Existence of Equilibria in Exhaustible Resource Markets with Economies of Scale and Inventories

Antoine Bommier, Lucas Bretschger and François Le Grand ()
Additional contact information
François Le Grand: EMLyon Business School, http://www.em-lyon.com/

No 14/203, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: The paper proves the existence of equilibrium in nonrenewable resource markets when extraction costs are non-convex and resource storage is possible. Inventories flatten the consumption path and eliminate price jumps at the end of the extraction period. Market equilibrium becomes then possible, contradicting previous claims from Eswaran, Lewis and Heaps (1983). We distinguish between two types of solutions, one with immediate and one with delayed build-up of inventories. For both cases we do not only characterize potential optimal paths but also show that equilibria actually exist under fairly general conditions. It is found that optimum resource extraction involves increasing quantities over a period of time. What is generally interpreted as an indicator of increasing resource abundance is thus perfectly compatible with constant resource stocks.

Keywords: Exhaustible resources; nonconvex extraction cost; equilibrium existence; resource storage. (search for similar items in EconPapers)
JEL-codes: C62 D41 D92 Q30 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2014-08
New Economics Papers: this item is included in nep-env
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Existence of equilibria in exhaustible resource markets with economies of scale and inventories (2017)
Working Paper: Existence of equilibria in exhaustible resource markets with economies of scale and inventories (2017)
Working Paper: Existence of Equilibria in Exhaustible Resource Markets with Economies of Scale and Inventories (2014)
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