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On The Optimal Order of Natural Resourse Use When the Capacity of the Inexhaustible Substitute is Limited

  • Amigues, J.-P.
  • Favard, P.
  • Gaudet, G.
  • Moreaux, M.

Consider a general equilibrium framework where the marginal cost of extraction from several deposits of an exhaustible resource is constant in terms of an inexhaustible perfect substitiute and differs between deposits. The instantaneous rate of productionfrom the inexhaustible resourcce is subject to a capacity constraint. We show, under standard assumptions, that not only may it be optimal to begin using a high cost resource before a lower cost one is depleted, as shown in Kemp and Long (1980), but it may be optimal t obegin using it strictly before the lower cost one is evenput into use.

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Paper provided by Toulouse - GREMAQ in its series Papers with number 96.431.

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Length: 17 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:fth:gremaq:96.431
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  33. Boyer, Marcel & Moreaux, Michel, 1996. "Capacity Commitment versus Flexibility," IDEI Working Papers 63, Institut d'Économie Industrielle (IDEI), Toulouse.
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  37. Bossaerts, P. & Ghysels, E. & Gourieroux, C., 1996. "Arbitrage-Based Pricing when Volatility is Stochastic," Cahiers de recherche 9615, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  38. van Geldrop, Jan H. & Withagen, Cees A. A. M., 1993. "General equilibrium and international trade with exhaustible resources," Journal of International Economics, Elsevier, vol. 34(3-4), pages 341-357, May.
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  45. repec:ner:tilbur:urn:nbn:nl:ui:12-3107034 is not listed on IDEAS
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  47. repec:dgr:kubcen:199667 is not listed on IDEAS
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