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Set-up costs and the theory of exhaustible resources

  • Physical and Human Resources
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Papers of the Regional Science Association

Abstract

Let there be several identical deposits of an exhaustible, non-renewable resource, the working of each deposit entailing a set-up cost but no other costs. It is found that the optimal path of extraction dictates that the deposits must be removed in strict sequence with discontinuities of marginal benefit at transition points. Moreover, the average rate of increase of marginal benefit is less than the rate of interest. These results embellish Hotelling's rule relating to optimal methods of resource extraction.

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Authors and Affiliations

  1. Department of Economics, Queen's University, Kingston, Ontario, Canada

    John M. Hartwick

  2. Department of Economics, University of New South Wales, Kensington, N.S.W., Australia

    Murray C. Kemp

  3. Department of Economics, Australian National University, Canberra, A.C.T., Australia

    Ngo van Long

Authors
  1. John M. Hartwick
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  2. Murray C. Kemp
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  3. Ngo van Long
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Hartwick, J.M., Kemp, M.C. & Long, N.v. Set-up costs and the theory of exhaustible resources. Papers of the Regional Science Association 56, 99–111 (1985). https://doi.org/10.1007/BF01887906

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  • DOI: https://doi.org/10.1007/BF01887906

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