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Set‐Up Costs And The Theory Of Exhaustible Resources

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  • John M. Hartwick
  • Murray C. Kemp
  • Ngo Van Long

Abstract

ABSTRACT Let there be several identical deposits of an exhaustible, non‐renewable resource, the working of each deposit entailing a set‐up cost but no other costs. It is found that the optimal path of extraction dictates that the deposits must be removed in strict sequence with discontinuities of marginal benefit at transition points. Moreover, the average rate of increase of marginal benefit is less than the rate of interest. These results embellish Hotelling's rule relating to optimal methods of resource extraction.

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  • John M. Hartwick & Murray C. Kemp & Ngo Van Long, 1985. "Set‐Up Costs And The Theory Of Exhaustible Resources," Papers in Regional Science, Wiley Blackwell, vol. 56(1), pages 99-111, January.
    • Handle: RePEc:bla:presci:v:56:y:1985:i:1:p:99-111
    DOI: 10.1111/j.1435-5597.1985.tb00841.x
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