Nonconvexity, efficiency and equilibrium in exhaustible resource depletion

We reconsider the problem of inefficiency and nonexistence of a competitive equilibrium in exhaustible resource markets where extraction costs are nonconvex. The existence of a backstop technology (which induces a flat portion of the industry demand curve) restores both existence and efficiency, provided that the backstop price is sufficiently low. If firms face even a small amount of uncertainty regarding their rivals' stocks, a backstop technology is sufficient to restore existence of competitive equilibrium, even if the backstop price is very high. In this case, however, the competitive equilibrium is not efficient.


Issue Date:
1991
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/6118
Total Pages:
16
JEL Codes:
721
Series Statement:
CUDARE Working Paper
574, Rev




 Record created 2017-04-01, last modified 2017-08-23

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)