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Extraction Costs in the Theory of Exhaustible Resources

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  • Robert M. Solow
  • Frederic Y. Wan

Abstract

This paper has two objectives. First, it reformulates the theory of optimal use of an exhaustible resource with more attention to the costs of extraction than has been customary in the literature. The output and shadow-price implications of optimal extraction are studied under these broader assumptions. Second, the paper provides some numerical solutions of a simple two-grade case, to give some feeling for the quantitative importance of changes in the supply of exhaustible resources. Our most striking result is, in fact, the suggestion that relatively large changes in resource availability generate very small changes in the sustainable level of final consumption.

Suggested Citation

  • Robert M. Solow & Frederic Y. Wan, 1976. "Extraction Costs in the Theory of Exhaustible Resources," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 359-370, Autumn.
  • Handle: RePEc:rje:bellje:v:7:y:1976:i:autumn:p:359-370
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    1. Edwin Mansfield & John Rapoport & Anthony Romeo & Samuel Wagner & George Beardsley, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, Oxford University Press, vol. 91(2), pages 221-240.
    2. Mansfield, Edwin, 1980. "Basic Research and Productivity Increase in Manufacturing," American Economic Review, American Economic Association, vol. 70(5), pages 863-873, December.
    3. Berndt, Ernst R & Christensen, Laurits R, 1974. "Testing for the Existence of a Consistent Aggregate Index of Labor Inputs," American Economic Review, American Economic Association, vol. 64(3), pages 391-404, June.
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