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On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited

  • Amigues, Jean-Pierre
  • Favard, Pascal
  • Gaudet, Gerard
  • Moreaux, Michel

Consider a general equilibrium framework where the marginal cost of extraction from several deposits of an exhaustible resource is constant in terms of an inexhaustible perfect substitiute and differs between deposits. The instantaneous rate of productionfrom the inexhaustible resourcce is subject to a capacity constraint. We show, under standard assumptions, that not only may it be optimal to begin using a high cost resource before a lower cost one is depleted, as shown in Kemp and Long (1980), but it may be optimal t obegin using it strictly before the lower cost one is evenput into use.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 80 (1998)
Issue (Month): 1 (May)
Pages: 153-170

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Handle: RePEc:eee:jetheo:v:80:y:1998:i:1:p:153-170
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