Renewable Resource Use and Nonseparable Amenity Benefits

Abstract

We incorporate amenity benefits into an overlapping generations model with a renewable resource as a factor of production, source of amenity benefits and store of value. Unlike the conventional renewable resource problems studied under the assumption of additive consumption and amenity benefits, we let amenity benefits affect the utility of consumers in a nonseparable fashion. We examine the role that weights given to consumption and amenities have for harvesting and the resource stock. We characterize dynamics and stability of steady state equilibria with a logistic resource growth function. We demonstrate in parametric and numerical models that the weights given to consumption and amenities in the utility function matter substantially for the steady state equilibrium stock and its stability and dynamics. Both conventional saddle point equilibria and indeterminacy with infinite number of equilibria and saddle-node bifurcation is possible depending on the weights given to consumption and amenities. In addition, we show that for each inefficient equilibrium stock, there is a unique subsidy rate that can move the economy from an inefficient equilibrium to an efficient one. The presence of indeterminacy provides a challenge to resource policies, because the system becomes unpredictable. Therefore, expectations and market psychology may play an important role in resource utilization and provision of amenities.