Nonconvexity, Efficiency and Equilibrium in Exhaustible Resource Depletion

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: Abstract: We reconsider the problem of inefficiency and nonexistence of a competitive equilibrium in exhaustible resource markets where extraction costs are nonconvex. The existence 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.

Keywords: exhaustible resource; nonconvex costs; existence of competitive equilibrium (search for similar items in EconPapers)
Date: 1991-11-01
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Related works:
Journal Article: Nonconvexity, efficiency and equilibrium in exhaustible resource depletion (1993)
Working Paper: Nonconvexity, efficiency and equilibrium in exhaustible resource depletion (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:agrebk:qt9hr4w60m

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