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Specialization and Nonrenewable Resources: Ricardo Meets Ricardo

  • Ujjayant Chakravorty

    ()

    (Department of Economics, Emory University)

  • Darrell Krulce

    (QUALLCOM, Inc., San Diego)

  • James Roumasset

    ()

    (Department of Economics, University of Hawaii at Manoa)

The one-demand Hotelling model fails to explain the observed specialization of nonrenewable resources. We develop a model with multiple demands and resources to show that specialization of resources according to demand is driven by Ricardian comparative advantage while the order of resource use over time is determined by Ricardian absolute advantage. An abundant resource with absolute advantage in all demands must be initially employed in all demands. When each resource has an absolute advantage in some demand, no resource may be used exclusively. The two-by-two model is characterized. Resource and demand-specific taxes are shown to have significant substitution effects.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_04-1.pdf
File Function: First version, 2004
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Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200401.

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Length: 52 pages
Date of creation: 2004
Date of revision:
Publication status: Forthcoming in the Journal of Economic Control and Dynamics
Handle: RePEc:hai:wpaper:200401
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