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

Author

Listed:
  • Antoine Bommier

    (ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich])

  • Lucas Bretschger

    (ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich])

  • François Le Grand

    (ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich], EM - 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.

Suggested Citation

  • Antoine Bommier & Lucas Bretschger & François Le Grand, 2017. "Existence of equilibria in exhaustible resource markets with economies of scale and inventories," Post-Print hal-02313368, HAL.
    • Handle: RePEc:hal:journl:hal-02313368
    DOI: 10.1007/s00199-016-0956-5
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    Cited by:

    1. 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.
    2. Wang, Xiaolin & Qiu, Yangyang & Chen, Jun & Hu, Xiangping, 2022. "Evaluating natural gas supply security in China: An exhaustible resource market equilibrium model," Resources Policy, Elsevier, vol. 76(C).

    More about this item

    Keywords

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    JEL classification:

    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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