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- Title
Monopoly Production of Durable Exhaustible Resources.
- Authors
Malueg, David A.; Solow, John L.
- Abstract
We examine monopoly production of a durable exhaustible resource. Previous authors have implicitly assumed that the monopolist is able to make binding commitments about future decisions. We consider the more plausible case in which the monopolist lacks this ability and must choose from dynamically consistent plans. Two models are considered: a discrete-time model, in which there is a strictly finite initial stock of the resource, and a continuous-time model, in which costs are an increasing function of cumulative production. We find that, as a general result, monopoly leads to overconservation. The monopolist who cannot precommit produces the efficient quantity ultimately, but does so too slowly. By contrast, the monopolist who can precommit produces less than the efficient stock even in the limit. We also find that increased importance of exhaustibility hastens the extraction of the resource.
- Subjects
MONOPOLIES; NONRENEWABLE natural resources; PRODUCTION functions (Economic theory); ECONOMIC models; INDUSTRIAL costs
- Publication
Economica, 1990, Vol 57, Issue 225, p29
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2554079