Restoring the commons: optimizing the restoration of natural assets

Abstract This paper analyzes the optimal restoration of natural assets, including, for example, degraded ecosystems and biodiversity, contaminated sites, and lost carbon stocks. The focus is on dynamic allocation of a fixed budget, where the decision maker chooses the timing and level of restoration investments for each stock. The decision maker is able to rely on both costly restoration investments and on natural regeneration processes in restoration planning. We characterize the properties of any optimal solution to the dynamic allocation problem, including related waiting and investment rules, and derive conditions for when it is optimal to rely on both natural restoration processes and active, but costly, restoration. We also illustrate the model by applying it to the allocation of biodiversity restoration funds in Europe.