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Monopoly Production of Durable Exhaustible Resources

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  • Malueg, David A
  • Solow, John L

Abstract

We examine monopoly production of a durable exhaustible resource. Previous authors have implicitly assumed that the monopolist is able to make binding commitments about future decisions. We consider the more plausible case in which the monopolist lacks this ability and must choose from dynamically consistent plans. Two models are considered: a discrete-time model, in which there is a strictly finite initial stock of the resource, and a continuous-time model, in which costs are an increasing function of cumulative production. We find that, as a general result, monopoly leads to overconservation. The monopolist who cannot precommit produces the efficient quantity ultimately, but does so too slowly. By contrast, the monopolist who can precommit produces less than the efficient stock even in the limit. We also find that increased importance of exhaustibility hastens the extraction of the resource. Copyright 1990 by The London School of Economics and Political Science.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 57 (1990)
Issue (Month): 225 (February)
Pages: 29-47

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Handle: RePEc:bla:econom:v:57:y:1990:i:225:p:29-47

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Cited by:
  1. Karp, L., 1992. "Depreciation erodes the coase conjecture," Discussion Paper Series In Economics And Econometrics 9210, Economics Division, School of Social Sciences, University of Southampton.
  2. Earl Thompson, 2000. "Why World Oil Monopolization Lowers Oil Prices: A Theory of Involuntary Cartelization," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(1), pages 63-78.
  3. Dale W. Henderson & John S. Irons & Stephen W. Salant & Sebastian Thomas, 1997. "Can government gold be put to better use?: Qualitative and quantitative policies," International Finance Discussion Papers 582, Board of Governors of the Federal Reserve System (U.S.).
  4. Janmaat, John, 2008. "Playing monopoly in the creek: Imperfect competition, development, and in-stream flows," Resource and Energy Economics, Elsevier, vol. 30(3), pages 455-473, August.

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