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Energy and Physical Capital: A Case of Non-classical Dynamics

  • Burcu Afyonoğlu Fazlıoğlu
  • Agustín Pérez-Barahona
  • Çağrı Sağlam
Article
  • 34 Downloads

Abstract

We study the importance of considering different energy requirements for physical capital and final good production in an overlapping generations (OLG) resource economy. In contrast to the standard OLG framework, but consistently with the empirical evidence, we assume that the accumulation of physical capital requires more energy than the production of consumption goods. Focusing on exhaustible energy resources, we find that OLG equilibria can exhibit “non-classical dynamics”: the economy generates complex dynamics where, differing from the response predicted by the standard approach, resource prices may not increase monotonically. This result illustrates that the technological assumptions behind the energy inputs should be taken with caution, in particular on dynamic analyses involving exhaustible energy resources.

Keywords

Exhaustible energy resources Economic dynamics Overlapping generations 

JEL Classification

Q31 Q43 O44 

Notes

Acknowledgements

We are thankful to Eric Strobl, Cuong Le Van and Ingmar Schumacher for their comments. The Associate Editor of this Journal and three anonymous referees provided suggestions that helped to make substantial improvements to the paper. Agustín Pérez-Barahona acknowledges financial support from the Chaire Développement Durable (Ecole Polytechnique – EDF) and the Labex MME-DII.

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Copyright information

© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  • Burcu Afyonoğlu Fazlıoğlu
    • 1
  • Agustín Pérez-Barahona
    • 2
  • Çağrı Sağlam
    • 3
  1. 1.TOBB-ETU UniversityAnkaraTurkey
  2. 2.THEMAUniversité de Cergy-Pontoise and Ecole PolytechniqueCergy-Pontoise CedexFrance
  3. 3.Bilkent UniversityAnkaraTurkey

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