Nature's Decline and Recovery – Structural Change, Regulatory Costs, and the Onset of Resource Use Regulation

Abstract

Many renewable natural resources have been extracted beyond sustainable levels. While some resource stocks have been subsequently recovered, others are still used at levels below their long-run optimum, causing substantial economic losses to resource users. We build a multi-period model of a dual economy with technological progress, structural change and costly resource regulation to understand the process of resource use beyond sustainable levels and recovery.We show that technological progress explains the initial increase in resource use. It also leads to structural change and a reduction in resource users, paving the way for resource regulation and resource recovery. Using data from global fisheries, we determine the onset of effective resource regulation through changes in the harvesting pattern. Based on an instrumental variable approach we show that the onset of regulation coincides with the decline of regulatory costs related to the number of resource users, consistent with our theoretical prediction. Our results suggest that although technological progress can contribute to resource degradation, it may also help resource recovery.

Keywords: renewable resources, endogenous regulation, structural change, regulation costs, resource conservation, dual economy, technological change