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Does productive capital affect the order of resource exploitation?

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  • Favard, Pascal

Abstract

The purpose of this paper is to show that in a general equilibrium framework it is not always optimal to exploit resources in strict sequence, beginning with the lowest cost deposit, even if it is possible to accumulate productive capital. Indeed if there is an exogenous upper bound on the flow of the substitute, it is always optimal to consume it simultaneously with a lower cost stock. Moreover, it may be optimal to consume the high-cost substitute before using a lower cost resource. Classification-JEL: Q3

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 26 (2002)
Issue (Month): 6 (June)
Pages: 911-918

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Handle: RePEc:eee:dyncon:v:26:y:2002:i:6:p:911-918

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  1. Amigues, J.-P. & Favard, P. & Gaudet, G. & Moreaux, M., 1996. "On The Optimal Order of Natural Resourse Use When the Capacity of the Inexhaustible Substitute is Limited," Papers 96.431, Toulouse - GREMAQ.
  2. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, vol. 48(3), pages 663-73, April.
  3. Lewis, Tracy R, 1982. "Sufficient Conditions for Extracting Least Cost Resource First," Econometrica, Econometric Society, vol. 50(4), pages 1081-83, July.
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Cited by:
  1. Gaudet, Gerard & Moreaux, Michel & Withagen, Cees, 2006. "The Alberta dilemma: Optimal sharing of a water resource by an agricultural and an oil sector," Journal of Environmental Economics and Management, Elsevier, vol. 52(2), pages 548-566, September.
  2. Gerlagh, Reyer & Lise, Wietze, 2005. "Carbon taxes: A drop in the ocean, or a drop that erodes the stone? The effect of carbon taxes on technological change," Ecological Economics, Elsevier, vol. 54(2-3), pages 241-260, August.
  3. Freni, Giuseppe, 2009. "Factor intensity and order of resource extraction," MPRA Paper 18790, University Library of Munich, Germany.
  4. Gilles Lafforgue & Bertrand Magne & Michel Moreaux, 2008. "Energy substitutions, climate change and carbon sinks," Working Papers 21821, Institut National de la Recherche Agronomique, France.
  5. Istvan, Bessenyei, 2005. "Does market value maximization affect the order of resource exploitation?," Economic Modelling, Elsevier, vol. 22(6), pages 1090-1104, December.
  6. Moreaux, Michel & Ricci, Francesco, 2005. "The simple analytics of developing resources from resources," Resource and Energy Economics, Elsevier, vol. 27(1), pages 41-63, January.

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