Spatial Dynamics and Optimal Resource Extraction
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PhD Seminar (Econ)
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Prof Quentin Grafton and Dr Michael Ward
Abstract:Extraction from a common pool resource may result in a divergence between competitive and optimal rates of extraction. This article develops a theoretical model to estimate the size of the payoffs from this divergence under alternative spatial representations. Results show that when a resource is heterogeneously distributed spatially, assuming a spatially homogeneous distribution can underestimate the losses with competitive extraction. An application of the model to a real-world aquifer shows the importance of recognizing spatial heterogeneity in resource extraction problems to: (1) provide robust estimates of the costs of sub-optimal extraction and; (2) implement appropriate corrective policies.
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