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Classical Theory and Exhaustible Natural Resources: Notes on the Current Debate

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  • Fabio Ravagnani

Abstract

The treatment of exhaustible resources in the context of classical theory is currently the object of intense debate. In particular, different views are held as to whether the classical ‘normal positions’ can adequately deal with the prices for the use of exhaustible resources (royalties), and different procedures have been suggested for determining these distributive variables. This paper undertakes a critical appraisal of the relevant literature and suggests an alternative way of studying royalties within the surplus approach. Accordingly, the first part focuses on the recent models aimed at determining royalties in a classical framework and argues that these formal contributions rely on unwarranted assumptions that considerably reduce the scope of the analysis. The second examines the interplay between resource owners and extraction companies in real-world mineral industries. A brief enquiry shows that negotiations over royalties have been traditionally regulated by stable conventional arrangements and that the levels of royalty rates have been strongly influenced by a variety of historically determined institutional factors. In view of this evidence, it is finally suggested that royalties might be appropriately determined within classical theory by means of a method analogous to the one adopted for the ‘natural’ wage rate.

Suggested Citation

  • Fabio Ravagnani, 2006. "Classical Theory and Exhaustible Natural Resources: Notes on the Current Debate," Working Papers in Public Economics 94, University of Rome La Sapienza, Department of Economics and Law.
  • Handle: RePEc:sap:wpaper:wp94
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    References listed on IDEAS

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    Cited by:

    1. Yoann Verger, 2015. "Sraffa and the environment," Working Papers hal-01186009, HAL.
    2. Brown, Jason P. & Fitzgerald, Timothy & Weber, Jeremy G., 2016. "Capturing rents from natural resource abundance: Private royalties from U.S. onshore oil & gas production," Resource and Energy Economics, Elsevier, vol. 46(C), pages 23-38.
    3. Saverio M. Fratini, 2016. "Rent as a share of product and Sraffa’s price equations," Cambridge Journal of Economics, Oxford University Press, vol. 40(2), pages 599-613.
    4. Gianmarco Oro, 2023. "Exploitation of natural resources and the low-carbon switching of techniques inside linear production schemes," PSL Quarterly Review, Economia civile, vol. 76(304), pages 3-19.
    5. Yoann Verger, 2017. "Sraffa and the revenue of the owner of non- renewable natural resources: notes on a never- ending debate [Sraffa et le revenu du propriétaire d'une ressource naturelle non-renouvelable: notes sur u," Working Papers hal-01596166, HAL.
    6. Biao Huang, 2018. "An exhaustible resources model in a dynamic input–output framework: a possible reconciliation between Ricardo and Hotelling," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 7(1), pages 1-24, December.

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    More about this item

    Keywords

    Exhaustible Resources; Royalties; Classical Theory of Distribution.;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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