Nonconvexity, Efficiency and Equilibrium in Exhaustible Resource Depletion
AbstractAbstract: We reconsider the problem of inefficiency and nonexistence of a competitive equilibrium in exhaustible resource markets where extraction costs are nonconvex. The existence of a backstop technology (which induces a flat portion of the industry demand curve) restores both existence and efficiency, provided that the backstop price is sufficiently low. If firms face even a small amount of uncertainty regarding their rivals' stocks, a backstop technology is sufficient to restore existence of competitive equilibrium, even if the backstop price is very high. In this case, however, the competitive equilibrium is not efficient.
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Bibliographic InfoPaper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt9hr4w60m.
Date of creation: 01 Nov 1991
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exhaustible resource; nonconvex costs; existence of competitive equilibrium;
Other versions of this item:
- Anthony Fisher & Larry Karp, 1993. "Nonconvexity, efficiency and equilibrium in exhaustible resource depletion," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(1), pages 97-106, February.
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