The Intertemporal Tradeoff

1
The Intertemporal Tradeoff

• How much are you willing to sacrifice today to
  have a better future?
• What factors do you consider when making that
  decision?
• (There are no easy tradeoffs)

2
Dynamic Efficiency

• The math and graphs illustrate a conceptual
  framework and demonstrate a basic analytical
  rule
• Maximizing the net benefits provided by a
  resource requires that the present value of the
  marginal net benefits be the same for all
  periods.

3
Static View
P
S
What happens to net benefits if Q does not equal
Q? (should be able to do a simple analytical
example)
D
Q
Q
4
Key Thoughts About the Framework

• Nothing changes if you extend the number of
  periods
• or if you leave a buffer stock at the end
• or if the resource stock has a growth rate
• In short the framework is analytically sound.
  It is not a matter of perspective or opinion. A
  fact that invites a few questions about why we do
  not manage resources efficiently and/or what we
  might do to fix it.

5
Economics and Resource Management

• Getting the prices right
• Ownership issues
• Sole owner and profit maximization
• Government or common property issues
• Open access
• Population growth
• Substitutability and sustainability
• (You should be able to answer short discussion
  questions about these issues I will provide
  examples.)

6
Economics and Resource Management (cont)

• In addition to managing a resource stock over
  time (e.g., fisheries), we have to choose between
  alternative investments or projects
• Cost Benefit Analysis
• Calculating net present value (should be able to
  do)
• CBA as a decision framework
• Strengths and weaknesses (including ethical
  critiques)
• NPV vs. B/C ratio vs. IRR