Economics Of Natural Resource Use

Question 1

Open Access

Answer 1

• Lack of secure property rights to anyone.
• This leads to exploitation
• No incentive to sustain the resource for the future

Question 2

Private property

Answer 2

• Incentive to sustain the resource
• Incentive to exploit the resource (possibly up to extinction)
• if rate of return from sustainable harvest < interest rate : put receipts in bank account & earn interest

Question 3

Common Property

Answer 3

• Collective ownership

Question 4

How to make preservation of renewable resources more attractive

Answer 4

• mitigate moral hard issues
• eco- tourism
• Stewardship Council certification (forestry and Marine)
• lease forest to pharmaceutical companies to research on cures

Question 5

Hotelling Rule

Answer 5

• Resource should be depleted in such a way that the growth rate of this resource’s price is equal to the discount rate/ interest rate
• By leaving resources on the ground, the resource owner to expect capital gains as the resource price rises through time