IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The extraction of natural resources: The role of thermodynamic efficiency

  • Roma, Antonio
  • Pirino, Davide
Registered author(s):

    The modelling of production in microeconomics has been the subject of heated debate. The controversial issues include the substitutability between production inputs, the role of time and the economic consequences of irreversibility in the production process. A case in point is the use of Cobb-Douglas type production functions, which completely ignore the physical process underlying the production of a good. We examine these issues in the context of the production of a basic commodity (such as copper or aluminium). We model the extraction and the refinement of a valuable substance which is mixed with waste material, in a way which is fully consistent with the physical constraints of the process. The resulting analytical description of production unambiguously reveals that perfect substitutability between production inputs fails if a corrected thermodynamic approach is used. We analyze the equilibrium pricing of a commodity extracted in an irreversible way. We force consumers to purchase goods using energy as the means of payment and force the firm to account in terms of energy. The resulting market provides the firm with a form of reversibility of its use of energy. Under an energy numeraire, energy resources will naturally be used in a more parsimonious way.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/B6VDY-4WD3R7Y-1/2/4125158fd2c4f1a0aa130d7fd1ad1c06
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Ecological Economics.

    Volume (Year): 68 (2009)
    Issue (Month): 10 (August)
    Pages: 2594-2606

    as
    in new window

    Handle: RePEc:eee:ecolec:v:68:y:2009:i:10:p:2594-2606
    Contact details of provider: Web page: http://www.elsevier.com/locate/ecolecon

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Cleveland, Cutler J. & Ruth, Matthias, 1997. "When, where, and by how much do biophysical limits constrain the economic process?: A survey of Nicholas Georgescu-Roegen's contribution to ecological economics," Ecological Economics, Elsevier, vol. 22(3), pages 203-223, September.
    2. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-61, September.
    3. Anatoly M. Tsirlin & Vladimir A. Kazakov, 2004. "Optimal Processes in Irreversible Thermodynamics and Microeconomics," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 2(1), pages 29-42.
    4. Donald A. Walker (ed.), 2000. "Equilibrium," Books, Edward Elgar, volume 0, number 1585.
    5. Warr, Benjamin & Schandl, Heinz & Ayres, Robert U., 2008. "Long term trends in resource exergy consumption and useful work supplies in the UK, 1900 to 2000," Ecological Economics, Elsevier, vol. 68(1-2), pages 126-140, December.
    6. Hartwick, John M, 1978. "Exploitation of Many Deposits of an Exhaustible Resource," Econometrica, Econometric Society, vol. 46(1), pages 201-17, January.
    7. Lozada, Gabriel A., 1991. "A defense of Nicholas Georgescu-Roegen's paradigm," Ecological Economics, Elsevier, vol. 3(2), pages 157-160, July.
    8. Islam, Saiful, 1985. "Effect of an essential input on isoquants and substitution elasticities," Energy Economics, Elsevier, vol. 7(3), pages 194-196, July.
    9. Gonzalo Cortazar & Eduardo S. Schwartz & Marcelo Salinas, 1998. "Evaluating Environmental Investments: A Real Options Approach," Management Science, INFORMS, vol. 44(8), pages 1059-1070, August.
    10. Khalil, Elias L., 1991. "Entropy law and Nicholas Georgescu-Roegen's paradigm: A reply," Ecological Economics, Elsevier, vol. 3(2), pages 161-163, July.
    11. Roma, Antonio, 2006. "Energy, money, and pollution," Ecological Economics, Elsevier, vol. 56(4), pages 534-545, April.
    12. Ethridge, Don, 1973. "The Inclusion of Wastes in the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1430-41, Nov.-Dec..
    13. Cleveland, Cutler J., 2005. "Net energy from the extraction of oil and gas in the United States," Energy, Elsevier, vol. 30(5), pages 769-782.
    14. Berry, R. Stephen & Salamon, Peter & Heal, Geoffrey, 1978. "On a relation between economic and thermodynamic optima," Resources and Energy, Elsevier, vol. 1(2), pages 125-137, October.
    15. Sav, G Thomas, 1984. "Micro Engineering Foundations of Energy-Capital Complementarity: Solar Domestic Water Heaters," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 334-38, May.
    16. Kaldellis, J. K. & Vlachou, D. S. & Korbakis, G., 2005. "Techno-economic evaluation of small hydro power plants in Greece: a complete sensitivity analysis," Energy Policy, Elsevier, vol. 33(15), pages 1969-1985, October.
    17. Gately, Mark, 2007. "The EROI of U.S. offshore energy extraction: A net energy analysis of the Gulf of Mexico," Ecological Economics, Elsevier, vol. 63(2-3), pages 355-364, August.
    18. Krysiak, Frank C. & Krysiak, Daniela, 2003. "Production, consumption, and general equilibrium with physical constraints," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 513-538, November.
    19. Ayres, Robert U., 2008. "Sustainability economics: Where do we stand?," Ecological Economics, Elsevier, vol. 67(2), pages 281-310, September.
    20. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
    21. Cleveland, Cutler J., 1992. "Energy quality and energy surplus in the extraction of fossil fuels in the U.S," Ecological Economics, Elsevier, vol. 6(2), pages 139-162, October.
    22. Ayres, Robert U. & Warr, Benjamin, 2005. "Accounting for growth: the role of physical work," Structural Change and Economic Dynamics, Elsevier, vol. 16(2), pages 181-209, June.
    23. Bodo, Giorgio & Signorini, Luigi Federico, 1987. "Short-term forecasting of the industrial production index," International Journal of Forecasting, Elsevier, vol. 3(2), pages 245-259.
    24. Khalil, Elias L., 1990. "Entropy law and exhaustion of natural resources Is Nicholas Georgescu-Roegen's paradigm defensible?," Ecological Economics, Elsevier, vol. 2(2), pages 163-178, June.
    25. Krysiak, Frank C., 2006. "Entropy, limits to growth, and the prospects for weak sustainability," Ecological Economics, Elsevier, vol. 58(1), pages 182-191, June.
    26. Young, Jeffrey T., 1991. "Is the entropy law relevant to the economics of natural resource scarcity?," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 169-179, September.
    27. Kummel, Reiner & Schussler, Uwe, 1991. "Heat equivalents of noxious substances: a pollution indicator for environmental accounting," Ecological Economics, Elsevier, vol. 3(2), pages 139-156, July.
    28. Smith, Eric & Foley, Duncan K., 2008. "Classical thermodynamics and economic general equilibrium theory," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 7-65, January.
    29. Kummel, Reiner, 1989. "Energy as a factor of production and entropy as a pollution indicator in macroeconomic modelling," Ecological Economics, Elsevier, vol. 1(2), pages 161-180, May.
    30. Ruth, Matthias, 1995. "Thermodynamic constraints on optimal depletion of copper and aluminum in the United States: a dynamic model of substitution and technical change," Ecological Economics, Elsevier, vol. 15(3), pages 197-213, December.
    31. Ayres, Robert U. & Miller, Steven M., 1980. "The role of technological change," Journal of Environmental Economics and Management, Elsevier, vol. 7(4), pages 353-371, December.
    32. Ayres, Robert U & Ayres, Leslie W & Warr, Benjamin, 2003. "Exergy, power and work in the US economy, 1900–1998," Energy, Elsevier, vol. 28(3), pages 219-273.
    33. Daly, Herman E., 1997. "Georgescu-Roegen versus Solow/Stiglitz," Ecological Economics, Elsevier, vol. 22(3), pages 261-266, September.
    34. Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
    35. Tsoutsos, Theocharis & Gekas, Vasilis & Marketaki, Katerina, 2003. "Technical and economical evaluation of solar thermal power generation," Renewable Energy, Elsevier, vol. 28(6), pages 873-886.
    36. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-84, March.
    37. Daly, Herman E., 1992. "Is the entropy law relevant to the economics of natural resource scarcity?-- yes, of course it is!," Journal of Environmental Economics and Management, Elsevier, vol. 23(1), pages 91-95, July.
    38. Ayres, Robert U & Kneese, Allen V, 1969. "Production , Consumption, and Externalities," American Economic Review, American Economic Association, vol. 59(3), pages 282-97, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:68:y:2009:i:10:p:2594-2606. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.