Extraction Costs in the Theory of Exhaustible Resources

Robert Solow and Frederic Y. Wan

Bell Journal of Economics, 1976, vol. 7, issue 2, 359-370

Abstract: This paper has two objectives. First, it reformulates the theory of optimal use of an exhaustible resource with more attention to the costs of extraction than has been customary in the literature. The output and shadow-price implications of optimal extraction are studied under these broader assumptions. Second, the paper provides some numerical solutions of a simple two-grade case, to give some feeling for the quantitative importance of changes in the supply of exhaustible resources. Our most striking result is, in fact, the suggestion that relatively large changes in resource availability generate very small changes in the sustainable level of final consumption.

Date: 1976
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