Lobbying over exhaustible-resource extraction

Abstract

In a dynamic model of natural-resource extraction, we characterize the extraction path that is chosen by a government which is lobbied by natural-resource suppliers. The lobby group pays the government in exchange for a favorable policy. We show how the development of payments relates to the development of a conflict of interest between profit maximization and welfare maximization. The agreed extraction reflects the resource owners preference for supply restrictions that keep up the price and the government’s preference for avoiding flow-pollution damages. Due to stock-pollution damages, the government prefers a lower level of total extraction than the lobby group. Resource extraction decreases monotonically. Lobby payments do not necessarily do so, but they decrease in the long run.