A Characterization of the Optimal Management of Heterogeneous Environmental Assets under Uncertainty

Abstract

The application herein involves the optimal management of renewable and nonrenewable resources within the context of a stochastic model of optimal control. By characterizing the two dimensional Bellman solution, three rules with re-spect to resource management are established. Within the context of coastal development, this analysis may help to ex-plain why renewable resources may become increasingly vulnerable to random external shocks as nonrenewable re-sources are depleted. Although existence of an optimal closed form solution to the multi-sector Bellman model remains an open mathematical question, this analysis offers a characterization which can be applied to other scenarios in eco-nomics or finance in which two assets following stochastic processes interact.