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Abstract

The development of offshore oil and gas, the mining of deep sea minerals and the disposal of wastes through ocean dumping have raised important questions about the way we harvest ocean resources and use the marine environment. From an economic perspective all of the above activities involve risk, either to private developers, society at large, or both. This paper presents a simple model of resource development with environmental risk. The model and subsequent modifications are used to characterize the risks inherent in the aforementioned marine activities, and to help define an appropriate role for public policy. The nature of the risks involved, the possibilities for risk spreading, the presence or absence of irreversible consequences, and the expected value of information are shown to be important in determining the rate of development and the way in which net benefits should be evaluated.

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