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Energy and Physical Capital: A Case of Non-classical Dynamics

Burcu Afyonoğlu Fazlıoğlu, Agustín Pérez-Barahona () and Çağrı Sağlam ()
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Burcu Afyonoğlu Fazlıoğlu: TOBB-ETU University
Agustín Pérez-Barahona: Université de Cergy-Pontoise and Ecole Polytechnique

Environmental & Resource Economics, 2019, vol. 72, issue 4, No 5, 1003-1022

Abstract: Abstract We study the importance of considering different energy requirements for physical capital and final good production in an overlapping generations (OLG) resource economy. In contrast to the standard OLG framework, but consistently with the empirical evidence, we assume that the accumulation of physical capital requires more energy than the production of consumption goods. Focusing on exhaustible energy resources, we find that OLG equilibria can exhibit “non-classical dynamics”: the economy generates complex dynamics where, differing from the response predicted by the standard approach, resource prices may not increase monotonically. This result illustrates that the technological assumptions behind the energy inputs should be taken with caution, in particular on dynamic analyses involving exhaustible energy resources.

Keywords: Exhaustible energy resources; Economic dynamics; Overlapping generations (search for similar items in EconPapers)
JEL-codes: Q31 Q43 O44 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10640-018-0236-x

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