Abstract
This paper represents an attempt to explore the intermediate ground between the two polar positions described above. In particular, we examine energy substitutability and technical change in a simple general equilibrium model which incorporates an energy related intermediate good (e.g., electricity) as well as capital, labor, and a single natural resource or energy input (e.g., oil or coal). Final demand consists of a portion of the intermediate energy commodity (electricity) and a composite commodity (manufactured goods).
Highlights
Just how well the United States can adjust to increasingly scarce fuels may, in a large part, determine the future health of the U.S economy
We find asymptotic properties of limited interest for the current energy dilemma
In Equation (42), y l(7k)1^ interpreted as the aggregate percentage direct and indirect savings on labor that would occur at unchanged output, technology, and resource scarcity values if the wage rate increased by one percent." As shown in Appendix A, y LXi y EE'
Summary
Just how well the United States can adjust to increasingly scarce fuels may, in a large part, determine the future health of the U.S economy. Solow (1974), Stiglitz (1974)and others have taken a polar opposite position based on studies of ag gregate growth models constrained by depletable resources They conclude:(i) that if substitution possibilities are "good enough," no problem exists for mankind's long run prospects and (ii) that even if natural resources are limit ing,as long as extraction occurs in a competitive economy,we will undergo an "optimal" resource depletion, even if that depletion terminates mankind's economic development. If the price of N rises with respect to K,reflecting energy scarcity,the output level can be main tained by moving along Ig to B reducing N to Ng and increasing K to Kg. as Stiglitz has shown, depending on the elasticity of substitution between N and K, it may be possible to continue to move along Iq over time "forever" substituting K for N holding output and consumption constant where in the limit K—>oo and N—^0 and total resource use, / (T) dT, is finite (where T denotes time). This allows us to im pose eonsiderably more structure on the economic analysis, but does limit the generality of the results
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