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Economic Theory

, Volume 63, Issue 3, pp 687–721 | Cite as

Existence of equilibria in exhaustible resource markets with economies of scale and inventories

  • Antoine Bommier
  • Lucas BretschgerEmail author
  • François Le Grand
Research Article

Abstract

The paper proves the existence of equilibrium in non-renewable resource markets when extraction costs are non-convex and resource storage is possible. Inventories flatten the consumption path and eliminate price jumps at the end of the extraction period, so that market equilibrium becomes possible. We distinguish between two types of solutions, one with immediate and one with delayed buildup of inventories. For both cases, we do not only characterize potential optimal paths but also show that equilibria actually exist under fairly general conditions. It is found that optimum resource extraction involves increasing quantities over a period of time. What is generally interpreted as an indicator of increasing resource abundance is thus perfectly compatible with constant resource stocks.

Keywords

Exhaustible resources Non-convex extraction cost Equilibrium existence Resource storage 

JEL Classification

Q30 C62 D92 D41 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  • Antoine Bommier
    • 1
  • Lucas Bretschger
    • 2
    Email author
  • François Le Grand
    • 1
    • 3
  1. 1.Chair of Integrative Risk Management and EconomicsETH ZürichZurichSwitzerland
  2. 2.Chair of Economics/Resource EconomicsETH ZürichZurichSwitzerland
  3. 3.EMLyon Business SchoolÉcullyFrance

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