Depletion Of Exhaustible Resources Research Articles

A Political Economy of China's Export Restrictions on Rare Earth Elements

We investigate why governments restrict exports of exotic raw materials taking rare earth elements as a case study. Trade restrictions on exotic materials do not have immediate macroeconomic effects. Relocating rare earth intensive industries is found to be the main reason behind China's export barriers. They are part of a more extensive strategy aiming at creating comparative advantages in these sectors and at overcoming path dependencies. Moreover, export barriers serve as a second-best instrument to reduce pollution and to slow down the depletion of exhaustible resources. Growing domestic rare earth consumption renders those increasingly ineffective. Rising reliance on mine-site regulation indicates that this fact is taken into account. Rare earth extraction is dominated by a few large companies; the demand side is dispersed. That speaks against successful lobbying for export restrictions. It appears as if the export barriers are set up to compensate mining firms.

The Optimal Depletion of Exhaustible Resource under Different Commitment

There are few papers in the literature focusing on the issue of the optimal depletion of exhaustible resources in the framework of variable time preference. This paper attempts to analyze the pure consumption of exhaustible resource under hy- perbolic time preference, and to discuss the optimal depletion rate and the effect of the protection of the exhaustible resource under different commitment abilities. The results of model show that the case of the hyperbolic discount with the full commitment of the govemment is equivalent to the case of constant discount of the social planner problem. In that case, the optimal depletion rate and the initial consumption of exhaustible resource are the slowest. On the contrary, they are the highest and the myopic behaviors lead to excessive consumption of exhaustible resources inevitably without commitment. Otherwise, in the case of partial commit- ment, the results are between the cases of full commitment and of no commitment. Therefore, with the hyperbolic time preference, the optimal depletion rate of resource depends on the commitment ability. Higher commitment ability leads to lower effective rate of time preference, and consequently, lower depletion rate and lower initial depletion value. The improvement of commitment ability can decrease the impatience and myopia behaviors, and contribute to the protection of the exhaustible resources.

The optimal depletion of exhaustible resources: A complete characterization

Abstract We provide the closed form solution to the Dasgupta–Heal–Solow–Stiglitz (DHSS) model. The DHSS model is based on the seminal articles Dasgupta and Heal (1974); Solow (1974) and Stiglitz (1974) and describes an economy with two assets, man-made capital and a nonrenewable resource stock. We explicitly characterize, for such an economy, the dynamics along the optimal trajectory of all the variables in the model and from all possible initial values of the stocks. We use the analytical solution to prove several properties of the optimal consumption path. In particular, we show that the initial consumption under a utilitarian criterion starts below the maximin rate of consumption if and only the resource is abundant enough and that under a utilitarian criterion, it is not necessarily the present generation that benefits most from a windfall of resources.

Energy transition towards economic and environmental sustainability: feasible paths and policy implications

This paper focuses on growth feasibility in an era of increasing scarcity of fossil fuels. A stylised dynamic model illustrates the implications of investing in smooth technological progress in the field of renewable energy. Positive rates of GDP growth sustained by fossil fuels entail, on the one hand, more income available for R&D in renewable energy sources, and on the other, an acceleration of the exhaustible resource depletion time. Our model explores such a trade-off and highlights the danger of high growth rates. Policies should target low growth rates, stimulate investment in alternative energy sources and discourage consumption growth.

A Handbook of Primary Commodities in the Global Economy

List of figures List of tables Acknowledgements Introduction 1. The historical framework 2. The geography of commodity production and trade 3. Comparative advantage and the trade policy distortions 4. Price formation and price trends in primary commodities 5. The commodity exchanges, commodity investments and speculation 6. The economics of exhaustible resource depletion 7. Fears of and measures to assure supply security 8. Producer cartels in international commodity markets 9. Public ownership in primary commodity production 10. The monoeconomies. Issues raised by heavy dependence on commodity production and exports References Index.

Depletion of natural resources, technological uncertainty, and the adoption of technological substitutes

Given an existing but unadopted backstop technology, this paper investigates the impact of uncertainty in the discovery date of superior backstop technologies on the rate of exhaustible resource depletion and adoption timing. Contrary to studies with a single backstop technology, the elevated rate of resource price increase due to uncertainty persists beyond discovery of a backstop technology. The option value of waiting can justify putting off, possibly indefinitely, what would otherwise be a sound investment in current backstop technology. In other circumstances the resource is depleted more rapidly and adoption occurs sooner than if future discoveries were not anticipated.

An introduction to the economics of natural gas

This paper is an up–to–date, but only moderately technical survey of the natural gas market. Supply, demand and pricing are discussed, and, in the light of the electricity deregulation experiment in California, where the expression “dangerous failure” has been repeatedly used to describe the extensive losses suffered by final consumers and utilities (or retailers), a modicum of attention is paid to the prospects for deregulating natural gas. Some microeconomics of the natural gas market is presented at a more elementary level than in my energy economics textbook (2000) or my book “The Political Economy of Natural Gas” (1987), and I make a studied attempt to avoid bringing the misleading Hotelling model (of exhaustible resource depletion) into the exposition. Finally, some comments on risk management with futures contracts are provided, and there is a brief mathematical appendix on futures, options and two–part pricing.

Ecosystem Valuation under Uncertainty and Irreversibility

The valuation of ecosystems has attracted much interest from economists (for example, Freeman 1993; Bingham and others 1995; Norton 1995; Suter 1995; Faber and others 1996; Acutt and Mason 1998). Clearly, ecosystems are valuable: they directly or indirectly support human life. Yet, while human activities historically have led to economic development, they also have created environmental problems and threatened the health of ecosystems. These negative impacts include species extinction, exhaustible resource depletion, global warming, ozone layer destruction, acid rain, water and air pollution, soil erosion, and deforestation. Ecosystem functions are quite complex and often poorly understood. Although progress has been made in understanding ecosystem dynamics, great uncertainties concerning their long-term evolution remain. This uncertainty makes it difficult to decide the best way to manage ecosystems. Lack of consensus on environmental decisions among citizens (for example, conservationists vs business firms) and scientific disciplines (for example, ecologists vs economists), as well as experts, is common. Imprecise knowledge about ecosystems contributes to this situation because different individuals often have different information about the state of the environment. Without common information, it is difficult for different parties to agree on particular environmental decisions. This disagreement creates significant challenges for environmental management. In this article, I focus on the effects of uncertainty and irreversibility, and their role in natural resource valuation. I examine the interactions between uncertainty and ecosystem dynamics and discuss their implications for environmental management.

Exhaustible Resource Depletion: A Modified Graphical Approach

A graphical analysis of the exhaustible resource depletion problem, in which Hotelling's “r per cent rule” applies, is presented as a new approach that operates in a N-period context.

Nonconvexity, efficiency and equilibrium in exhaustible resource depletion

We consider the problem of efficiency and existence of a competitive equilibrium in exhaustible resource markets where extraction costs are nonconvex. Nonconvexity is shown to imply that (1) (efficient) extraction ceases to the left of the minimum efficient scale, i.e., where average costs exceed marginal costs; and (2) a competitive equilibrium does not exist. Introduction of a backstop technology (which induces a flat portion of the industry demand curve) restores both existence and efficiency, provided that the backstop price is sufficiently low. If firms face even a small amount of uncertainty regarding their rivals' stocks, a backstop technology is sufficient to restore existence of competitive equilibrium, even if the backstop price is very high. In this case, however, the competitive equilibrium is not efficient.

Accounting for non-renewable natural resources in Louisiana's gross state product

Current national-income measures are inadequate indicators of sustainable development for natural resource-based economies because they exclude depletion of exhaustible resources. They are two primary methods of including natural resource depletion in national income measures: the depreciation and user cost approach. The depreciation approach values the resource and then subtracts physical depletionmultiplied by this value from the gross domestic product of extractive industries. The user cost approach divides the net receipts of extractive industries into income and user cost components depending on a chosen real interest rate and the expected lifetime of the resource. This study uses both the depreciation and user cost approaches to construct adjusted state production measures for Louisiana (U.S.A.) which include net depletion of oil and gas. Over the 1963–1986 period, the average annual state product was 3.3% lower using the depreciation approach and 13.8% and 8.7% lower using the user cost approaches with 5% and 10% interest rates, respectively.

Effects of resource assessments on optimal depletion estimates

Optimal depletion of exhaustible resources has become part of resource economics textbooks. In this paper the author explores the possible policy relevance of some simple abstract models. It is shown that optimal depletion of an exhaustible resource of constant cost and a hyperbolic demand curve is compatible with Marchetti's logistic substitution model. Optimal depletion trajectories for an exhaustible resource which has a linear demand curve, for which cost increases linearly with cumulated use, are described by the analogue of a damped oscillator. Combining this model with resource supply curves as derived from the crustal abundance geostatistical model provides a tool to relate the resource economic notions of maximizing social welfare, price elasticity of demand and resource base estimates for a given set of planning parameters.

On the Depletion of Exhaustible Resources in the Presence of Revised Estimates

The aim of this paper is to describe intertemporal optimal policies for a (competitive and monopolist) producer of an exhaustible resource. An important source of uncertainty is considered—that which relates to the actual size of the in-ground resource, because of revisions in estimates. Market uncertainty is also taken into account. Conditions for the expected evolution of the royalty price are given, generalizing results in the literature. Closed form solutions are also given for a particular case, showing clearly the impact of uncertainty on the optimal strategies.

The Effect of the Discount Rate on Depletion of Exhaustible Resources

This paper argues that, despite its widespread acceptance in the literature, the basic proposition that a reduction (an increase) in the discount rate leads to greater conservation (faster depletion) of an exhaustible resource is not generally valid. It shows that the effect of the discount rate on the rate of resource depletion depends on capital requirements for production of the substitute and extraction of the resource and on the size of the resource stock. In fact, it shows that there always exist at least two ranges of the resource stock size for which the effect is opposite to that conventionally believed.

A Note on "The Optimal Depletion of Exhaustible Resources"

Consequently, the possibility of an inflection point in the optimal resource utilization time profile (Figure 4, page 18) arises only if q 1), or even if it is unbounded but q7 > a, Rt > 0 for all t '0 and the Rt profile cannot display an inflection point; under these assumptions, it is rendered similar, qualitatively, to the optimal resource consumption profile obtained in the simple cake-eating context (Proposition 3, Figure 1, page 7).

‘Doomsday’ reconsidered

It is shown that most exhaustible resource depletion models are ‘diaster-proof’ in that survival is never an issue — consumption can be arbitrarily close to zero. Consequently, the possibility of substitute technologies becoming available allows for a less conservative optimal depletion policy. It is shown that introduction of a subsistence level for consumption substantially alters these results. The possibility of new technologies may dictate more conservative optimal policies. Furthermore, competitive markets cannot be expected to automatically produce optimal policies.

Some Results on the Optimal Depletion of Exhaustible Resources Under Negative Discounting

Some Results on the Optimal Depletion of Exhaustible Resources Under Negative Discounting

On Optimal Depletion of Exhaustible Resources: Existence and Characterization Results

IN RECENT YEARS, there has developed a significant literature on the economics of natural resources. A part of this literature is concerned with finding the characteristics of optimal programs for economies with exhaustible resource constraints; that is, of jointly determining the optimal depletion of such resources, and optimal investment in augmentable capital goods. It should be noted that the theory of optimal economic growth, in the form given it by Ramsey [17], and extensively developed by many others, had been primarily concerned with the latter problem. Natural resources were often assumed to be supplied exogenously in given amounts in each period, an approach clearly unsuitable for capturing the essence of problems associated with the optimal use of exhaustible resources. The more recent literature derives its inspiration from Hotelling's classic paper [8], stressing the increasing significance of such resources in production, as they are irrevocably run down. I shall consider, in this paper, a model of intertemporal allocation in which there is a produced good (which can be used for consumption or for further production), and an exhaustible resource (which is essential for production), the total initial stock of which is given. The use of the resource over the (infinite) planning horizon must not exceed this available stock. A planner is assumed to evaluate consumption in each period, in terms of a utility function, and to "maximize" the undiscounted sum of these one-period utilities, to obtain, simultaneously, the optimal depletion of the exhaustible resource, and the optimal investment 2 pattern. This model resembles, in some aspect or other, the frameworks examined by Dasgupta [3], Dasgupta and Heal [4, 5], Solow [18], and Stiglitz [19], to mention only a few. I will address three sets of issues in this framework. First, an interesting problem in the theory of optimal economic growth is to find suitable conditions under which a competitive program is optimal. I will show that a feasible program is optimal if and only if (a) it is competitive,3 and (b) it satisfies the transversality condition, that the value of the capital and resource stocks, at the competitive prices, converges to zero (Theorem 3.1). It follows from this result, that a competitive program is optimal if and only if it satisfies the above-mentioned transversality condition. It should be noted that in traditional models of optimal growth (in which exhaustible resources do not appear as essential factors of production), a feasible program, under certain technological curvature conditions, is shown to be optimal if and only if it is competitive, and the value of input

On a Two-Sector Model of Economic Growth with Exhaustible Natural Resources

Recent contributions to the theory of economic growth with exhaustible natural resources are concerned mainly with deriving the optimal rate of depletion of a resource stock and with the problem of how to attain an equitable balance between present and future generations. Other theories are interested in whether a competitive market achieves efficient depletion of the exhaustible resources. These conclude that, to ensure efficiency of a competitive economy under conditions of perfect capital markets, it is required that individuals have perfect foresight, or there exist futures markets extending into an infinite future. The basic framework of these works is the one-sector model. The purpose of this paper is to extend the analysis to a two-sector model and to examine the effects of the depletion of exhaustible resources on the relative prices and the relative growth of each sector. An economy is considered in which consumption and investment goods are produced by separate production functions and using exhaustible natural resources in different intensities. The dynamic behavior of relative prices and the growth pattern of the economy are analyzed under assumptions of a constant-savings ratio, perfect capital markets, and perfect foresight. It is shown that the growth rates of the two sectorsmore » and the dynamic paths of the relative prices depend crucially on the initial stocks of capital and exhaustible resources, as well as the relative factor intensities of the two sectors. 11 references.« less

Optimal Exhaustible Resource Depletion with Endogenous Technical Change

Journal Article Optimal Exhaustible Resource Depletion with Endogenous Technical Change Get access Morton I. Kamien, Morton I. Kamien Northwestern University Search for other works by this author on: Oxford Academic Google Scholar Nancy L. Schwartz Nancy L. Schwartz Northwestern University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 45, Issue 1, February 1978, Pages 179–196, https://doi.org/10.2307/2297093 Published: 01 February 1978