Strategic Resource Extraction And Substitute Development
AbstractAbstract We analyze a dynamic game between a buyer and a seller of an exhaustible resource. The seller chooses resource supply; the buyer can pay a fixed cost to invent a perfect substitute for the resource at any time. In closed-loop equilibrium, the buyer adopts the substitute when the resource is exhausted. Investing makes the buyer worse off because it decreases resource supply, destroys his ability to derive surplus from the resource through delaying the investment cost incurrence, and causes a larger share of the resource stock to be sold at his reservation price. From the seller’s perspective, the buyer’s ability to develop a substitute is equivalent to an already available substitute with a higher marginal cost.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2013-014.
Date of creation: 2013
Date of revision:
Contact details of provider:
Web page: http://center.uvt.nl
exhaustible resource; substitute; innovation; closed-loop equilibrium;
Find related papers by JEL classification:
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dasgupta, Partha & Gilbert, Richard & Stiglitz, Joseph, 1983. "Strategic Considerations in Invention and Innovation: The Case of Natural Resources," Econometrica, Econometric Society, vol. 51(5), pages 1439-48, September.
- Karp, Larry & Newbery, David M G, 1989.
"Intertemporal Consistency Issues in Depletable Resources,"
CEPR Discussion Papers
346, C.E.P.R. Discussion Papers.
- Karp, Larry & Newbery, David M., 1993. "Intertemporal consistency issues in depletable resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 19, pages 881-931 Elsevier.
- Reyer Gerlagh & Matti Liski, 2008.
"Strategic Resource Dependence,"
2008.72, Fondazione Eni Enrico Mattei.
- Hoel, Michael, 1983. "Future conditions and present extraction : A useful method in natural resource economics," Resources and Energy, Elsevier, vol. 5(4), pages 303-311, December.
- Nancy Gallini & Tracy Lewis & Roger Ware, 1983. "Strategic Timing and Pricing of a Substitute in a Cartelized Resource Market," Canadian Journal of Economics, Canadian Economics Association, vol. 16(3), pages 429-46, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Broekman).
If references are entirely missing, you can add them using this form.