Time-consistent renewable resource management with present bias and regime shifts

Abstract

We investigate the extraction plan of present-biased decision makers managing a renewable resource stock whose growth is uncertain and which could undergo a rapid and significant change when stock falls below a threshold. We show that the Markov-Nash equilibrium extraction policy is unique, time consistent, and increasing in resource stock. An increase in the threshold leads to increased resource extraction, rather than the precautionary reduction in extraction often observed with exponential discounting. An increase in the degree of present bias also leads to an increase in resource extraction. Our analysis suggests that accounting for and appropriately dealing with resource managers’ present bias may be important to understand resource use sustainability.