10.2190/F2TL-J5AM-N2NJ-M27K F2TLJ5AMN2NJM27K 2 The Optimal Use of Natural Resources—The Choice between Preservation and Development 269 277 20020509 20020509 20020509 20020509 F2TLJ5AMN2NJM27K.pdf http://baywood.metapress.com/link.asp?target=contribution&id=F2TLJ5AMN2NJM27K 4 Daniel Shefer Faculty of Architecture and Town, Planning, Center for Urban and Regional Studies, Technion—Israel Institute of Technology <p>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.</p><p>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.</p><p>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.</p> Arrow, K. J., and M. Kurz (1960) <i>Public Investment, The Rate of Returns and Optimal Fiscal Policy</i>, The Johns Hopkins Press (for Rff) Baltimore. Baumol, W., (1968) "On the Social Rate of Discount" <i>American Economic Review</i> LVIII (September); 788-802. Burt, O. R. and R. G. Cummings (1970) "Production and Investment in Natural Resources Industries" <i>American Economic Review</i> (September); 576-590. Burton, T. L. and M. N. Fulcher (1967) "Measurement of Recreation Benefits: A Survey" <i>Journal of Economic Studies</i> Vol. 3, No. 2 (July); 35-48. Cicchetti, C. J., J. Seneca and P. Davidson (1969) <i>The Demand and Supply of Outdoor Recreation</i> Washington, D. C., Government Punting Office. Denison, E. F. (1962) <i>The Sources of Economic Growth in the United States</i> Supplementary paper No. 13, Published by the Committee for Economic Development, New York, N. Y. Fisher, A. C., J. V. Krutilla and C. J. Cicchetti (1972) "The Economics of Environmental Preservation: A Theoretical and Empirical Analysis" <i>American Economic Review</i> (September); 605-619. Fisher, A. C., and J. V. Krutilla (1972) "Determination of Optimal Capacity of Resource—Based Recreation Facilities" <i>Natural Resources Journal</i>, Vol. 12, No. 3; 416-444. Kneese, A. V. and B. T. Bower eds. (1972) <i>Environmental Quality Analysis</i>: Theory and Method in the Social Sciences, The Johns Hopkins Press (for Rff) Baltimore. Krutilla, J. V. (1967) "Conservation Reconsidered" <i>American Economic Review</i> (September); 777-786. Krutilla, J. V. ed. (1972) <i>Natural Environments</i> Studies in Theoretical and Applied Analysis. The Johns Hopkins University Press (for Rff) Baltimore. Krutilla, J. V. and C. J. Cicchetti (1972) "Evaluating Benefits of Environmental Resources with Special Application to the Hells Canyon" <i>Natural Resources Journal</i>, Vol. 12; No. 1 January; 1-22. Krutilla, J. V., C. J. Cicchetti, and A. M. Freeman, III, (1972) "Observations on the Economics of Irreplaceable Assets" in Kneese and Bower eds. <i>Environmental Quality Analysis</i>, The Johns Hopkins University Press, (for Rff) Baltimore; 69-112. Lerner, A. P. (1963) "Consumer's Surplus and Micro-Macro" <i>Journal of Political Economy</i>, Vol. LXXI (February); 81. Plourde, C. G., (1970) "A Simple Model of Replenishable Natural Resource Exploitation" <i>American Economic Review</i>, (June); 518-522 Seagraves, J. A., (1970) "More on the Social Rate of Discount" <i>Quarterly Journal of Economics</i>, Vol. 84; 430-450. Smith, V. L., (1968) "Economics of Production From Natural Resources" <i>American Economic Review</i>, (June); 409-431. Weisbrod, B., (1964) "Collective Consumption Services of Individual Consumption Goods" <i>Quarterly Journal of Economics</i> Vol. 78; 471-477.