Specialization and non-renewable resources: Ricardo meets Ricardo
The one demand Hotelling model fails to explain the observed specialization of nonrenewable resources in specific end-uses. We develop a model with multiple demands and multiple resources and grades. Principles of Ricardian absolute and comparative advantage play an important role in determining the extraction profile. Absolute advantage in all end-uses creates a tendency for the dominant resource to be used first. But comparative advantage induces specialization of particular resources in specific end-uses. The 2 x 2 model of energy use is characterized, illustrating the trade-off between least-cost-first and resource specialization. The multiple-demand model also facilitates the analysis of resource and/or end-use-specific taxation.
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