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From Hotelling to Backstop Technology

Amnon Levy

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: Hotelling's conceptual framework is expanded to incorporate the effects of a backstop technology on the planning horizon of the suppliers of an exhaustible resource and its price and quantity trajectories. It is shown that in the non-trivial case, the presence of a backstop technology shortens the planning horizon of the suppliers of the exhaustible resource in accordance with the resource suppliers' rate of time preference, backstop technology's rate of irnprovement and ratio of the initial resource spot price to the initial average production cost of the backstop substitute. As expected the presence of a backstop technology also lowers the spot prices of the exhaustible resource and accelerates its extraction and depletion. However, a decline of the initial average cost of producing the backstop substitute by a dollar leads to a decline of the exhaustible resource's initial spot price by less than a dollar.

Keywords: TECHNOLOGY; PRICING; ECONOMIC MODELS (search for similar items in EconPapers)
JEL-codes: D40 O41 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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