Technology Adoption in Nonrenewable Resource Management

Abstract

Nonrenewable resource scarcity has been a traditional concern when designing optimal growth models. Technological change has played an important role in those models, since its presence is assumed to mitigate the depletion effect on extraction paths over time. We formalize the general problem of a competitive nonrenewable resource extracting firm to analyze optimal extraction behavior and technology adoption when adoption is costly, both in a deterministic and a stochastic environment, when the firm either anticipates adoption or not. Based on a quadratic extraction cost function, our results do not support the traditional view according to which the firm will only incur in an adoption cost when the stock is depleted enough.nonrenewable resources; technology adoption; depletion effect; cost of adoption.