Producers' Well-Being and Natural Resource Extraction: The Eaglewood Trade in Papua New Guinea

Abstract

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.