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The Conservationist's Dilemma

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  • Lozada, Gabriel A

Abstract

It is typically thought that conservation of natural resources is encouraged by low interest rates. However, when capital goods are used to extract the resource, low interest rates may discourage rather than encourage conservation. Using a model of a capacity-constrained extractive industry in competitive equilibrium, I find the relationship between the initial rate of exploitation and the interest rate. If capital is so "important" that for sufficiently high interest rates the industry is nonviable, the graph of initial quantity versus the interest rate is U-shaped; the traditional result holds at small interest rates but not at large ones. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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  • Lozada, Gabriel A, 1993. "The Conservationist's Dilemma," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 647-662, August.
    • Handle: RePEc:ier:iecrev:v:34:y:1993:i:3:p:647-62
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    Cited by:

    1. Johannes Pfeiffer, 2017. "Fossil Resources and Climate Change – The Green Paradox and Resource Market Power Revisited in General Equilibrium," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 77.
    2. Pauli Lappi & Markku Ollikainen, 2019. "Optimal Environmental Policy for a Mine Under Polluting Waste Rocks and Stock Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(1), pages 133-158, May.
    3. Holland, Stephen P., 2003. "Set-up costs and the existence of competitive equilibrium when extraction capacity is limited," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 539-556, November.
    4. Jean-Pierre Amigues & Michel Moreaux & Nguyen Manh-Hung, 2019. "The Fossil Energy Interlude: Optimal Building, Maintaining and Scraping a Dedicated Capital, and the Hotelling Rule," Working Papers 2019.07, FAERE - French Association of Environmental and Resource Economists.
    5. Lappi, Pauli, 2018. "Optimal clean-up of polluted sites," Resource and Energy Economics, Elsevier, vol. 54(C), pages 53-68.
    6. Holland, Stephen P., 2003. "Extraction capacity and the optimal order of extraction," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 569-588, May.
    7. Lappi, Pauli, 2020. "A model of optimal extraction and site reclamation," Resource and Energy Economics, Elsevier, vol. 59(C).

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