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When Should We Stop Extracting Nonrenewable Resources?

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  • Schumacher, Ingmar

Abstract

This article analyzes an economy where both nonrenewable resources and a costly energy resource are essential inputs in production. The extraction of the nonrenewable resources leads to emissions that increase the probability of a catastrophe. We find that, in contrast to the constant-probability case, the endogenous probability of a catastrophe implies that some nonrenewable resources might optimally be left in the ground. The larger the effect of the fossil energy use on the probability of a catastrophe, the fewer nonrenewable resources should be extracted and the earlier should be the switch to the renewable substitute. The richer a country, the earlier it should shift to the energy substitute. In the trade-off between higher consumption and a higher probability of catastrophe, even small probability changes are likely to be more important for the planner than higher consumption.

Suggested Citation

  • Schumacher, Ingmar, 2011. "When Should We Stop Extracting Nonrenewable Resources?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(04), pages 495-512, September.
  • Handle: RePEc:cup:macdyn:v:15:y:2011:i:04:p:495-512_00
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    Cited by:

    1. Yacoub Bahini & Cuong Le Van, 2015. "On the transition from nonrenewable energy to renewable energy," Documents de travail du Centre d'Economie de la Sorbonne 15042, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Jouvet, Pierre-André & Schumacher, Ingmar, 2012. "Learning-by-doing and the costs of a backstop for energy transition and sustainability," Ecological Economics, Elsevier, vol. 73(C), pages 122-132.
    3. Tsur, Yacov & Zemel, Amos, 2014. "Steady-state properties in a class of dynamic models," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 165-177.
    4. Tsur, Yacov & Zemel, Amos, 2013. "Steady-state properties in a class of dynamic models, with applications to natural resource management," Discussion Papers 164511, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.

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