Nature’s decline and recovery — Structural change, regulatory costs, and the onset of resource use regulation

Abstract

Many renewable natural resources have been extracted beyond sustainable levels. While some resource stocks have recovered, others are still over-extracted, causing substantial economic losses. This paper develops a model motivated by empirical facts about resource use and regulation to understand these patterns. The model is a dynamic model of a dual economy with technological progress, structural change, and costly resource regulation. Based on this model, we show that technological progress explains the initial increase in resource use. Technological progress also induces structural change and a decline in resource users. While the declining number of resource users does not directly lead to resource recovery, it does reduce regulatory costs, paving the way for resource regulation and recovery. Our results show that although technological progress can contribute to resource degradation, it also helps resource recovery through reduced regulatory costs. Our results suggest further that a temporal use beyond sustainable levels can be socially optimal until regulatory costs fall below the benefits of regulation.