Technological Advances in Recovery Methods and Efficient Allocation of a Nonrenewable Resource
Most economists would likely agree that technological progress is central to the efficient use of a nonrenewable resource over the long term. Yet advances in petroluem recovery technologies since the mid-1970s suggest that technological progress may also be important over a time span as short as two decades. This paper examines the consequences of underestimating technological advances in recovering natural gas for the Canadian province of British Columbia using a computational model maximizing conventionally-defined social welfare. Mistakes in allocating gas over time due to understimating yield relatively small welfare losses, a result that likely generalizes to other resources.
KeywordsCost Function Technological Change Technological Progress Consumer Surplus Domestic Demand
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