Chapter 19: Optimal resource extraction
Matthias Ruth THE ECONOMICS OF RESOURCE USE Economics has traditionally concerned itself with ‘the best use of scarce means for given ends’ (Robbins 1932). Typically, the ‘ends’ are considered to be achieved when consumers realize maximum possible satisfaction – ‘maximum utility’ – from the consumption of goods and services. The economy helps realize maximum utility in a three-step procedure. First, resources are extracted and transformed into goods and services. Second, producers supply goods and services to consumers for ﬁnal use. Finally, wastes from production and consumption are recycled in, or removed from, the economic system. Typically, market mechanisms are assumed to reconcile the independent decisions of producers and consumers, and to result in a ﬁnal coherent state of balance between demand for goods and services and supply. This state of balance for an economy is known as a general economic equilibrium (Walras 1954 , 1969). Given the knowledge about consumers’ preferences, resource endowments, technologies and market forms, economists can compute the prices and quantities of goods and services that are consistent with economic equilibrium. The equilibrium state can then be used as a reference against which to compare the impacts of alternative actions, such as government interventions in markets, on prices and quantities of goods and services, and the subsequent welfare eﬀects for the economy (Arrow and Hahn 1971). Instead of dealing with the simultaneous choice of all producers and consumers in an economy, this chapter concentrates on economic models dealing with the optimal extraction of natural resources. The models are,...
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