Discount Rate Choice and Efficiency in Exhaustible Resource Allocation

John Rowse

Canadian Journal of Economics, 1990, vol. 23, issue 4, 772-90

Abstract: Employing a simple continuous-time model, J. Rowse (1990) finds small percentage social welfare losses when using the wrong discount rate to allocate an exhaustible resource. This study finds the same result using a discrete-time model incorporating several important complexities, including rising unit supply costs and demand functions that distinguish among short-term, medium-term, and long-term price responses. Certain non-efficiency performance measures are found to vary much more in percentage terms than social welfare as the improper rate diverages from the social rate. It is argued that these results are general and their implications are briefly discussed.

Date: 1990
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