Irreversible Deveolpment of a Natural Resource: Management rules and policy issues when direct use values and environmental values are uncertain

The paper analyzes resource management that entails the irreversible development of an exhaustible resource when the values of services generated by the resource in either the developed or the undeveloped state are uncertain. An exercise barrier approach is used to derive the privately - optimal and the socially - optimal free boundaries. The two boundaries are used to compare the pace of development under profit maximization and social optimization. Regulatory schemes on resource development that will induce the profit - maximizing decision maker to behave as the social planner, with regard to development choices under uncertainty and irreversibility, are also presented.