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How well are resource prices likely to serve as indicators of natural resource scarcity?

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  • Philip Lawn

Abstract

It is generally believed that when a resource becomes increasingly scarce, a shadow is automatically cast in the form of a higher market price. The higher price induces substitution towards more abundant resources and the development of resource-saving technological progress. A growing number of ecological economists argue that, while resource prices adequately reflect the relative scarcity of various resource types, they are unable to reflect the absolute scarcity of either a particular resource type or the entire stock of all resources. They therefore believe resource prices cannot be used as a basis for determining the sustainable rate of resource use. In support of this emerging ecological economic position, a resource depletion model is employed under specific conditions to show that, for some considerable period of time, the price of a resource can fall even as the stock of the resource declines. Furthermore, the extent of the fall is greater if both a higher discount rate is applied and the marginal cost of resource extraction is assumed to be a function of past resource prices – a reasonable assumption given that the resource extraction process requires the use of previously extracted resources.

Suggested Citation

  • Philip Lawn, 2004. "How well are resource prices likely to serve as indicators of natural resource scarcity?," International Journal of Sustainable Development, Inderscience Enterprises Ltd, vol. 7(4), pages 369-397.
  • Handle: RePEc:ids:ijsusd:v:7:y:2004:i:4:p:369-397
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    Cited by:

    1. Lawn, Philip, 2006. "Using the Fisherian concept of income to guide a nation's transition to a steady-state economy," Ecological Economics, Elsevier, vol. 56(3), pages 440-453, March.

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