Moretto M., Rosato P. (2002)

The Value of Licenses for Recreational Use of Natural Resources. In Economic Studies on Food, Agriculture, and the Environment. 

 

Summary:

The paper provides a behavior model of a consumer considering the purchase of a license that allows him to benefit from a natural resource in a certain place, for a certain period of time, and according to pre-established rules and procedures. We developed a model starting from the assumption that the opportunity to purchase a license can be likened to a call option, given that the uncertainty concerning the future benefits and the irreversibility of the expenditure may make it expedient to wait before purchasing. Furthermore, the model includes the main factors conditioning the perceived utility of the recreational activity (i.e. the stock of resources, the number of rivals, and operations designed to enrich/deplete stock levels) with particular attention to the uncertainty that characterizes activities pertaining to biological resources. The first result concerns the effect of uncertainty. It acts as a deterrent to the purchase of the license and lengthens the optimal duration. Generally speaking, therefore, the first tool available to an agency appointed to regulate the purchase of licenses for recreational activities is the quality of the information to be circulated.

A subsequent analysis enabled us to highlight the effect produced by an uncertain sharp change in the stock of resource on the optimal duration of the license. It emerged that, as the discount rate increases, shorter duration is not always favored, as might be expected with the net present value criterion.

Optimal license duration also depends on the elasticity of the supply function: as the elasticity decreases, optimal duration decreases. This highlights a second possibility of intervention for the agency: by modulating the supply function with respect to the duration, it can directly condition consumers’ choices. Finally, irreversibility and uncertainty lengthen the optimal duration of the license, as longer duration reduces the effect of the variability of future benefits.