We illustrate how natural resource dependent and isolated communities manage their forest stock. Our model is based on field observations of the Eaglewood trade in Papua New Guinea. Using a dynamic model of household utility maximization and simulations, we analyze the impact of variations in the (monopsonistic) resource price on the households’ consumption choices and their allocation of effort across depletive and nondepletive activities. The stock of forest is embedded directly in the households’ utility function (existence value) and in their (nonseparable) production and consumption functions. We show that poverty (in production assets) does not inevitably lead to stock depletion.

The present study examines the problem facing a resource-importing economy seeking to achieve energy independence by developing a renewable substitute. The invention of the substitute is assumed to follow a stochastic process that can be influenced by investment in energy research and development. I analyze the optimal investment strategy under alternative assumptions with respect to the economy's access to international financial markets, the terms on which credit is available, and the country's degree of dependence on resource imports. It is found that, in general, having access to capital markets does not necessarily lead to a higher investment rate. However, in the empirically relevant range of elasticity of intertemporal consumption substitution, the economy with access to credit invests more than under financial autarky. A higher degree of dependence on resource imports implies a lower optimal investment. Arrival of the substitute does not necessarily cause an immediate improvement in the net foreign asset position but may in fact cause its further deterioration.

This paper considers an optimal endogenous growth model where the production function is assumed to exhibit increasing returns to scale and two types of resource (renewable and nonrenewable) are imperfect substitutes. Natural resources, labor, and physical capital are used in the final goods sector and in the accumulation of knowledge. Based on results in the calculus of variations, a direct proof of the existence of an optimal solution is provided. Analytical solutions for the planner case, balanced growth paths, and steady states are found for a specific CRRA utility and Cobb–Douglas production function. It is possible to have long-run growth where both energy resources are used simultaneously along the equilibrium path. As the law of motion of the technological change is not concave, reflecting the increasing returns to scale, so that the Arrow–Mangasarian sufficiency conditions do not apply, we provide a sufficient condition directly. Transitional dynamics to the steady state from the theoretical model are used to derive three convergence equations of output intensity growth rate, exhaustible resource growth rate, and renewable resource growth rate, which are tested based on OECD data on production and energy consumption.