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On natural resource substitution

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Abstract

We present a simple dynamic model to get some key insights about the substitution of renewable for nonrenewable resources in production and the consequences for sustainability. We highlight the role of the elasticity of substitution (technological component) to determine the adjustment of every sector as a response to scarcity and growing ability of resources (environmental component). Sometimes, the model predicts a smooth substitution of renewable resources for nonrenewables, but this process could work in the opposite direction if renewable resources are temporarily beyond their maximum sustainable yield, so that their marginal natural growth is negative. If substitution possibilities are high enough, it may be optimal to suspend the extraction of a resource, for example, to allow for regeneration of the biomass. We show analytically that a production process is more likely to be sustainable the more heavily it depends on renewable, rather than nonrenewable resources.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/48.

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Length: 31 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cea:doctra:e2004_48

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Keywords: Renewable resources; Nonrenewable resources; Production; Optimal control.;

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References

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Cited by:
  1. Ohler, Adrienne M., 2014. "Behavior of the firm under rate-of-return regulation with two capital inputs," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 54(1), pages 61-69.
  2. Jakub, GROWIEC & Ingmar, SCHUMACHER, 2006. "On Technical Change in the Elasticities of Resource Inputs," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2006031, Université catholique de Louvain, Département des Sciences Economiques.
  3. Francisco André & Emilio Cerdá, 2006. "On the Dynamics of Recycling and Natural Resources," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 33(2), pages 199-221, 02.
  4. Mosiño, Alejandro, 2012. "Producing energy in a stochastic environment: Switching from non-renewable to renewable resources," Resource and Energy Economics, Elsevier, Elsevier, vol. 34(4), pages 413-430.

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