Competitive Scarcity with Technical Change
In contrast to the previous chapters on optimal resource extraction, let us more explicitly model changes in extraction technology. In this chapter we model technical change that is endogenous to the system; that is, dependent on state variables of the system. Much of the technical change that takes place is a gradual improvement in production technologies that can be modeled as learning by doing: Increases in cumulative extraction will lead to increased experience in the mining operation. This increase in experience, in turn, translates into efficiency improvements and, thus, reductions in the average cost of the mineral extracted. Of course, these improvements cannot go on forever. If any of the inputs in the extractive operation is costly and essential, an assumption that is very likely to hold, then some minimum expenditures in the production process must be made that cannot be overcome by technical change. The laws of thermodynamics, for example, tell us that all real-world processes require a minimum of energy inputs.1 Furthermore, technical change itself may require materials or energy from those reserves whose scarcity it is supposed to alleviate.
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- 1a.For dynamic models of optimal resource use with thermodynamic constraints, see Ruth, M. Integrating Economics, Ecology and Thermodynamics (Dordrecht, the Netherlands: Kluwer Academic Publishers, 1993);Google Scholar