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The peak of oil extraction and consistency of the government's short- and long-run policies

  • Bazhanov, Andrei

The term "oil peak" usually is connected with the positive analysis problem, namely, with the problem of defining the year when the increase in the rate of oil extraction will be physically impossible. However, a normative approach to the problem of optimal extraction of a nonrenewable resource seems more important. We consider the economy which depends on the essential nonrenewable resource and the rate of the resource extraction increases over time. At some instant the government gradually switches to a sustainable (in sense of nondecreasing consumption over time) pattern of the resource extraction. Different approaches are offered for the construction of the paths of switching to decreasing resource use. Some seemingly attractive short-run policies of switching to decreasing extraction can run counter to long-run criteria. Reformulation of the short-run criterion can imply the optimal transition path consistent with the long-run government goals. It is shown analytically and numerically that there are values of parameters for the transition paths of extraction that consumption along these paths is asymptotically constant or infinitely growing. Numerical examples show for different reserve estimates that the "sustainable" peak of oil extraction must be earlier than the expected "physical" peak. A new approach to the Rawlsian maximin criterion which allows for growth of consumption is offered.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2507.

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Date of creation: 20 Mar 2007
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Handle: RePEc:pra:mprapa:2507
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  1. Fuss, Melvyn A., 1977. "The demand for energy in Canadian manufacturing : An example of the estimation of production structures with many inputs," Journal of Econometrics, Elsevier, vol. 5(1), pages 89-116, January.
  2. Geir B. Asheim & Wolfgang Buchholz & John M. Hartwick & Tapan Mitra & Cees A. Withagen, 2005. "Constant Savings Rates and Quasi-Arithmetic Population Growth under Exhaustible Resource Constraints," CESifo Working Paper Series 1573, CESifo Group Munich.
  3. Kenneth Arrow & Partha Dasgupta & Lawrence Goulder & Gretchen Daily & Paul Ehrlich & Geoffrey Heal & Simon Levin & Karl-Göran Mäler & Stephen Schneider & David Starrett & Brian Walker, 2004. "Are We Consuming Too Much?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 147-172, Summer.
  4. R. M. Solow, 1973. "Intergenerational Equity and Exhaustable Resources," Working papers 103, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-57, December.
  6. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-74, December.
  7. Poterba, James M, 1988. "Are Consumers Forward Looking? Evidence from Fiscal Experiments," American Economic Review, American Economic Association, vol. 78(2), pages 413-18, May.
  8. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-79, May.
  9. Bazhanov, Andrei, 2006. "Decreasing of Oil Extraction: Consumption behavior along transition paths," MPRA Paper 469, University Library of Munich, Germany.
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