Scenes from a Monopoly: Quickest Detection of Ecological Regimes
Neha Deopa  1, *@  , Daniele Rinaldo  2@  
1 : Institut de hautes études internationales et du développement  (IHEID)  -  Website
Institut de hautes études internationales et du développement P.O.Box 136, 1211 Geneva 21 -  Switzerland
2 : University of Cambridge [UK]  (CAM)  -  Website
The Old Schools, Trinity Lane, Cambridge CB2 1TN -  United Kingdom
* : Corresponding author

Decisions under ecological uncertainty are a crucial part of resource management as many ecological systems undergo abrupt regime shifts, frequently triggered by the actions of the resource harvester. We study the stochastic dynamics of a renewable resource harvested by a monopolist where harvesting affects the resource's potential to regenerate, resulting in sequential endogenous regime shifts. The firm faces uncertainty in the timing of these shifts. We encapsulate in our model environmental surveillance of ecological dynamics where the firm has to find the profit-maximizing extraction policy while simultaneously detecting in the quickest time possible the change in regime. Our key finding is that post-detection of a negative regime shift, for low stock levels, a precautionary behaviour can result due to increasing value of in situ stock. At higher levels, this behaviour is offset by an elastic demand as declining resource rent and effective marginal costs of production result in aggressive extraction. We find that intensification of extraction is possible due to a sense of urgency caused by the prospect of resource collapse. We study the probability of resource extinction and show the emergence of catastrophe risk which can be both reversible and irreversible based on the extinction's expected arrival time.


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