WHEN SHOULD WE STOP EXTRACTING NONRENEWABLE RESOURCES?
This article analyzes an economy where both nonrenewable resources and a costly energy resource are essential inputs in production. The extraction of the nonrenewable resources leads to emissions that increase the probability of a catastrophe. We find that, in contrast to the constant-probability case, the endogenous probability of a catastrophe implies that some nonrenewable resources might optimally be left in the ground. The larger the effect of the fossil energy use on the probability of a catastrophe, the fewer nonrenewable resources should be extracted and the earlier should be the switch to the renewable substitute. The richer a country, the earlier it should shift to the energy substitute. In the trade-off between higher consumption and a higher probability of catastrophe, even small probability changes are likely to be more important for the planner than higher consumption.
Year of publication: |
2011
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Authors: | Schumacher, Ingmar |
Published in: |
Macroeconomic Dynamics. - Cambridge University Press. - Vol. 15.2011, 04, p. 495-512
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Publisher: |
Cambridge University Press |
Description of contents: | Abstract [journals.cambridge.org] |
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