Renewable resource and harvesting cost in a simple monetary overlapping generation economy

Abstract

The literature has shown that the long-term preservation of renewable resources is ensured in two situations: (1) when the resource can be used as a store of value, and (2) when households are altruistic. This article shows that there is a third situation in which renewable resources are preserved in the long term: when harvesting is costly. To prove this, a monetary overlapping-generations economy is developed, in which a renewable resource is held by a representative household living through two periods. In his youth, he inherits the resource from his parents and decides how much to harvest. Income from the sale of the harvest is saved entirely in fiat currency to finance consumption in old age. It is assumed that harvesting takes time (harvesting cost), and so the young household has to trade off leisure for harvesting. In this simple context, we show that the resource level can be different from zero in the long term (resource preservation). In particular, we observe that two stationary states can coexist: one with a low resource level (overexploitation) and the other with a high resource level (underexploitation). Moreover, with a sufficiently productive harvesting technology, cycles of period two can emerge around each stationary state (flip bifurcation), as well as local indeterminacy around the stationary state with the highest resource level. In this sense, the cost of harvesting seems to be both a source of preservation and a source of resource fluctuations.JEL classification: E32, O44, Q20.