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Energy and Physical Capital: A Case of Non-classical Dynamics

Author

Listed:
  • Burcu Afyonoğlu Fazlıoğlu

    (TOBB-ETU University)

  • Agustín Pérez-Barahona

    (Université de Cergy-Pontoise and Ecole Polytechnique)

  • Çağrı Sağlam

    (Bilkent University)

Abstract

We study the importance of considering different energy requirements for physical capital and final good production in an overlapping generations (OLG) resource economy. In contrast to the standard OLG framework, but consistently with the empirical evidence, we assume that the accumulation of physical capital requires more energy than the production of consumption goods. Focusing on exhaustible energy resources, we find that OLG equilibria can exhibit “non-classical dynamics”: the economy generates complex dynamics where, differing from the response predicted by the standard approach, resource prices may not increase monotonically. This result illustrates that the technological assumptions behind the energy inputs should be taken with caution, in particular on dynamic analyses involving exhaustible energy resources.

Suggested Citation

  • Burcu Afyonoğlu Fazlıoğlu & Agustín Pérez-Barahona & Çağrı Sağlam, 2019. "Energy and Physical Capital: A Case of Non-classical Dynamics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(4), pages 1003-1022, April.
    • Handle: RePEc:kap:enreec:v:72:y:2019:i:4:d:10.1007_s10640-018-0236-x
    DOI: 10.1007/s10640-018-0236-x
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    More about this item

    Keywords

    Exhaustible energy resources; Economic dynamics; Overlapping generations;
    All these keywords.

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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