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American Economic Review Vol. 98 No. 3 2008

Ordering the Extraction of Polluting Nonrenewable Resources

Ujjayant Chakravorty1; Michel Moreaux2; Mabel Tidball3

1 Department of Marketing, Business Economics and Law, and Department of Economics, University of Alberta, Edmonton, Alberta, Canada T6G 2R6. · 2 IDEI and LERNA, University of Toulouse I (Sciences Sociales), 21 allée de Brienne, 31000 Toulouse, France. · 3 INRA-LAMETA, 2 Place Viala 34060–Montpellier cedex 1, France.

Abstract

A well-known theorem by Herfindahl states that the low-cost nonrenewable resource must be exploited first. Consider resources that are differentiated only by their pollution content. For instance, both coal and natural gas are used to generate electricity, yet coal is more polluting. We show that the ordering of extraction need not be driven by whether a resource is clean or dirty. Coal may be used first, followed by natural gas, and again by coal. Such “vacillation” does not occur under cost heterogeneity. A perverse policy implication is that regulating pollution may accelerate use of the polluting resource.

DOI
10.1257/aer.98.3.1128
Volume
98
Issue
3
Pages
1128-1144
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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