Economics of Renewable Resources
December 8, 2010
Time: 2 hours
Answer any THREE questions. Do not attempt to answer more than three questions. The three questions that you answer will be given equal weight.
This examination is to be returned with your examination booklets.
Economists have argued for over sixty years that the economics of natural resources, both renewable and non‐renewable, is basically an application of the economist’s theory of capital and theory of investment. After distinguishing between the theory of capital and the theory of investment, explain why the renewable natural resources studied by you, such as fishery resources and forests, can clearly be seen as forms of “natural” capital. In what sense can society “invest” positively in such resources. Take a forestry or fishery example.
It is argued that the tendency to engage in excessive disinvestment (overexploitation) of renewable natural resources will be heavily influenced by the nature of the property rights surrounding such resources. With this in mind, explain why overexploitation of world capture fishery resources has been a chronic problem, while such overexploitation is not a chronic problem in Canadian forests, e.g., the forests of British Columbia.
2.(a) When a stand of trees is harvested for commercial purposes, the land can then be replanted to produce a new crop of trees. What impact does the opportunity for successive re‐planting have upon the determination optimal rotation period? In particular, does the existence of this re‐ planting opportunity tend to lengthen or shorten the optimal rotation period? Why?
Once successive re‐planning is taken in to account, what impact does the social rate of discount have to play upon the rotation period and harvest policies. Illustrate by taking the extreme ...