Modeling Uncertainty in Large Natural Resource Allocation Problems

64 Pages Posted: 21 Feb 2020 Last revised: 22 Feb 2020

See all articles by Yongyang Cai

Yongyang Cai

Ohio State University (OSU); Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Jevgenijs Steinbuks

World Bank - Development Research Group (DECRG)

Kenneth L. Judd

Stanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER)

Jonas Jaegermeyr

University of Chicago - Department of Computer Science

Thomas W. Hertel

Purdue University - Center for Global Trade Analysis; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Date Written: February 20, 2020

Abstract

The productivity of the world's natural resources is critically dependent on a variety of highly uncertain factors, which obscure individual investors and governments that seek to make long-term, sometimes irreversible investments in their exploration and utilization. These dynamic considerations are poorly represented in disaggregated resource models, as incorporating uncertainty into large-dimensional problems presents a challenging computational task. This study introduces a novel numerical method to solve large-scale dynamic stochastic natural resource allocation problems that cannot be addressed by conventional methods. The method is illustrated with an application focusing on the allocation of global land resource use under stochastic crop yields due to adverse climate impacts and limits on further technological progress. For the same model parameters, the range of land conversion is considerably smaller for the dynamic stochastic model as compared to deterministic scenario analysis. The scenario analysis can thus significantly overstate the magnitude of expected land conversion under uncertain crop yields.

Suggested Citation

Cai, Yongyang and Steinbuks, Jevgenijs and Judd, Kenneth L. and Jaegermeyr, Jonas and Hertel, Thomas W., Modeling Uncertainty in Large Natural Resource Allocation Problems (February 20, 2020). World Bank Policy Research Working Paper No. 9159, Available at SSRN: https://ssrn.com/abstract=3542024

Yongyang Cai (Contact Author)

Ohio State University (OSU) ( email )

Department of Agricultural, Environmental
and Development Economics
Columbus, OH 43210
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Jevgenijs Steinbuks

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Kenneth L. Judd

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jonas Jaegermeyr

University of Chicago - Department of Computer Science ( email )

Chicago, IL
United States

Thomas W. Hertel

Purdue University - Center for Global Trade Analysis ( email )

Department of Agricultural Economics
1145 Krannert Building
West Lafayette, IN 47907-1145
United States
765-494-4199 (Phone)
765-494-9176 (Fax)

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

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