On natural resource substitution

We present a simple dynamic model to get some key insights about the substitution of renewable for nonrenewable resources in production and the consequences for sustainability. We highlight the role of the elasticity of substitution (technological component) to determine the adjustment of every sector as a response to scarcity and growing ability of resources (environmental component). Sometimes, the model predicts a smooth substitution of renewable resources for nonrenewables, but this process could work in the opposite direction if renewable resources are temporarily beyond their maximum sustainable yield, so that their marginal natural growth is negative. If substitution possibilities are high enough, it may be optimal to suspend the extraction of a resource, for example, to allow for regeneration of the biomass. We show analytically that a production process is more likely to be sustainable the more heavily it depends on renewable, rather than nonrenewable resources.Renewable resources, Nonrenewable resources, Production, Optimal control.

Proceedings of the Conference on Human and Economic Resources

The validity of the Hotelling’s rule, the fundamental theorem of nonrenewable resource economics, is limited by its partial equilibrium nature. One symptom of this limitation may be the disagreement between the empirical evidence, showing stable or declining resource prices, and the rule, predicting exponentially increasing prices. In this paper, we study the optimal depletion of a nonrenewable resource in a dynamic general equilibrium framework. We show that, in the long run, the price of a nonrenewable (i) is constant when the nonrenewable is essential in production, and (ii) increases only if the rate of return of capital is larger than the capital depreciation rate and the non-renewable is an inessential input in production. We believe that our model offers a theoretical explanation to non-growing nonrenewable prices and hence at least partially solves the paradox between the Hotelling’s rule and the empirical regularity. We also show that two factors play a crucial role in determining the long run behavior of nonrenewable prices, namely the elasticity of substitution between input factors, and the long run behavior of the real interest rate. Another major achievement of this study is the full analytical solution of the model under a Cobb-Douglas technology.

Economics of Natural Resource Scarcity: The State of the Debate

Whether economic growth can be sustained in a finite natural world is one of the earliest and most enduring questions in economic literature. Even with unprecedented growth in human population and resource consumption, humans have been quite adept at finding solutions to the problem of scarce natural resources, particularly in response to signals of increased scarcity. Because environmental resources generally are not generally traded on markets, however, scarcity signals for these resources may be inadequate, and appropriate policy responses are difficult to implement and manage. In the debate over the economic scarcity of natural resources, one significant change in recent years has been a greater focus on the ecosystem services and the resource amenities yielded by natural environments. The general conclusion of this paper is that technological progress has ameliorated the scarcity of natural resource commodities; but resource amenities have become more scarce, and it is unlikely that technology alone can remedy that.natural resource scarcity. environmental amenities. resource substitution.

The Hotelling's Rule Revisited in a Dynamic General Equilibrium Model

The validity of the Hotelling’s rule, the fundamental theorem of nonrenewable resource economics, is limited by its partial equilibrium nature. One symptom of this limitation may be the disagreement between the empirical evidence, showing stable or declining resource prices, and the rule, predicting exponentially increasing prices. In this paper, we study the optimal depletion of a nonrenewable resource in a dynamic general equilibrium framework. We show that in, the long run, the price of a nonrenewable (i) is constant when the nonrenewable is essential in production, and (ii) it increases only if the rate of return of capital is larger than the capital depreciation rate and if the non-renewable is an inessential input in production. We believe that our model offers a theoretical explanation to non-growing nonrenewable prices and hence at least partially solves the paradox between the Hotelling’s rule and the empirical regularities. We also show that two factors play a crucial role in determining the long run behavior of non-renewable prices, namely the elasticity of substitution between input factors, and the long run behavior of the real interest rate. Another major achievement of this study is the full analytical solution of the model under a Cobb-Douglas technology.Nonrenewable resources; One-sector growth model, Hotelling’s Rule, Sustainability

OPTIMAL SUBSTITUTION OF RENEWABLE AND NONRENEWABLE NATURAL RESOURCES IN PRODUCTION

A theoretical model is presented in order to study the optimal combination of natural resources, used as inputs, taking into account their natural growth ability and the technical possibilities of input substitution. The model enables us to consider renewable resources, nonrenewable, or both. The relative use of resources evolves through time according to the difference between both resources' natural growth and technological flexibility, as measured by the elasticity of substitution of the production function. Output evolves according to a version of the traditional Keynes-Ramsey rule, where the marginal productivity of capital is substituted by the ''marginal productivity of natural capital'', that is a combination of both resources' marginal growth weighted by each resource return in production.Renewable Resources, Nonrenewable Resources, Production, Optimal Control.

Democratic Exploitation of a Non-Replenishable Resource

In a recent article, Neher (1976) suggests an interesting democratic process for allocating a scarce, renewable natural resource among different generations. The procedure is characterized by a) continuous voting, b) one person--one vote, c) unsophisticated voting, and d) simple majority rule, and determines the length of the optimal exploitation plan in a society of overlapping generations. Allocations resulting from this plan are revealed to be unjust in the "Rawlsian" sense as the selfishness of living voters is reflected in current decisions. We adopt the same procedure to determine the allocation of a nonrenewable resource under democratic exploitation. With continuous democratic voting, plans are continuously revised and resources are forever being consumed at a rate which is a constant proportion of the total resource available. As before, democratic exploitation of the resource is unjust in the Rawlsian sense: succeeding generations are given smaller allocations of the resource