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ncdnumericaljune1

ncdnumericaljune1 - Numerical Analysis of Non-constant...

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Numerical Analysis of Non-constant Discounting with an Application to Renewable Resource Management Tomoki Fujii Larry Karp May 31, 2006 Abstract The possibility of non-constant discounting is important in environmental and resource management problems where current decisions affect welfare in the far-distant future, as with climate change. The dif fi culty of analyzing models with non-constant discounting limits their application. We describe and provide software to implement an algorithm to numerically obtain a Markov Perfect Equilibrium for an optimal control problem with non-constant discounting. The software is available online. We illustrate the approach by studying welfare and observational equivalence for a particular renewable resource man- agement problem. Keywords: Non-constant discounting, numerical methods, non-renewable resources, observational equivalence. JEL classi fi cation numbers: C63, Q20 School of Economics and Social Sciences, Singapore Management University, 90 Stamford Road, 178903 Singapore email:[email protected] Department of Agricultural and Resource Economics, 207 Giannini Hall, University of California, Berkeley CA 94720 email:[email protected]
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