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Strategic resource dependence

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  • Gerlagh, Reyer
  • Liski, Matti

Abstract

We consider a situation where an exhaustible-resource seller faces demand from a buyer who has a substitute but there is a time-to-build delay for the substitute. We find that in this simple framework the basic implications of the Hotelling model (1931) are reversed: over time the stock declines but supplies increase up to the point where the buyer decides to switch. Under such a threat of demand change, the supply does not reflect the current resource scarcity but it compensates the buyer for delaying the transition to the substitute. The analysis suggests a perspective on costs of oil dependence.

Suggested Citation

  • Gerlagh, Reyer & Liski, Matti, 2011. "Strategic resource dependence," Journal of Economic Theory, Elsevier, vol. 146(2), pages 699-727, March.
  • Handle: RePEc:eee:jetheo:v:146:y:2011:i:2:p:699-727
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    1. Frederick van der Ploeg & Cees Withagen, 2015. "Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 285-303.
    2. Andrade de Sá, Saraly & Daubanes, Julien, 2016. "Limit pricing and the (in)effectiveness of the carbon tax," Journal of Public Economics, Elsevier, vol. 139(C), pages 28-39.
    3. Michael Hoel, 2011. "The Supply Side of CO 2 with Country Heterogeneity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 846-865, December.
    4. Frederick Van der Ploeg, 2012. "Breakthrough Renewables and the Green Paradox," CESifo Working Paper Series 3986, CESifo Group Munich.
    5. Michielsen, Thomas O., 2014. "Strategic resource extraction and substitute development," Resource and Energy Economics, Elsevier, vol. 36(2), pages 455-468.
    6. Spiro, Daniel, 2014. "Resource prices and planning horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 159-175.
    7. Niko Jaakkola, 2013. "Putting OPEC Out of Business," OxCarre Working Papers 099, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    8. Stefano Bosi & David Desmarchelier, 2016. "Natural cycles and pollution," Working Papers of BETA 2016-53, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    9. Niko Jaakkola & Frederick van der Ploeg, 2017. "Non-Cooperative and Cooperative Climate Policies with Anticipated Breakthrough Technology," OxCarre Working Papers 190, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    10. Michielsen, T.O., 2013. "Strategic Resource Extraction And Substitute Development," Discussion Paper 2013-014, Tilburg University, Center for Economic Research.
    11. Saraly Andrade de Sa & Julien Daubanes, 2014. "Limit-Pricing and the (Un)Effectiveness of the Carbon Tax," Working Papers 2014.07, FAERE - French Association of Environmental and Resource Economists.
    12. van der Werf, Edwin & Di Maria, Corrado, 2012. "Imperfect Environmental Policy and Polluting Emissions: The Green Paradox and Beyond," International Review of Environmental and Resource Economics, now publishers, vol. 6(2), pages 153-194, March.
    13. Foster, Edward & Contestabile, Marcello & Blazquez, Jorge & Manzano, Baltasar & Workman, Mark & Shah, Nilay, 2017. "The unstudied barriers to widespread renewable energy deployment: Fossil fuel price responses," Energy Policy, Elsevier, vol. 103(C), pages 258-264.
    14. Long, Ngo Van & Prieur, Fabien & Tidball, Mabel & Puzon, Klarizze, 2017. "Piecewise closed-loop equilibria in differential games with regime switching strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 264-284.
    15. Reyer Gerlagh & Matti Liski, 2014. "Cake-Eating with Private Information," CESifo Working Paper Series 5050, CESifo Group Munich.
    16. Martin F. Quaas & Sjak Smulders, 2008. "Pollution and the Efficiency of Urban Growth," Working Papers 2008.75, Fondazione Eni Enrico Mattei.

    More about this item

    Keywords

    Dynamic bilateral monopoly Markov-perfect equilibrium Depletable resources Energy Alternative fuels Oil dependence;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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