Computational Methods in Environmental and Resource Economics

Abstract

Computational methods are required to solve problems without closed-form solutions in environmental and resource economics. Efficiency, stability, and accuracy are key elements for computational methods. This review discusses state-of-the-art computational methods applied in environmental and resource economics, including optimal control methods for deterministic models, advances in value function iteration and time iteration for general dynamic stochastic problems, nonlinear certainty equivalent approximation, robust decision making, real option analysis, bilevel optimization, solution methods for continuous time problems, and so on. This review also clarifies the so-called curse of dimensionality, and discusses some computational techniques such as approximation methods without the curse of dimensionality and time-dependent approximation domains. Many existing economic models use simplifying and/or unrealistic assumptions with an excuse of computational feasibility, but these assumptions might be able to be relaxed if we choose an efficient computational method discussed in this review.