Final answer:
Ownership of natural resources with extraction costs can be analogized to a call option, wherein the owner has the right but not the obligation to extract, based on profitability. Property rights incentivize the consideration of external costs and sustainable management to prevent overexploitation and depletion.
Step-by-step explanation:
The ownership of natural resources with extraction costs can be complex, affecting profitability and sustainability. Given the options provided, such ownership can be best characterized as a call option. This financial analogy is apt because owning a call option gives the holder the right, but not the obligation, to buy an asset at a set price within a specific timeframe. When it comes to natural resources, even if the resource is owned, the owner may choose not to extract it if the costs are too high compared to the potential revenue—just as an option holder would not exercise their call if the market price is less than the strike price.
Better-defined property rights can provide incentives to account for external costs by aligning the interests of the resource owner with the welfare of the broader environment. Without proper rights and incentives, as highlighted by the tragedy of the commons, open-access exploitation might lead to overuse and depletion of resources. Both governmental control and privatization can offer solutions but come with their own challenges, such as setting appropriate extraction rates or the need for enforcement and regulation.