The Optimal Use of Natural Resources—The Choice between Preservation and Development

Daniel Shefer

DOI: 10.2190/F2TL-J5AM-N2NJ-M27K


In recent years modern society finds itself on the horns of a dilemma; on one hand, there exists the desire to preserve natural environment and prevent their rapid exploitation, and on the other hand to achieve rapid development through greater production and consumption. The dilemma is particularly acute with respect to exhaustible natural resources whose rate of replenishment is very slow. The basic question is in fact the allocation of a commodity, whose supply quantity is limited, between two alternative uses; namely, preservation and development. Such allocation, via the market mechanism, is likely to be skewed against the socially optimal amount of preservation.

There are several reasons for this assertion: (1) difficulties with the assessment of the present value of net social benefits from preservation, particularly social benefits which represent dubious concepts such as consumer's surplus and option value and whose social rate of discount is debatable. (2) technological progress. (3) effect of socio-economic and demographic factors on society's future demand for preserved natural environment. These are very important issues since transformation of natural resources from one state to another is irreversible. In fact, it is a problem of intertemporal optimal allocation of natural resources from the standpoint of society's social benefits.

This problem is typical to a large class of problems when current public decisions should be taken with regard to future events. A closed example is the problem of how to allocate land in an urbanized area for the various uses so as to accommodate future differential intensification of land consuming activities.

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