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Keywords:

  • Costate variable;
  • stochastic dynamic programming;
  • deterministic dynamic programming;
  • renewable resource model;
  • simulation

ABSTRACT. In this paper we discuss the costate variable in a stochastic optimal control model of a renewable natural resource, which we call a fishery. The role of the costate variable in deterministic control models has been discussed extensively in the literature. See for example Lyon [1999], Clark [1990, pp. 102 107] and Arrow and Kurz [1970, pp. 35 37]; however, there is little discussion of this variable for stochastic models, even though thecostate variable has similar roles in the two models. In both models the costate variableis a shadow value of the associated state variable, and as such has the role of rationingthe use of the state variable. In addition, as has been shown in Lyon [1999], in natural resource problems the costate variable can be partitioned into a scarcity effect and a cost effect. We show that this same partitioning can be done in the stochastic renewable resource problem. We discuss and contrast the similarities and differences in these concepts for deterministic and stochastic models. In addition, we present a numerical example to help solidify the results.