Stock-dependent Uncertainty and Optimal Resource Exploitation

Abstract

The probability that an agent takes a certain action or a certain event occurs depends often on the actions taken by some agents. If this probability depends not only on current actions but on the sum of all past actions, these stock-dependent risks imply an intertemporal effect. In the present paper, we analyse this problem using an example concerning the exploitation of a nonrenewable, exhaustible common-pool resource. The paper discusses resource extraction policies under endogenous closure risks which depend on the accumulated stock of extracted resources. The notion of closure risks means that a certain resource may be no longer available although its physical stock was not completely extracted. Closure risks mirror two different, important phenomena which have not yet been considered in the literature in the context of stock dependency.