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Existence of equilibria in exhaustible resource markets with economies of scale and inventories

Listed author(s):
  • Antoine Bommier

    ()

    (ETH Zürich)

  • Lucas Bretschger

    ()

    (ETH Zürich)

  • François Grand

    ()

    (ETH Zürich
    EMLyon Business School)

Abstract The paper proves the existence of equilibrium in non-renewable resource markets when extraction costs are non-convex and resource storage is possible. Inventories flatten the consumption path and eliminate price jumps at the end of the extraction period, so that market equilibrium becomes possible. We distinguish between two types of solutions, one with immediate and one with delayed buildup of inventories. For both cases, we do not only characterize potential optimal paths but also show that equilibria actually exist under fairly general conditions. It is found that optimum resource extraction involves increasing quantities over a period of time. What is generally interpreted as an indicator of increasing resource abundance is thus perfectly compatible with constant resource stocks.

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File URL: http://link.springer.com/10.1007/s00199-016-0956-5
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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 63 (2017)
Issue (Month): 3 (March)
Pages: 687-721

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Handle: RePEc:spr:joecth:v:63:y:2017:i:3:d:10.1007_s00199-016-0956-5
DOI: 10.1007/s00199-016-0956-5
Contact details of provider: Web page: http://www.springer.com

Web page: http://saet.uiowa.edu/

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  1. Lewis, Tracy R & Matthews, Steven A & Burness, H Stuart, 1979. "Monopoly and the Rate of Extraction of Exhaustible Resources: Note," American Economic Review, American Economic Association, vol. 69(1), pages 227-230, March.
  2. Gerard van der Meijden & Sjak Smulders, 2014. "Technological Change during the Energy Transition," Tinbergen Institute Discussion Papers 14-108/VIII, Tinbergen Institute.
  3. Asheim, Geir B, 1992. " Contestability in a Resource Market with Non-convex Costs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(4), pages 609-618.
  4. Ujjayant Chakravorty & Michel Moreaux & Mabel Tidball, 2008. "Ordering the Extraction of Polluting Nonrenewable Resources," American Economic Review, American Economic Association, vol. 98(3), pages 1128-1144, June.
  5. Antoine Bommier & Lucas Bretschger & François Grand, 2017. "Existence of equilibria in exhaustible resource markets with economies of scale and inventories," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(3), pages 687-721, March.
  6. 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.
  7. Le Van, Cuong & Schubert, Katheline & Nguyen, Tu Anh, 2010. "With exhaustible resources, can a developing country escape from the poverty trap?," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2435-2447, November.
  8. Anthony Fisher & Larry Karp, 1993. "Nonconvexity, efficiency and equilibrium in exhaustible resource depletion," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 3(1), pages 97-106, February.
  9. Eswaran, Mukesh & Lewis, Tracy R & Heaps, Terry, 1983. "On the Nonexistence of Market Equilibria in Exhaustible Resource Markets with Decreasing Costs," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 154-167, February.
  10. Lozada, Gabriel A., 1996. "Existence of equilibria in exhaustible resource industries Nonconvexities and discrete vs. continuous time," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 433-444.
  11. Robert Cairns, 2008. "Exhaustible Resources, Non-Convexity and Competitive Equilibrium," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 177-193, June.
  12. repec:hal:journl:halshs-00976399 is not listed on IDEAS
  13. Mason, Charles F., 2012. "On equilibrium in resource markets with scale economies and stochastic prices," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 288-300.
  14. Bård Harstad, 2012. "Buy Coal! A Case for Supply-Side Environmental Policy," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 77-115.
  15. Cairns, Robert D, 1991. " On Non-convex Costs and Dynamic Consistency in an Exhaustible-Resource Market," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(1), pages 89-100.
  16. Gerard Gaudet & Michel Moreaux & Stephen W. Salant, 2001. "Intertemporal Depletion of Resource Sites by Spatially Distributed Users," American Economic Review, American Economic Association, vol. 91(4), pages 1149-1159, September.
  17. repec:hal:journl:halshs-00470655 is not listed on IDEAS
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