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Intertemporal consistency issues in depletable resources

In: Handbook of Natural Resource and Energy Economics

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  • Karp, Larry
  • Newbery, David M.

Abstract

The current price of a depletable resource depends on future demands and supplies, which affect how rapidly the resource is exhausted. Plans for future levels of demand and supply can therefore affect the current price. If agents have market power and can commit to future plans, then such plans may be dynamically inconsistent, in that given an opportunity to revise those plans at some later date, they wish to deviate from the initial announcement. We survey cases in which such plans are dynamically inconsistent and discuss solution concepts such as Markov perfect equilibria, time consistent equilibria and feedback forms of open-loop equilibria. Different issues arise depending whether market power is on the supply side, or on the demand side.
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Suggested Citation

  • Karp, Larry & Newbery, David M., 1993. "Intertemporal consistency issues in depletable resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 19, pages 881-931, Elsevier.
    • Handle: RePEc:eee:natchp:3-19
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    JEL classification:

    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General

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