Estimating Intertemporal Preferences for Natural Resource Allocation

Posted: 16 Feb 2007

See all articles by Richard E. Howitt

Richard E. Howitt

University of California, Davis

Siwa Msangi

International Food Policy Research Institute; International Food Policy Research Institute (IFPRI)

Arnaud Reynaud

National Institute for Agricultural Research (INRA) - UMR LERNA

Keith C. Knapp

University of California - Environmental Science

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Abstract

In this article, we show how the degree of risk aversion, discounting, and preference for intertemporal substitution for a natural resource manager can be structurally estimated within a recursive utility framework. We focus on the management of a reservoir in California, and test the data for consistency with a recursive utility model specification versus standard time-additive separability. The results show that the data are consistent with a risk-averse manager with recursive preferences. The data also reject time-additive separability, with or without risk aversion, such as the standard constant relative risk aversion utility model. The improvement in model fit when recursive preferences are used is notable.

Suggested Citation

Howitt, Richard E. and Msangi, Siwa and Reynaud, Arnaud and Knapp, Keith C., Estimating Intertemporal Preferences for Natural Resource Allocation. American Journal of Agricultural Economics, Vol. 87, No. 4, pp. 969-983, November 2005, Available at SSRN: https://ssrn.com/abstract=963676 or http://dx.doi.org/10.1111/j.1467-8276.2005.00781.x

Richard E. Howitt (Contact Author)

University of California, Davis ( email )

One Shields Avenue
Department of Agricultural and Resource Economics
Davis, CA 95616
United States
(530) 752-1521 (Phone)

Siwa Msangi

International Food Policy Research Institute ( email )

2033 K Street NW
Washington, DC 20006
United States
202-862-5663 (Phone)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Arnaud Reynaud

National Institute for Agricultural Research (INRA) - UMR LERNA ( email )

21, Allee de Brienne
31000 Toulouse
France

Keith C. Knapp

University of California - Environmental Science ( email )

College of Natural and Agricultural Sciences
Riverside, CA 92521
United States
(951) 827-4195 (Phone)
(951) 827-3993 (Fax)

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