On the Existence and Optimality of Competitive Equilibria in Nonrenewable Resource Industries

Anthony C. Fisher and Larry Karp

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: If average costs in a nonrenewable resource industry are U-shaped, a competitive equilibrium may not be optimal and, indeed, may not exist. Although the differential equation that describes the change in the rate of extraction is the same for planner and firm, the boundary conditions obtained from the transversality conditions for the respective problems (for planner and firm) will not, in general, be the same. If costs are convex, or if there exists a backstop technology which can produce the resource services at sufficiently low cost, the boundary conditions are, however, the same.

Keywords: nonrenewable resources; competitive equilibrium; welfare optimum; transversality conditions (search for similar items in EconPapers)
Date: 1989-12-01
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Working Paper: On the existence and optimality of competitive equilibria in nonrenewable resource industries (1989)
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