Optimal Harvesting Under Resource Stock and Price Uncertainty

24 Pages Posted: 3 Feb 2005

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Luis Hernan Radomiro Alvarez

University of Turku - Turku School of Economics

Date Written: January 2005

Abstract

We analyze optimal harvesting policy under stochastic price and stock dynamics. We state a set of weak conditions under which the optimal policy can be characterized by a single exercise threshold and show that the value of optimal harvesting and depletion policies can be expressed as the separable form according to which only the current price and the expected per capita growth rate affect the threshold, while under risk neutrality volatility of price dynamics will have no effect. Uncertainty makes waiting valuable and the optimal threshold is higher when harvesting can be exercised only once than in the sequential case.

Keywords: optimal harvesting, stochastic price and stock dynamics, single and sequential harvesting opportunity

JEL Classification: G31, H25, D80

Suggested Citation

Koskela, Erkki and Radomiro Alvarez E., Luis Hernan, Optimal Harvesting Under Resource Stock and Price Uncertainty (January 2005). CESifo Working Paper Series No. 1384. Available at SSRN: https://ssrn.com/abstract=648642

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Luis Hernan Radomiro Alvarez E.

University of Turku - Turku School of Economics ( email )

Rehtorinpellonkat 3
FIN-20500 Turku
Finland

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