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On the Existence and Optimality of Competitive Equilibria in Nonrenewable Resource Industries

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  • Fisher, Anthony C.
  • Karp, Larry

Abstract

If average costs in a nonrenewable resource industry are U-shaped, a competitive equilibrium may not be optimal and, indeed, may not exist. Although the differential equation that describes the change in the rate of extraction is the same for planner and firm, the boundary conditions obtained from the transversality conditions for the respective problems (for planner and firm) will not, in general, be the same. If costs are convex, or if there exists a backstop technology which can produce the resource services at sufficiently low cost, the boundary conditions are, however, the same.

Suggested Citation

  • Fisher, Anthony C. & Karp, Larry, 1989. "On the Existence and Optimality of Competitive Equilibria in Nonrenewable Resource Industries," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt59x9h0vg, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt59x9h0vg
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    References listed on IDEAS

    as
    1. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    2. Rees, R., 1989. "A Competitive Extrative Industry Does Not In General Move Along The Socially Optimal Depletion Path," Working Papers 1989-1, University of Guelph, Department of Economics and Finance.
    3. Schulze, William D., 1974. "The optimal use of non-renewable resources: The theory of extraction," Journal of Environmental Economics and Management, Elsevier, vol. 1(1), pages 53-73, May.
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