Abstract
A theoretical model is developed of the extraction patterns of a non-renewable resource in order to examine the effects of various market forces caused by intertemporal allocations of known reserves. The extent of the original reserve limits the total quantity of the resource that can be extracted over time. The model is conducted with all parties cognizant of the quantities they control, the related costs of extraction, future price trends, and future government actions. A purely competitive market is found to support optimal allocations, while percentage depletion allowances are found to encourage over-extraction. The direction of bias as a result of price controls requires further data. Monopolies can lead to current under-use or over-use, which will determine future availability. Over-use can also result from insecure imported sources unless appropriate tariffs are imposed. A market imperfection function concept is used to derive these results. 16 references. (DCK)
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