OPTIMAL RESOURCE DEVELOPMENT
AND IRREVERSIBILITIES:
COOPERATIVE AND NONCOOPERATIVE SOLUTIONS

ANASTASIOS XEPAPADEAS

Abstract:

This paper derives and compares free boundaries for the problem of irreversible development of an environmental resource under uncertainty, by explicitly taking into account the facts that: (i) there might be more than one private profit-maximizer decision-maker that acquires profits by developing the resource involved in the problem; (ii) there might be interactions among these decision-makers, in the sense that the development undertaken by a certain developer might affect the cost of the rest; and (iii) the undeveloped resource has an environmental value which is not taken into account by the individual developers but might be accounted for in the context of an optimal development problem faced by a social planner or environmental regulator. By comparing the three resulting free boundaries, it is shown that the noncooperative solution implies the fastest development as compared to cooperative outcomes. Policy schemes in the form of development fees and development limits which can secure the cooperative outcome are determined.