Restoring Natural Resources with Destination-Driven Costs

Economics typically assumes that injured natural resources are restored along a fixed path of increasing marginal costs. By contrast, many restoration efforts -- such as cleaning a contaminated aquifer or replacing the sand on an oil-tarnished beach -- are characterized by destination-driven costs, which depend mainly on final quality, not the pre-restoration quality. Given the resulting non-convexities in cost, the optimal level of restoration may be a discontinuous and non-monotonic function of post-injury quality. Regulatory rules should reflect these patterns, as should liability rules, since restoration plans and costs determine the expected cost of putting a resource at risk