Essays on information gathering and the use of natural resources

The objective in this thesis is to pose and to answer to some questions concerning the role played by information in decisions on the economic allocation of natural resources. In chapter 2 the design of a voluntary incentive scheme for the provision of ecosystem services is considered, having in mind the forested areas in developing countries where a governmental agency plans to introduce a set-aside policy. Payments are offered to the landowners to compensate the economic loss for not converting land to agriculture. The information asymmetry between the agency and the landowners on the opportunity cost of conservation gives incentive to the landowners to misreport their own "type". A principal - agent analysis is developed, adapted and extended to capture real issues concerning conservation programs in developing countries. I show that the information asymmetry may seriously impact on the optimal scheme performance and, under certain conditions, may lead to pay a compensation even if any additional conservation is induced with respect to that in absence of the scheme. In chapter 3 an intergenerational dynamic game is solved under time- inconsistency. The optimal harvest timing for a natural forest is determined under uncertainty on the flow of amenity value derived from conservation and irreversibility. Due to time-varying declining discount rates intertemporal inconsistent harvest strategies arise. The value of the option to harvest is eroded and earlier harvest occurs under both the assumptions of naïve and sophisticated belief on future generations time-preferences. This results in a bias toward the current generation gratification which affects the intergenerational allocation of benefits and costs from harvesting and conserving. In chapter 4 a forest owner with hyperbolic time preferences is considered. At each period the irreversible decision to harvest an old-growth forest could be taken, while conservation is the alternative. Flows of future amenity value are uncertain while the net value of stumpage timber is known and constant. The decision problem is expressed as an optimal stopping problem and solved analytically in a time-inconsistent framework under the assumption of sophisticated belief on future trigger strategies. Premature harvesting occurs. To avoid socially undesirable harvesting the impact of hyperbolic discounting must be accounted and a modified optimal pigovian tax on the wood revenues is proposed. Finally, in chapter 5 a government bargains a mutually convenient agreement with a foreign firm to extract a natural resource. The firm bears the initial investment in field research and infrastructures and earns as a return a share on the profits. The firm must cope with uncertainty due to market conditions and, as initial investment is totally sunk, also due to the risk of successive expropriation. In a real options framework where the government holds an American call option on expropriation I show under which conditions Nash bargaining is feasible and leads to attain a cooperative agreement maximizing the joint venture surplus keeping into account both the sources of uncertainty on profit realizations. I show that the investment trigger does not change under the threat of expropriation, while the set of feasible bargaining outcomes is restricted and the distributive parameter is adjusted to account for the additional risk of expropriation.