A presentation of the economic principles relating to the use and management of natural resources, including analysis of optimal use policies.

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This paper articulates and applies frameworks for examining whether consumption is excessive. We consider two criteria for the possible excessiveness (or insufficiency) of current consumption. One is an intertemporal utility-maximization criterion: actual current consumption is deemed excessive if it is higher than the level of current consumption on the consumption path that maximizes the present discounted value of utility. The other is a sustainability criterion, which requires that current consumption be consistent with non-declining living standards over time. We extend previous theoretical approaches by offering a formula for the sustainability criterion that accounts for population growth and technological change. In applying this formula, we find that some poor regions of the world are failing to meet the sustainability criterion: in these regions, genuine wealth per capita is falling as investments in human and manufactured capital are not sufficient to offset the depletion of natural capital.

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Do firms have adequate incentives to invest in protection against a risk whose magnitude depends in the actions of others? This paper characterizes the Nash equilibria for this type of interaction between agents, which we call the interdependent security (IDS) problem. When agents are identical, there are two Nash equilibria for a wide range of cost and risk parameters ---either everyone invests in protection or no one does. In some situations the incentive to invest in protection approaches zero as the number of unprotected agents increases. We develop an IDS model by first focusing on airline security and comparing the structure of this problem with other IDS examples such as computer security, fire protection, vaccinations, protection against bankruptcy, and theft protection. The paper also examines the roles of insurance, liability, fines and subsidies, third party inspections, regulations and coordinating mechanisms for internalizing the negative externalities characteristic of these problems. The concluding section suggests directions for future theoretical and empirical research.