for students with a background in calculus and intermediate microeconomics and a familiarity with the spreadsheet software Excel.

The book covers basic concepts (Chapter 1), shows how to set up spreadsheets to solve simple dynamic allocation problems (Chapter 2), and presents economic models for fisheries, forestry, nonrenewable resources, and stock pollutants (Chapters 3-6).

Chapter 7 examines the maximin utility criterion when the utility of a generation depends on consumption of a manufactured good, harvest from a renewable resource, and extraction from a nonrenewable resource. Within the text, numerical examples are posed and solved using Excel's Solver.

Exercises are included at the end of each chapter. These problems help make concepts operational, develop economic intuition, and serve as a bridge to the study of real-world problems in resource management.

"**Jon Conrad's second edition of** **Resource Economics** is an articulate, well-organized presentation of key applications of intertemporal economics to problems of natural resources. More than a routine update of the first edition, it admirably balances theoretical rigor and clarity in the presentation of models, with the kinds of institutional discussions that motivate students to think about research questions." **- Robert T. Deacon, University of California, Santa Barbara**

## Table of Contents

Preface to the Second Edition: What Stayed, What Went, What's New? | p. xi |

Acknowledgments | p. xiii |

Basic Concepts | p. 1 |

Renewable, Nonrenewable, and Environmental Resources | p. 1 |

Population Dynamics: Simulation, Steady State, and Local Stability | p. 5 |

Extraction of a Nonrenewable Resource | p. 10 |

Discounting | p. 11 |

A Discrete-Time Extension of the Method of Lagrange Multipliers | p. 17 |

Asymptotic Depletion of a Nonrenewable Resource | p. 25 |

The Maximum Principle and Dynamic Programming in Discrete Time | p. 26 |

Dynamic Programming in a Two-Period, Two-State Model | p. 30 |

A Markov Decision Model and Stochastic Dynamic Programming | p. 32 |

Exercises | p. 34 |

Solving Numerical Allocation Problems Using Excel's Solver | p. 41 |

Introduction and Overview | p. 41 |

Optimal Rotation for an Even-Aged Forest | p. 42 |

Solving an Implicit Equation for the Optimal Steady-State Fish Stock | p. 45 |

Solving an Implicit Equation for the Optimal Date of Exhaustion | p. 47 |

Optimal First-Period Harvest in a Two-Period, Two-State Model | p. 47 |

The Optimal Linear Harvest Policy | p. 50 |

Optimal Escapement in a Finite-Horizon Deterministic Model | p. 52 |

Optimal Escapement for One Realization (Seed 1) of Z_{t+1} | p. 53 |

An Optimal Depletion Problem: The Mine Manager's Problem | p. 55 |

Approximating the Asymptotic Approach to a Bioeconomic Optimum | p. 58 |

The Most Rapid Approach Path to an Optimal Pollution Stock | p. 63 |

Optimal Escapement with Stochastic Growth | p. 67 |

Exercises | p. 69 |

The Economics of Fisheries | p. 75 |

Introduction and Overview | p. 75 |

Net Growth | p. 76 |

Fishery Production Functions | p. 79 |

The Yield-Effort Function | p. 82 |

The Static Model of Open Access | p. 84 |

The Dynamic Model of Open Access | p. 85 |

Regulated Open Access | p. 90 |

Maximization of Static Rent | p. 95 |

Present-Value Maximization | p. 97 |

Traditional Management Policies | p. 102 |

Bioeconomic or Incentive-Based Management Policies | p. 105 |

Marine Reserves | p. 120 |

Exercises | p. 126 |

The Economics of Forestry | p. 132 |

Introduction and Overview | p. 132 |

The Volume Function and Mean Annual Increment | p. 133 |

The Optimal Single Rotation | p. 135 |

The Faustmann Rotation | p. 136 |

An Example | p. 139 |

Timber Supply | p. 143 |

The Optimal Stock of Old-Growth Forest | p. 146 |

Exercises | p. 149 |

The Economics of Nonrenewable Resources | p. 153 |

Introduction and Overview | p. 153 |

A Simple Model | p. 154 |

Hotelling's Rule | p. 156 |

The Inverse Demand Curve | p. 157 |

Extraction and Price Paths in the Competitive Industry | p. 159 |

Extraction and Price Paths under Monopoly | p. 164 |

Reserve-Dependent Costs | p. 167 |

Exploration | p. 171 |

The Economic Measure of Scarcity | p. 176 |

A Postscript to "Betting the Planet" | p. 195 |

Exercises | p. 196 |

Stock Pollutants | p. 200 |

Introduction and Overview | p. 200 |

The Commodity-Residual Transformation Frontier | p. 202 |

Damage Functions and Welfare | p. 204 |

A Degradable Stock Pollutant | p. 207 |

Diffusion and a Nondegradable Stock Pollutant | p. 212 |

Optimal Extraction with a Nondegradable Waste | p. 220 |

Climate Change | p. 223 |

Emission Taxes and Marketable Pollution Permits | p. 229 |

Exercises | p. 238 |

Maximin Utility with Renewable and Nonrenewable Resources | p. 242 |

Introduction and Overview | p. 242 |

The Maximin Criterion | p. 244 |

The Gini Coefficient | p. 246 |

Growth with Resources, Intergenerational Utility, and the Maximin Criterion | p. 248 |

Overlapping Generations | p. 255 |

Complications | p. 261 |

An Exercise | p. 262 |

Annotated Bibliography | p. 263 |

Index | p. 283 |

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