Selected Case Studies from the Americas
Edited by Mohammed H.I. Dore and Rubén Guevara
Chapter 4: The carbon cycle and the value of forests as a carbon sink: a boreal case study
Mohammed Dore and Mark Johnston INTRODUCTION In the theory of renewable and non-renewable natural resources, what is the appropriate concept of scarcity rent? How is this rent likely to change over time? A review of literature on this subject shows that a number of economists have divergent views. Brown and Field (1978) and Fisher (1979) argue that measures of scarcity suffer from serious conceptual shortcomings. If attention is conﬁned to exhaustible resources, even here, what constitutes scarcity rent (or ‘user cost’ or ‘royalty rate’) and how it changes over time remains controversial. In the standard Hotelling model, it is argued that the scarcity rent rises monotonically over time at the social rate of discount. In contrast, both Heal (1976) and Hanson (1980), using very different cost functions, show that the scarcity rent must decline monotonically to zero, as the resource approaches exhaustion. On the other hand, Solow and Wan (1976) analyse conditions under which resource extraction costs rise with the depletion of higher-grade deposits and extraction turns to lower and lower-grade ores. They argue that along the optimal path the shadow price of a resource rises at the real rate of interest, but that the difference between price and marginal extraction cost, which they call ‘degradation cost’, declines monotonically over time to zero. The divergence of views is replicated in the empirical studies too. For instance, Barnett and Morse (1963), Barnett (1979) and Johnson et al. (1980) all ﬁnd that unit extraction costs in real terms have declined, so...
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