The Inefficiency of Decentralized Non-renewable Resource Extraction: The Case of Soviet Timber

This paper argues that the structure of the government in the former Soviet Union and the present Russia has led to inefficiency in harvesting non-renewable resources such as timber. It analyzes the dynamic optimization problems of the central and local authorities in choosing the path of harvesting and explains the sources and effects of inefficiency. The features of the model are compared with a hypothetical one in which the inefficiency has been removed. This hypothetical model is then applied to suggest some policies for reducing the existing inefficiency.