Nonconvexity, efficiency and equilibrium in exhaustible resource depletion

Anthony Fisher and Larry Karp

Environmental & Resource Economics, 1993, vol. 3, issue 1, 97-106

Abstract: 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. Copyright Kluwer Academic Publishers 1993

Keywords: Exhaustible resource; nonconvex costs; existence of competitive equilibrium (search for similar items in EconPapers)
Date: 1993
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10.1007/BF00338322 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Nonconvexity, efficiency and equilibrium in exhaustible resource depletion (1991)
Working Paper: Nonconvexity, Efficiency and Equilibrium in Exhaustible Resource Depletion (1991)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:enreec:v:3:y:1993:i:1:p:97-106

Ordering information: This journal article can be ordered from
http://www.springer. ... al/journal/10640/PS2

DOI: 10.1007/BF00338322

Access Statistics for this article

Environmental & Resource Economics is currently edited by Ian J. Bateman

More articles in Environmental & Resource Economics from Springer, European Association of Environmental and Resource Economists Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().