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.

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

Nonrenewable Resource Scarcity

Nonrenewable resource theory often is summarized by Hotelling's rule. This paper reviews theoretical extensions and empirical investigations of resource extraction models. Observed data are often inconsistent with the Hotelling rule, suggesting that other characteristics of nonrenewable resource supply, including exploration, heterogeneous ore quality, technological progress, and capital investment, are important determinants of the dynamic behavior of resource prices. Given the persistent recurrence of concern about nonrenewable resource scarcity, measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed. Finally, the implications of nonrenewable resource scarcity for economic growth are examined.

The Cut-Off Grade and the Theory of Extraction.

The cutoff grade problem arises when technological infeasibility or high cost prevents an extractive firm from exploiting a heterogeneous deposit in strict sequence. The optimal cutoff grade varies directly with anticipated changes in present value price. A stochastic price path induces a higher (lower) initial cutoff grade if the marginal profit function is concave (convex). The optimal response to an unanticipated price change depends on the difference between the rates of change in price along the new and original price paths and whether or not the firm can increase extractive capacity, including the life of the mine.

Fundamental Economics of Depletable Energy Supply

In this paper, we first present and discuss the basic logic underlying all neoclassical economic theories of "optimal" energy supply: maximization of the present value of some stream of economic returns. We then discuss how the economic theory of optimal resource depletion has evolved since Hotelling's classic 1931 article. We also consider the power of the theory to support improved empirical understanding of actual behavior. Our discussion of empirical literature indicates that this work has so far provided only limited empirical understanding