The Relationship between Price and Marginal Extraction Cost for a Resource with a Backstop Technology: Comment

Richard A. Clark

Bell Journal of Economics, 1978, vol. 9, issue 1, 292-293

Abstract: This comment questions the generality of the assertion in a recent article by Heal that the difference between price and marginal extraction cost (net price) of a resource with a backstop technology is a monotonically decreasing function of time. It is shown that although this difference is decreasing in an interval just prior to the switchover to the backstop technology, net price may start near zero and increase if the effect of cumulative extraction on marginal cost is sufficiently small in the early periods.

Date: 1978
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