Monopoly, 346.—Competition, 347.—Comparison of the monopolistic and competitive paths, 349.—The socially optimal path, 351.—Final remarks, 351.

Consider a closed economy with several deposits of an exhaustible resource, with the marginal cost of extraction differing from deposit to deposit but constant for each deposit. It is widely believed that social optimality requires that deposits be exploited in strict sequence, beginning with the lowest cost deposit. It is shown that, in a general equilibrium context, with Ricardian techniques of extraction, the validity of the proposition depends on what is meant by constancy of cost. It is also believed that if there exists a high-cost substitute for the resource then the resource should be exhausted before production of the substitute is begun. It is shown that this proposition is false.

John S. Flemming, Stephen J. Turnovsky, Murray C. Kemp; On the Choice of Numeraire and Certainty Price in General Equilibrium Models of Price Uncertainty,