Market structure and sustainable use of natural resources

Sustainable use of natural resources becomes an important issue today not only due to global warming and pollution issues but also because of critical pressure on the Earth's regeneration possibility. We cannot use classical microeconomic approach here for two reasons: a) impossibility to create natural resources, both exhaustible and renewable, by simple use of labour and capital (like it is done on most of macroeconomic growth models); b) important role of spatial distribution and transport cost than leads to both overharvesting and under-harvesting in some regions. Due to these externalities market organization is extremely important for sustainability, and this question will be studied here in theoretical framework. The goal of this paper is to study the role of market structure for the sustainable harvesting of natural resources. This work is theoretical and uses explicit spatial structure as a component of production function. It continues other works of Yegorov (2005, 2007, 2009) where economic production function accounted explicitly for topological properties of geographical space. Contrary to the previous works, this uses also reproduction equation for renewable resources. The intensity of harvesting follows from market structure and is driven not only by population density but also by land ownership, land rent, transport cost and discount for future. The results show that overharvesting can originate in purely market laws because it does not account for an interaction between economy and nature. The models show that optimal harvesting of natural resources is highly sensitive to such economic parameters as the price of final good, energy price index, land rent and time discount. Land ownership by small farmers keeps the hope of more sustainable resource exploitation because they do not care about land rent and virtually have no time discount. However, they can also overexploit the resource if they have no idea about its dynamics under harvesting. Super-rational farmers who have such knowledge can choose lower land slots and exploit them moderately. However, they can loose competition to farmers who are rational only in economic sense and overexploit their land slots. References 1. Yegorov Y. (2005) Role of Density and Field in Spatial Economics? ? In: Yee Lawrence (Ed). Contemporary Issues in Urban and Regional Economics. Nova Science Publishers, 2005, N.Y., p.55-78. 2. Yegorov Y. (2007) Dynamics of Spatial Infrastructure with Application to Gas and Forest, 6th Conference on Applied Infrastructure Research (Infraday), TU Berlin, Germany, 5-6 October 2007. 3. Yegorov Y. (2009) Socio-economic influences of population density. Chinese Business Review, vol.8, No. 7, p.1-12.