Existence of equilibria in exhaustible resource markets with economies of scale and inventories

Antoine Bommier, Lucas Bretschger and François Le Grand
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Antoine Bommier: ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]
François Le Grand: ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich], EM - EMLyon Business School

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Abstract: The paper proves the existence of equilibrium in non-renewable resource markets when extraction costs are non-convex and resource storage is possible. Inventories flatten the consumption path and eliminate price jumps at the end of the extraction period, so that market equilibrium becomes possible. We distinguish between two types of solutions, one with immediate and one with delayed buildup of inventories. For both cases, we do not only characterize potential optimal paths but also show that equilibria actually exist under fairly general conditions. It is found that optimum resource extraction involves increasing quantities over a period of time. What is generally interpreted as an indicator of increasing resource abundance is thus perfectly compatible with constant resource stocks.

Keywords: Exhaustible resources; Non-convex extraction cost; Equilibrium existence; Resource storage (search for similar items in EconPapers)
Date: 2017-03-01
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Published in Economic Theory, 2017, 63 (3), 687-721 p. ⟨10.1007/s00199-016-0956-5⟩

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Related works:
Journal Article: Existence of equilibria in exhaustible resource markets with economies of scale and inventories (2017)
Working Paper: Existence of Equilibria in Exhaustible Resource Markets with Economies of Scale and Inventories (2014)
Working Paper: Existence of Equilibria in Exhaustible Resource Markets with Economies of Scale and Inventories (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02313368

DOI: 10.1007/s00199-016-0956-5

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