Optimal Management of a Renewable Resource Under Multiple Regimes

Resource industries may be subject to regime shifts in environmental as well as economic conditions. Regime shifts in different dimensions require carefully calculated policies that reflect probabilities and welfare effects. In a simple model, I extend the established approach to regime shifts to consider the combined effects of regimes in multiple dimensions. I consider both exogenous and endogenous risks of regime shifts in cases of both observable and unobservable regimes. The unique model has a nonlinear objective function, and model solutions are established via recent developments in optimization that invoke a vector-valued value function.

Automated summary

Resource industries may face regime shifts in environmental and economic conditions, requiring carefully calculated policies that consider probabilities and welfare effects. This study extends the established approach to regime shifts by considering the combined effects of regimes in multiple dimensions, accounting for both observable and unobservable regime risks.