Estimating Intertemporal Preferences for Natural Resource Allocation |
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| Authors: | Richard E Howitt Siwa Msangi Arnaud Reynaud Keith C Knapp |
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| Institution: | Richard E. Howitt is professor, Department of Agricultural and Resource Economics, University of California, Davis, CA. Siwa Msangi is research fellow, International Food Policy Research Institute, Washington, DC. Arnaud Reynaud is research fellow, LERNA-INRA, University of Social Sciences, Toulouse. Keith C. Knapp is professor, Department of Environmental Sciences, University of California, Riverside, CA. |
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| Abstract: | In this article, we show how the degree of risk aversion, discounting, and preference for intertemporal substitution for a natural resource manager can be structurally estimated within a recursive utility framework. We focus on the management of a reservoir in California, and test the data for consistency with a recursive utility model specification versus standard time-additive separability. The results show that the data are consistent with a risk-averse manager with recursive preferences. The data also reject time-additive separability, with or without risk aversion, such as the standard constant relative risk aversion utility model. The improvement in model fit when recursive preferences are used is notable. |
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| Keywords: | dynamic estimation recursive utility stochastic dynamic programming water management |
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