A Characterization of the Optimal Management of Heterogeneous Environmental Assets under Uncertainty

The application herein involves the optimal management of renewable and nonrenewable resources within the context of a stochastic model of optimal control. By characterizing the two dimensional Bellman solution, three rules with respect to resource management are established. Within the context of coastal development, this analysis may help to explain why renewable resources may become increasingly vulnerable to random external shocks as nonrenewable resources are depleted. Although existence of an optimal closed form solution to the multi-sector Bellman model remains an open mathematical question, this analysis offers a characterization which can be applied to other scenarios in economics or finance in which two assets following stochastic processes interact