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Ordering the Extraction of Polluting Nonrenewable Resources

  • Ujjayant Chakravorty
  • Michel Moreaux
  • Mabel Tidball

A well-known theorem by Herfindahl states that the low-cost nonrenewable resource must be exploited first. Consider resources that are differentiated only by their pollution content. For instance, both coal and natural gas are used to generate electricity, yet coal is more polluting. We show that the ordering of extraction need not be driven by whether a resource is clean or dirty. Coal may be used first, followed by natural gas, and again by coal. Such "vacillation" does not occur under cost heterogeneity. A perverse policy implication is that regulating pollution may accelerate use of the polluting resource.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 98 (2008)
Issue (Month): 3 (June)
Pages: 1128-44

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Handle: RePEc:aea:aecrev:v:98:y:2008:i:3:p:1128-44
Note: DOI: 10.1257/aer.98.3.1128
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  1. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2005. "A Hotelling Model with a Ceiling on the Stock of Pollution," IDEI Working Papers 368, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Amigues, Jean-Pierre & Favard, Pascal & Gaudet, Gerard & Moreaux, Michel, 1998. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited," Journal of Economic Theory, Elsevier, vol. 80(1), pages 153-170, May.
  3. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, vol. 48(3), pages 663-73, April.
  4. Lewis, Tracy R, 1982. "Sufficient Conditions for Extracting Least Cost Resource First," Econometrica, Econometric Society, vol. 50(4), pages 1081-83, July.
  5. Gerard Gaudet & Michel Moreaux & Stephen W. Salant, 2001. "Intertemporal Depletion of Resource Sites by Spatially Distributed Users," American Economic Review, American Economic Association, vol. 91(4), pages 1149-1159, September.
  6. Chakravorty, Ujjayant & Krulce, Darrell L, 1994. "Heterogeneous Demand and Order of Resource Extraction," Econometrica, Econometric Society, vol. 62(6), pages 1445-52, November.
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