# Resource Economics

## Synopsis

Resource Economics is a text for students with a background in calculus, intermediate microeconomics, and a familiarity with the spreadsheet software Excel. The book covers basic concepts, shows how to set up spreadsheets to solve dynamic allocation problems, and presents economic models for fisheries, forestry, nonrenewable resources, stock pollutants, option value, and sustainable development. Within the text, numerical examples are posed and solved using Excel's Solver. Through these examples and additional exercises at the end of each chapter, students can make dynamic models operational, develop their economic intuition, and learn how to set up spreadsheets for the simulation of optimization of resource and environmental systems.

## Excerpt

This book was written for students seeking an intermediate-level text in resource economics. It presumes that students have had differential calculus and intermediate microeconomics. It is designed to bridge the gap between texts which require only introductory economics and those which require graduate microeconomics and advanced methods of dynamic optimization such as the maximum principle and dynamic programming.

This text employs first-order difference equations to describe the change in a resource as it is harvested or extracted. Resource management is cast as a problem of optimal allocation over time, or dynamic optimization. The method of Lagrange multipliers is introduced to pose such problems conceptually and to examine the conditions that optimal management must satisfy. The unique and ideally appealing feature of this text is the use of Microsoft Excel Spreadsheet and Solver, a nonlinear programming algorithm within Excel, to solve numerical problems. Numerical problems help students see the dynamic trade-offs inherent in resource management and serve as a bridge from a general model to an empirical study of a real-world resource management problem. A familiarity with Excel is helpful but not essential. Chapter 2 introduces the student to Excel and shows how spreadsheets might be set up so that Solver can determine the optimal extraction of a nonrenewable resource or the optimal harvest of a renewable resource. By working through the examples in the text and the exercises at the end of each chapter the student will develop a feel and economic intuition for dynamic allocation problems along with an ability to solve and interpret numerical optimization problems.

The introductory chapter on basic concepts and Chapter 2 on solving numerical problems are followed by four chapters which develop economic models for the management of fisheries, forests, nonrenewable resources, and stock pollutants. Chapter 7 reviews the basic concepts in cost-benefit analysis on the way to a discussion of option value and the evaluation of decisions that are risky and irreversible. Chapter 8 explores the concept of sustainable development from several perspectives.

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