From Hotelling to Backstop Technology
AbstractHotelling's conceptual framework is expanded to incorporate the effects of a backstop technology on the planning horizon of the suppliers of an exhaustible resource and its price and quantity trajectories. It is shown that in the non-trivial case, the presence of a backstop technology shortens the planning horizon of the suppliers of the exhaustible resource in accordance with the resource suppliers' rate of time preference, backstop technology's rate of irnprovement and ratio of the initial resource spot price to the initial average production cost of the backstop substitute. As expected the presence of a backstop technology also lowers the spot prices of the exhaustible resource and accelerates its extraction and depletion. However, a decline of the initial average cost of producing the backstop substitute by a dollar leads to a decline of the exhaustible resource's initial spot price by less than a dollar.
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Bibliographic InfoPaper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp00-04.
Length: 13 pages
Date of creation: 2000
Date of revision:
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Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
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TECHNOLOGY ; PRICING ; ECONOMIC MODELS;
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-04-03 (All new papers)
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