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The Supply of Non-Renewable Resources

Author

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  • Julien Xavier Daubanes

    (Department of Food and Resource Economics, University of Copenhagen)

  • Pierre Lasserre

    (Département des Sciences Économiques at Université du Québec À Montréal)

Abstract

There exists no formal treatment of non-renewable resource (NRR) supply, systematically deriving quantity as function of price. We establish instantaneous restricted (fixed reserves) and unrestricted NRR supply functions. The supply of a NRR at any date and location not only depends on the local contemporary price of the resource but also on prices at all other dates and locations. Besides the usual law of supply, which characterizes the own-price effect, cross-price effects have their own law. They can be decomposed into a substitution effect and a stock compensation effect. We show that the substitution effect always dominates: A price increase at some point in space and time causes NRR supply to decrease at all other points. This new but orthodox supply setting extends to NRRs the partial equilibrium analysis of demand and supply policies. Thereby, it provides a generalization of many results about policy-induced changes on NRR markets. The properties of restricted and unrestricted supply functions are characterized for Hotelling (homogeneous) as well as Ricardian (non homogeneous) reserves, for a single deposit as well as for several deposits that endogenously come into production or cease to be active.

Suggested Citation

  • Julien Xavier Daubanes & Pierre Lasserre, 2017. "The Supply of Non-Renewable Resources," IFRO Working Paper 2017/03, University of Copenhagen, Department of Food and Resource Economics.
    • Handle: RePEc:foi:wpaper:2017_03
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    More about this item

    Keywords

    Allocating reserves; Supply theory; Substitution effect; Stock compensation effect; Green paradox; Spatial leakage;
    All these keywords.

    JEL classification:

    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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