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Optimal Substitution Of Renewable And Nonrenewable Natural Resources In Production

  • Emilio Cerdá

    (Universidad Complutense de Madrid)

  • Francisco J. André

    (Universidad de Alicante)

A theoretical model is presented in order to study the optimal combination of natural resources, used as inputs, taking into account their natural growth ability and the technical possibilities of input substitution. The model enables us to consider renewable resources, nonrenewable, or both. The relative use of resources evolves through time according to the difference between both resources' natural growth and technological flexibility, as measured by the elasticity of substitution of the production function. Output evolves according to a version of the traditional Keynes-Ramsey rule, where the marginal productivity of capital is substituted by the ''marginal productivity of natural capital'', that is a combination of both resources' marginal growth weighted by each resource return in production.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2001-14.pdf
File Function: Fisrt version / Primera version, 2001
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2001-14.

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Length: 25 pages
Date of creation: May 2001
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2001-14
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  1. John M. Hartwick, 1978. "Investing Returns from Depleting Renewable Resource Stocks and Intergenerational Equity," Working Papers 294, Queen's University, Department of Economics.
  2. Weitzman, Martin L., 1976. "The optimal development of resource pools," Journal of Economic Theory, Elsevier, vol. 12(3), pages 351-364, June.
  3. John Hartwick & Murray Kemp & Ngo van Long, 1980. "Set-up Costs and Theory of Exhaustible Resources," Working Papers 412, Queen's University, Department of Economics.
  4. Swallow, Stephen K., 1990. "Depletion of the environmental basis for renewable resources: The economics of interdependent renewable and nonrenewable resources," Journal of Environmental Economics and Management, Elsevier, vol. 19(3), pages 281-296, November.
  5. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-61, September.
  6. Olli Tahvonen, 1991. "On the dynamics of renewable resource harvesting and pollution control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(1), pages 97-117, March.
  7. Weinstein, Milton C & Zeckhauser, Richard J, 1975. "The Optimal Consumption of Depletable Natural Resources," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 371-92, August.
  8. Heal, G., 1990. "The Optimal Use Of Exhaustible Resources," Papers fb-_90-10, Columbia - Graduate School of Business.
  9. Devarajan, Shantayanan & Fisher, Anthony C, 1981. "Hotelling's "Economics of Exhaustible Resources": Fifty Years Later," Journal of Economic Literature, American Economic Association, vol. 19(1), pages 65-73, March.
  10. Hartwick, John M., 1990. "Natural resources, national accounting and economic depreciation," Journal of Public Economics, Elsevier, vol. 43(3), pages 291-304, December.
  11. Pindyck, Robert S., 1980. "The optimal production of an exhaustible resource when price is exogenous and stochastic," Working papers 1162-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  12. Pindyck, Robert S, 1980. "Uncertainty and Exhaustible Resource Markets," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1203-25, December.
  13. Tahvonen Olli & Kuuluvainen Jari, 1993. "Economic Growth, Pollution, and Renewable Resources," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 101-118, March.
  14. Hartwick, John M, 1978. "Substitution among Exhaustible Resources and Intergenerational Equity," Review of Economic Studies, Wiley Blackwell, vol. 45(2), pages 347-54, June.
  15. Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-61, October.
  16. Stiglitz, Joseph E. & Dasgupta, Partha, 1982. "Market structure and resource depletion: A contribution to the theory of intertemporal monopolistic competition," Journal of Economic Theory, Elsevier, vol. 28(1), pages 128-164, October.
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