The economics of exhaustible resources : a theoretical contribution

Abstract

This is a theoretical study of some of the basic problems associated with the intertemporal conservation and use of exhaustible resources. The emphasis throughout the thesis is on issues of social welfare — in particular we are concerned to find out how an economy should manage its resources in order to maximize the stream of returns which it receives from exploiting them over some time period. To this end a number of optimal control models are applied to the following questions: (i) When will a community find it optimal to use up all of a scarce depletable asset? (ii) For what duration of time should exploitation of such an asset continue? (iii) What is the optimal intertemporal pattern of exploitation of the resource? (iv) How are the decisions implicit (i) - (iii) affected by the community's set of preferences and the physical constraints to which the economy is subject? (v) How is the optimal use pattern of the resource affected by: (a) the length of the economy's planning; (b) the size of the initial stock of the resource; (c) the economy's choice of discount rate? (vi) What structural changes in the economy are required as the resource is depleted? (vii) How and when should the economy respond to the prospect of exhaustion of a key resource? When will the economy find it optimal to develop substitutes? (viii) What are the implications for a two-sector economy's specialization patterns over time when one of its two commodities is produced using an exhaustible resource? Show more