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Discount Rate Choice and Efficiency in Exhaustible Resource Allocation

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  • John Rowse

Abstract

Employing a simple continuous-time model, J. Rowse (1990) finds small percentage social welfare losses when using the wrong discount rate to allocate an exhaustible resource. This study finds the same result using a discrete-time model incorporating several important complexities, including rising unit supply costs and demand functions that distinguish among short-term, medium-term, and long-term price responses. Certain non-efficiency performance measures are found to vary much more in percentage terms than social welfare as the improper rate diverages from the social rate. It is argued that these results are general and their implications are briefly discussed.

Suggested Citation

  • John Rowse, 1990. "Discount Rate Choice and Efficiency in Exhaustible Resource Allocation," Canadian Journal of Economics, Canadian Economics Association, vol. 23(4), pages 772-790, November.
    • Handle: RePEc:cje:issued:v:23:y:1990:i:4:p:772-90
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    Cited by:

    1. John Rowse, 1991. "Discount Rate Selection and Efficiency in Allocating a Nonrenewable Resource," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 127(II), pages 245-265, June.
    2. Rowse, John, 1997. "On ad valorem taxation of nonrenewable resource production," Resource and Energy Economics, Elsevier, vol. 19(3), pages 221-239, August.

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